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DRAFT 4/11/00
UNITED STATES SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 31, 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 0-21209
AHT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3893841
(State or other jurisdiction (IRS employer identification
of incorporation or organization) number)
555 White Plains Road 10591
Tarrytown, New York
(Address of principal executive offices) (Zip code)
Registrants' telephone number, including area code: (914) 524-4200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01
par value
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K:
The aggregate market value of the shares of Common Stock held by non-affiliates
of the registrant is $52,965,758, based on the closing price of the Common Stock
on March 24, 2000. As of March 24, 2000, there were 11,123,366 shares of Common
Stock outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the 1999 Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission
within 120 days after December 31, 1999, are incorporated by reference in Part
III hereof.
STATEMENTS MADE OR INCORPORATED INTO THIS ANNUAL REPORT INCLUDE A NUMBER OF
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934.
FORWARD-LOOKING STATEMENTS INCLUDE, WITHOUT LIMITATION, STATEMENTS CONTAINING
THE WORDS "ANTICIPATES," "BELIEVES," "EXPECTS," "INTENDS," "FUTURE" AND WORDS OF
SIMILAR IMPORT WHICH EXPRESS MANAGEMENT'S BELIEF, EXPECTATIONS OR INTENT
REGARDING THE COMPANY'S FUTURE PERFORMANCE. THE COMPANY'S ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE SET FORTH IN THE FORWARD-LOOKING STATEMENTS.
FORWARD-LOOKING STATEMENTS, INCLUDING STATEMENTS AS TO INDUSTRY TRENDS, FUTURE
ECONOMIC PERFORMANCE, ANTICIPATED PROFITABILITY, ANTICIPATED REVENUES AND
EXPENSES, AND PRODUCTS OR SERVICE LINE GROWTH MAY BE SIGNIFICANTLY IMPACTED BY
CERTAIN RISKS AND UNCERTAINTIES SET FORTH HEREIN, INCLUDING, BUT NOT LIMITED TO,
FAILURE OF THE CLINICAL E-COMMERCE INDUSTRY TO DEVELOP AT ANTICIPATED RATES,
FAILURE OF THE COMPANY'S CLINICAL INFORMATION TECHNOLOGY PRODUCTS AND SERVICES
TO GAIN SIGNIFICANT MARKET ACCEPTANCE, FAILURE TO MEET OPERATING OBJECTIVES OR
TO EXECUTE THE OPERATING PLAN, FAILURE TO MEET ITS OBLIGATIONS OR A FAILURE
TO CURE A DEFAULT UNDER THE CYBEAR AGREEMENTS, COMPETITION AND OTHER ECONOMIC
FACTORS. NO ASSURANCES CAN BE GIVEN AS TO THE OUTCOME OF ANY PENDING LAWSUITS
AGAINST THE COMPANY. SEE ALSO ITEM 1 "RISKS AFFECTING THE COMPANY'S BUSINESS."
PART I
ITEM 1. BUSINESS
Overview
AHT Corporation (the "Company") is a national provider of Internet-based
clinical e-commerce among physicians, other healthcare providers, and healthcare
organizations. The Company is focused on automating laboratory and prescription
transactions, the two most frequent clinical transactions initiated by
physicians today.
The Company's products principally focus on laboratory and prescription
connectivity and transaction processing, including, within the laboratory suite
of applications, Dr. Chart(R), Dr. Chart Web(TM), Compliance Monitor(TM),
CDR(TM), and CDX(TM), and its electronic prescription writing product, @Rx(TM).
The Company's products take an incremental approach to practice automation, with
the goal of enabling the physician and office staff adoption of technology. The
Company believes that its products are relatively easy to use and do not require
radical changes in the healthcare provider's workflow or the physician's
practice style generally.
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Dr. Chart(R) Laboratory Products
The Company's Dr. Chart(R) products link clinical laboratories to physicians,
enabling them to initiate laboratory orders on-line and to view those results
on-line in a real-time basis from their desktop PCs. Dr. Chart(R) is also
Web-enabled, making the clinical information available on a real-time basis to
any physician and clinician equipped with a standard office PC and a Web
browser. A large part of a clinical laboratory's day-to-day operation is
comprised of receiving and processing paper-based orders from providers and then
distributing paper-based reporting of the test results back to the provider.
These test results play a large role in the provider's decisions on current
treatment options. The more data-rich and timely a test result can be delivered,
the sooner and better-informed a medical decision can be made, thus increasing
the efficiency of the ordering and results communication process for both the
providers and the laboratory.
The Company's laboratory transaction management software suite serves to
effectively manage test data dictionaries, other laboratory interfaces, and
other sources of information, integrating disparate healthcare institutions and
providing connectivity to community-based providers within an integrated
delivery system. The Company's multi-system interfaces integrate provider
workflow by creating connectivity to practice management systems and laboratory
information systems.
Dr. Chart(R) utilizes a computer-to-computer interchange, incorporating a
routing and data translation solution that facilitates communication of
information among physicians, hospitals and other healthcare providers. Dr.
Chart(R) allows physicians, nurses and other clinicians to effectively manage
patient information from multiple sources, such as hospital laboratories and
other hospital ancillary systems, reference laboratories and practice management
systems.
Compliance Monitor Product
Compliance Monitor(TM) software assists clinical laboratories with Medicare and
Health Care Financing Administration (HCFA) compliance. One of the critical
success factors in addressing HCFA compliance issues for clinical laboratories
is information. Capturing and reporting the appropriate data that will be used
in case of external audits and monitoring is an integral part of laboratories'
compliance program. Compliance Monitor(TM) software assists clinical
laboratories in organizing information for Medicare Compliance and to comply
with HCFA regulations.
Rules, policies and business logic are built into the tables of Compliance
Monitor(TM). For example, laboratory orders are validated against The Local
Medicare Review Policy to determine reimbursement and exposure to penalties for
non-compliance. The system automatically checks against the tables and existing
rules and flags the user with an alert message if there is a potential
compliance violation. All alert messages and validation checks are kept in a
commercially secure audit log.
@Rx(TM) Prescription Product
@Rx(TM) launched in October 1999, is the nation's first comprehensive Internet
tool to manage all phases of the prescription writing process from the
physician's office, including screening for
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drug interactions and insurance medication preferences. The @Rx(TM) electronic
prescription management service enables physicians and other authorized
healthcare providers to manage the entire prescription writing process over the
Internet utilizing technology designed to maximize the security and
confidentiality of patient health information. @Rx(TM) is designed to be made
available to physicians and other healthcare providers through AHT's @Rx(TM)
website, www.at-rx.com, and through links in websites of healthcare
organizations that want to provide physicians with the ability to manage
prescriptions over the Internet.
@Rx(TM) automates the prescription writing process, from formulating the initial
prescription order to checking for the potential for drug interactions, to
checking for preferences for health insurance coverage, to printing, and, in
some cases, transmitting the prescription electronically to a designated
pharmacy. The Company's prescription transaction service has the potential in
some cases to replace both the paper prescription and the phone calls regarding
prescriptions with an efficient online transaction with the provider's clinical
management system, which potentially saves both time and labor from the ordering
process, as well as providing more accurate and informative orders. The
Company's information system interfaces integrate provider workflow by creating
connectivity to prescription benefit management information systems.
National Co-Marketing, Distribution and Development Transaction
On March 28, 2000, the Company and Cybear, Inc. ("Cybear") (NASDAQ: CYBA), a
leading national e-healthcare connectivity, applications, and portal provider,
announced that they are collaborating to provide both prescription and
laboratory transaction management. The agreements include a co-marketing and
distribution agreement for the Company's @Rx(TM) and Dr. Chart(R) products and
Cybear's Internet portal, dr.cybear.com. In a related agreement, AHT has granted
Cybear the exclusive right to migrate the @Rx(TM) prescription system to a
hand-held computer that will be marketed exclusively by the two companies.
This collaboration is designed to allow medical offices using the Cybear ISP to
exchange prescription and laboratory orders from a single Web site using a
secure Intranet connection. These applications, among other benefits, are
designed to screen prescriptions for formulary compliance and potential drug
interactions and laboratory orders for Medicare medical necessity compliance. In
addition, the Cybear portal will be designed to provide access to lab results
and medication histories and allow a provider to review this information
electronically from any Web-enabled computer.
The Company and Cybear expect that by migrating the electronic prescribing
capability to a hand-held system, physicians will be able to write prescriptions
at the point of prescribing on a Web-enabled portable computer device.
Physicians now write nearly all of the 2.8 billion annual prescriptions by hand.
Mobile access to this information could reduce errors and pharmacy inquiries for
prescription renewals and clarifications.
The Company was previously organized to offer comprehensive physician practice
and network management and consulting services to physician practices, physician
networks, hospitals, and other healthcare organizations. However, in order to
enable the Company to focus entirely on the growth of its Internet-based
clinical e-commerce business managing laboratory and prescription transactions,
on May 14, 1999, the Company sold its physician management services unit to
PractiCare, Inc., a wholly-owned subsidiary of Phoenix Home Life Mutual
Insurance Company, for approximately $3.1 million in cash plus the assumption of
certain payables and capital leases associated with the unit.
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The Company was incorporated in the State of Delaware on June 20, 1995 under the
name Majean, Inc. On August 24, 1995, the Company changed its name to Advanced
Health Corporation, subsequent to a merger pursuant to which a Delaware
corporation of the same name merged with and into the Company. On February 1,
1999 the Company filed a Registration of Trade Names in Delaware to do business
under the name of AHT Corporation. Stockholders approved the change to the
Company's corporate name to AHT Corporation at the June 1999 Annual Meeting of
Stockholders.
The Company's executive offices are located at 555 White Plains Road, Tarrytown,
New York, 10591, and its telephone number is (914) 524-4200. The Company's
Internet address is www.ahtech.com.
Clinical Information Systems
The Company has developed enabling technologies, including Internet-based
applications, for e-commerce and communications among physicians, other
healthcare providers and healthcare organizations. The Company's clinical
information systems consist of proprietary software, third-party hardware,
proprietary and third-party databases, and related support services. They are
designed to complement existing healthcare information systems and to function
with third-party applications. The clinical information systems connect to
physician users through desktop computers using standard communication methods.
Access to the Company's clinical information systems is delivered to physician
users and other healthcare professionals via both private networks and
intranets. The Company's clinical information systems are designed to allow
physicians to (i) access patient-specific clinical and payor information, (ii)
generate prescriptions and orders for laboratory tests, print patient education
material, and provide summaries of patient prescription and laboratory results
history, and (iii) access databases containing managed care, disease management,
health insurance, or diagnostic/treatment preferences.
The Company's products support HL-7 interfaces, incorporate TCP/IP and use
Microsoft NT protocols for real-time data transmission and run on the Microsoft
Windows operating system and standard hardware platforms. The Company employs
proprietary processes and standard commercial security measures to safeguard the
privacy of clinical data accessed or transmitted on both private and public
networks, including the Internet and the data communication paths within its
products, including user passwords, 40 to 128-bit key encryption technology, and
a Microsoft secure socket layer (SSL) encryption algorithm. The Company expects
to continue to employ industry standard security measures in the future.
The Company licenses its clinical information systems to third party healthcare
organizations, principally laboratories and prescription benefit management
companies. The Company continues to pursue strategic relationships with
healthcare providers as well as hospital information systems companies,
physician practice management systems companies, and on-line services companies
for the purpose of further developing and marketing its information systems.
The Company offers its clinical information systems for provider users, and for
laboratory and prescription clinical applications.
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Industry and Competition
The healthcare industry generates billions of clinical and financial
transactions each year, including, but not limited to, prescriptions, lab orders
and results, radiology orders and results, medical claims, eligibility
inquiries, encounters and referrals. While most direct healthcare spending takes
place outside of the doctor's office, physicians control an estimated 80% of the
medical dollar through their decisions. The growth of managed care has forced
participants to become more efficient and sophisticated, while also demanding
more information and increasing administrative requirements. Many of the
inefficiencies in healthcare result from poor information exchange among
participants, which include patients, providers, payors, and other trading
partners. For physicians to meet the clinical and financial demands of managed
care, the Company believes that moving patient-centered clinical and financial
data electronically all along the continuum of care will become a business
requirement. As an inexpensive, ubiquitous, and flexible technology, the
Internet and secure intranets can be used to facilitate timely and accurate flow
of information between the various participants in the healthcare system, within
the rules promulgated by HCFA, The Health Insurance Portability and
Accountability Act of 1996, and other various state statutes and regulations.
Clinical laboratories, pharmacy benefit managers, payors, and managed care
organizations are eager to enhance healthcare e-commerce, in order to reduce
administrative costs while not compromising quality of care. For example, a
physician who enters an electronic prescription could be warned about a
potential drug interaction. The appropriate change could be made before the
patient leaves the office, limiting the chance of misunderstanding and
eliminating the need for additional administrative work. Over time, the
patient's transactional data could be aggregated to create a basic electronic
medical record that the physician could access, saving time and reducing the
costs associated with lost records and neglected information. The Company
believes that the combination of the size of the healthcare market, the changes
currently affecting the healthcare market, and the relative lack of automation
in such market creates significant business opportunities for companies like
AHT.
The market for healthcare information systems and services is highly competitive
and rapidly changing. The Company believes that the principal competitive
factors for clinical information systems are the proprietary nature of
methodologies, databases, and technical resources; the usefulness of the data
and reports generated by the software; customer service and support;
compatibility with the customer's existing information systems; potential for
product enhancement; vendor reputation; price; and the effectiveness of
marketing and sales efforts. In addition, as the market for clinical information
systems develops, additional competitors may enter the market and competition
may intensify. The area of healthcare e-commerce transaction networks has been
targeted by many companies that have significantly greater financial, marketing,
and other resources than the Company. The Company is also aware that other
e-commerce transaction processing companies have targeted this industry as a
growth market, and that those companies could in the future utilize their
networks to process electronic healthcare e-commerce transactions.
The Company believes that its ability to compete successfully in the healthcare
e-commerce market will depend in part upon its ability to offer a variety of
integrated products and services and to implement sales and marketing strategies
that bring its products and services to the attention of its potential customer
base. The Company believes that the timely development of new clinical
information applications and the enhancement of existing clinical information
systems are important to its competitive position. The Company's product
development strategy is directed toward creating new applications that (i)
increase the functionality of current products
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by providing enhanced interfaces; and (ii) expand access to third-party systems
and data repositories. The Company currently has approximately 20 professionals
dedicated to systems development.
Risks Affecting the Company's Business
In March 2000, Cybear purchased from the Company for $4 million in cash a 10%
Senior Convertible Note due March 31, 2001 (the "Cybear Loan") secured by the
Company's assets, including its intellectual property, and which is convertible
at Cybear's option into shares of the Company's common stock at a conversion
price per share equal to the lower of $4.34 or 80% of the average market price
prior to the conversion date, provided that Cybear cannot acquire upon
conversion more than approximately 1.9 million of the Company's shares. In
addition, Cybear has received from the Company a five year warrant to purchase
up to 300,000 shares of the Company's common stock at an exercise price per
share of $4.34. In the event that the Company materially defaults under its
agreements with Cybear, then Cybear could take title to some or all of the
Company's assets.
The Company's future success depends in significant part upon the continued
service of its key technical and senior management personnel and its continuing
ability to attract and retain highly qualified technical and managerial
personnel. Competition for such personnel is intense and there can be no
assurance that the Company can retain its key managerial and technical employees
or that it can attract, assimilate or retain other highly qualified technical
and managerial personnel in the future. The Company depends on its technical and
implementation personnel. The Company's technical sales personnel typically
support sales. The Company's ability to expand sales and enter into new vertical
markets could be affected by a shortage of qualified technical sales support
personnel. The Company depends on its trained implementation personnel or those
of independent consultants to implement its software. A shortage in the number
of trained implementation personnel could limit the Company's ability to
implement its software on a timely and effective basis. Delayed or ineffective
implementation of our software may limit the Company's ability to expand its
revenues and may result in customer dissatisfaction and damage to the Company's
reputation. Any of these events could seriously impair the Company's business,
operating results and financial condition.
Software programs are, by their nature, complex and have the potential to
contain undetected errors or "bugs." Despite testing, bugs may be discovered
only after the Company's product has been installed and used by customers. The
Company has on occasion experienced delays in the scheduled introduction of new
and enhanced products because of bugs. Undetected errors could result in adverse
publicity, loss of revenues, litigation, liability, delay in market acceptance
or claims against us by customers, any of which could seriously damage our
business, operating results and financial condition.
The majority of the Company's e-commerce revenues come from its laboratory
reporting products. Therefore, a significant new entrant into the e-commerce
market or a significant expansion by an existing competitor could have an
adverse effect on the Company's business.
The market for the Company's products is characterized by frequent new product
introductions and enhancements, rapid technological advances, and rapid changes
in customer requirements and preferences. Accordingly, the Company's future
success will depend on its ability to enhance its existing products and to
develop and market new products on a timely basis that respond to evolving
customer requirements, achieve market acceptance and keep pace with
technological
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developments and obtain adequate financing and/or revenues to fund such
activities. There can be no assurance that the Company will be successful in
developing, introducing on a timely basis and marketing such products or
enhancements; that its software will not contain errors that would delay product
introduction, shipment or implementation; or that any such new products or
enhancements will be accepted by the market. Because the Company's products are
important to the successful operation of its customers' managed care
organizations, errors or delays in product development and enhancement may have
a material adverse effect on the continued market acceptance of the Company's
products and may expose the Company to claims from customers and third parties.
The Company faces competition from many healthcare information systems companies
and other technology companies, including Allscripts, Healtheon and Proxymed.
Many of its competitors are significantly larger and have greater financial
resources than the Company and have established reputations for success in
implementing healthcare information service systems. Many companies, including
companies developing new technologies utilizing an Internet-based system, have
targeted the healthcare e-commerce transaction industry for growth.
Strategy
The objective of the Company is to become a leading provider of Internet-based
clinical e-commerce among both providers and healthcare organizations. By
enabling providers and healthcare organizations to manage the collection,
integration, and distribution of clinical information from disparate sources
more effectively, the Company seeks to help providers and healthcare
organizations efficiently manage patient care more effectively, including
improve the overall delivery of care to patients, meet medical necessity
guidelines, analyze clinical utilization patterns, perform patient profiling,
and improve patient education.
The Company's competitive strengths include (i) leading position in technology
for the electronic management of laboratory orders and results; (ii)
well-recognized customer base of approximately 60 healthcare organizations,
including some of the largest reference laboratories and hospital systems in the
US, the largest prescription benefit manager in the US and two of the leading
on-line pharmacies in the US; and (iii) intellectual property that includes
system interfaces to connect the Company's product to existing "legacy"
information systems, and two patents for the electronic management of
prescriptions in the physician's office.
The Company has taken an incremental approach to practice automation. The
Company gains entry to the practice through its line of laboratory and
prescription management products. The Company believes its laboratory and
prescription management products provide high value, are easy to use, and
encourage the physician and his/her office staff to access the computer to
manage laboratory orders and results as well as write prescriptions. A position
on the physician's "desktop" is necessary to capture the physician's orders
electronically and is critical to being a leader in the e-commerce industry. The
Company plans to increase its application offerings into the executive desktop
used by the nurse assistants and incrementally increase automation of the
clinical workflow.
The Company's strategy is to:
- Use the Company's understanding of physician technology adoption for
key clinical transactions. Create additional distribution channels
to penetrate physician offices and further secure a position on the
physician's desktop.
- Gain additional strategic, industry-leading customers.
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- Provide high levels of service to a national physician and
healthcare organization customer base.
- Gain critical mass through organic growth and acquisitions.
Proprietary Rights
The Company is relying upon the effectiveness of protection provided by a
combination of patent, trade secret, and copyright laws, nondisclosure and other
contractual provisions, and technological measures to protect its proprietary
position in its methodologies, databases and software. The Company has two
issued U.S. patent applications by the United States Patent and Trademark
Office, and a foreign patent application having subject matter common with both
U.S. applications. The patents are directed to the Company's electronic
prescription management system and related technologies. No assurance can be
given that patent, trade secrets, copyright, or other intellectual property
rights can be successfully asserted in any court action. The Company also has
copyrights in its software, user documentation and databases. The copyright
protection accorded to databases, however, is fairly limited. While the
arrangement and selection of data are protectable, the actual data are not, and
others are free to create databases that perform the same function. The Company
distributes its clinical information systems products under agreements that
grant customers non-exclusive licenses and generally contain terms and
conditions restricting the disclosure and use of the Company's systems. In
addition, the Company attempts to protect the secrecy of its proprietary
databases and other trade secrets and proprietary information through
confidentiality agreements with employees, consultants and third parties.
The Company believes that, aside from the various legal protections of its
proprietary information and technologies, factors such as the technological and
creative skills of its personnel and product maintenance and support are
integral to establishing and maintaining its position within the healthcare
industry. Although the Company believes that its products do not infringe upon
the proprietary rights of third parties, there can be no assurance that third
parties will not assert infringement claims against the Company in the future.
In addition, under the Cybear Loan, the Company has pledged a security interest
in all of its intellectual property to Cybear.
Government Regulation
As a participant in the healthcare industry, the Company's operations and
relationships are subject to extensive and increasing regulation by a number of
governmental entities at the federal, state, and local levels. The Company
believes its operations are in material compliance with applicable laws.
Nevertheless, because of the nature of the Company's relationship with a wide
variety of healthcare providers and managed care organizations and the
uncertainty of new regulations, many aspects of the Company's business
operations have not been the subject of formal state or federal regulatory
interpretations, and there can be no assurance that a review by courts or
regulatory authorities of the Company's business or that of its affiliated
physician organizations will not result in a determination that could adversely
affect the operations of the Company.
Electronic Transmission of Prescriptions: A primary feature of the Company's
products and services is the ability to electronically transmit (either by
computer-to-facsimile or computer-to-computer) prescriptions from a doctor's
office to a pharmacy. The ability of a pharmacist to fill an electronically
transmitted prescription is governed by federal and state law. The United States
Drug Enforcement Agency ("DEA") regulates the issuance and content of
prescriptions for controlled substances. The United States Congress has approved
the dispensing of prescriptions transmitted via facsimile of original, signed
prescriptions for controlled substances other than for Schedule II drugs
(narcotics). Neither Congress nor the DEA has addressed publicly electronic
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transmission of computer-generated prescriptions for controlled substances. The
DEA is investigating the possibility of adopting a policy regarding electronic
transmission of prescription orders, such as that used by the electronic
prescription writing and management systems (the "Prescription Systems"), for
controlled substances. No assurance can be given that Congress or the DEA will
accept the method of transmitting prescriptions by electronic means for
controlled substances in the future.
The application of state rules to the use of the Prescription Systems varies.
Additionally, other state laws that may affect the Company's ability to sell its
products in certain states include certain state requirements that require
licensure as either a doctor or a pharmacy in order for a third party to send or
receive a prescription. A common carrier, such as a telephone company, is often
excluded from such requirements. The Company's ability to market in such states
would depend upon each state's willingness to deem the Company to be a common
carrier of such prescriptions, the assurance of which cannot be given.
Modification or further clarification of federal and state rules regarding use
of the Prescription Systems in a manner that reduces their utility may have a
material adverse effect on the Company.
FDA Regulation: Certain products, including software applications, intended for
use in the diagnosis of disease or other conditions, or in the cure, treatment,
mitigation, or prevention of disease, are subject to regulation by the Food and
Drug Administration ("FDA") as medical devices under the Federal Food, Drug and
Cosmetic Act of 1938, as amended (the "FDCA"). The FDCA imposes substantial
regulatory controls over the manufacturing, testing, labeling, sale,
distribution, marketing, and promotion of medical devices and other related
activities. These regulatory controls can include, for example, compliance with
the following: manufacturer establishment registration and device listing;
current good manufacturing practices; FDA clearance of a pre-market notification
submission or FDA approval of a pre-market approval application; medical device
adverse event reporting; and prohibitions on misbranding and adulteration.
Violations of the FDCA can result in severe criminal and civil penalties and
other sanctions, including, but not limited to, product seizure, recall, repair,
or refund orders, withdrawal or denial of pre-market notifications or pre-market
approval applications, denial, or suspension of government contracts, and
injunctions against unlawful product manufacture, labeling, promotion, and
distribution, or other activities. In its 1989 Draft Policy For the Regulation
of Computer Products ("Draft Policy"), the FDA stated their policy regarding the
regulation of software products, including its intent to exempt certain clinical
decision support software products from a number of regulatory controls. Under
the Draft Policy, the FDA stated that it intended to exempt certain decision
support software products that involve "competent human intervention before any
impact on human health occurs (e.g., where clinical judgment and experience can
be used to check and interpret a system output)" from the following controls:
manufacturer establishment registration and device listing, pre-market
notification, and compliance with the medical device reporting and current good
manufacturing practice regulations. In the Draft Policy, the FDA stated that
until it formally exempted decision support software products from these
requirements, manufacturers of eligible decision support software products would
be required to comply with those controls.
Since issuing the Draft Policy, the FDA has not issued a final policy on this
issue, not formally exempted any products as discussed in the Draft Policy, and
has regulated additional software products. The FDA has referred to the Draft
Policy in official presentations regarding software regulation and in decisions
and opinions regarding the regulatory status of various products. Over the last
several years, however, the FDA has stated that it intends to issue a new policy
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concerning computer products and has been increasing its efforts to develop this
policy in recent months. Under this new policy being considered, exemptions from
regulatory controls, if any, may be based upon a product specific "risk factor"
analysis. For purposes of this analysis, the FDA may consider, among other
things, the following: (i) seriousness of the disease to be diagnosed or
treated, (ii) the time frame for use of the information, (iii) whether the data
output is provided or manipulated in a novel or non-traditional manner, (iv)
whether the software provides individualized patient care recommendations, (v)
whether the mechanism by which the software arrives at a decision is hidden or
transparent and (vi) whether the product provides new capabilities for the user.
Given the FDA's intent to issue a new policy concerning the regulation of
computer software, which policy may or may not conform to FDA's current
reasoning, there can be no assurance as to the effect of such a policy, if any,
upon the regulatory status of the Company's products.
The Company's clinical information systems are intended to assist healthcare
providers in analyzing economic and quality data related to patient care and
expected outcomes in order to maximize the cost-effectiveness of general
treatment plans and practice protocols. These products are not intended to
generate the primary source of specific diagnostic data, result or affect the
use of specific therapeutic interventions for individual patients. As such, the
Company believes that its clinical information systems are not medical devices
under the FDCA, or, if medical devices not actively regulated by the FDA at this
time, and, thus, are not subject to many, if any, of the controls imposed on
manufacturers of medical devices. The Company further believes that to the
extent that its products might be determined to be medical devices, and not
otherwise exempt from regulation, they fall within the exemptions for decision
support systems provided by the Draft Policy. The Company has not taken action
to comply with the requirements that would otherwise apply if the Company's
products were determined to be non-exempt medical devices.
There can be no assurance that the FDA will not make a request or take other
action to require the Company to comply with any or all current or future
controls applicable to medical devices under the FDCA. There can be no assurance
that, if such a request were made or other action were taken, the Company could
comply in a timely manner, if at all, or that any failure to comply would not
have a material adverse effect on the Company's business, financial condition or
results of operations, or that the Company would not be subjected to significant
penalties or other sanctions. There can be no assurance that the FDA will
continue to permit any or all of the exemptions provided in the Draft Policy, or
in a new policy statement, if any, or that the FDA will promulgate regulations
formally implementing such exemptions. There can be no assurance that the
Company's current or future clinical information systems will qualify for future
exemptions, if any, nor can there be any assurance that any future requirements
will not have a material adverse effect on the Company's business, financial
condition, or results of operations.
Confidentiality of Medical Information: The confidentiality of patient records
and the circumstances under which such records may be released is subject to
substantial regulation under state and federal laws and regulations. These
federal and state laws and regulations govern both the disclosure and the use of
confidential patient medical record information. Although compliance with these
laws and regulations is at present principally the responsibility of the
hospital, physician, managed care organization, or other healthcare provider,
regulations governing patient confidentiality rights are evolving rapidly.
With respect to its electronic clinical information systems, the Company uses a
state-of-the-art security system, including user passwords, 40-128-bit key
encryption technology and a Microsoft Secure Socket Layer (SSL) encryption
algorithm, to safeguard the privacy of clinical data
11
<PAGE> 12
accessed or transmitted on both private and public networks, including the
Internet, and will continue to employ such security measures in the future. The
Company believes that its procedures currently comply with the laws and
regulations regarding the collection of patient data in substantially all
jurisdictions, but regulations governing patient confidentiality rights are
evolving rapidly and are often difficult to apply.
Each state has various laws protecting the confidentiality of patient medical
information, including laboratory and prescription information. Although it is
not uncommon for a third party to have access to such information, in most
states, such third party has an obligation to maintain the confidentiality of
such information and could be subject to liability if that obligation is
breached. Although, as discussed above, the Company has procedures to maintain
the confidentiality of the information it receives, there can be no assurance
that inadvertent disclosure of information will not occur to the detriment of
the Company's business.
Additional legislation governing the dissemination of medical record information
has been proposed at both the state and federal level. Furthermore, the Health
Insurance Portability and Accountability Act was enacted on August 21, 1996
("HIPPA") and required the Secretary of Health and Human Services to adopt
national standards for the transmission of certain types of patient medical
information and the data elements used in such transmissions, and to adopt
standards to ensure the integrity and confidentiality of such information.
In August 1998, Secretary Shalala proposed security and electronic signature
standards for the electronic transmission of medical information and on November
3, 1999, the Secretary promulgated proposed regulations designed to protect the
privacy of electronically transmitted or maintained, individually identifiable
health information, which privacy regulations are expected to become final at
the end of June 2000. We do not know if these regulations will be adopted in
their present form, a different form, or at all. However, if adopted, such
regulations could require the Company to expend substantial additional resources
to comply with the revised standards. Also, authorizations may be required
before identifiable patient information could be electronically transmitted to
third parties for any purpose other than treatment, payment or health care
operations, which include such activities as quality assessment, verification of
a healthcare providers credentials, insurance rating, peer review, fraud and
abuse compliance review and document production for use in civil or criminal
legal proceedings. These regulations also would require that we enter into
agreements with certain of our customers governing the dissemination of such
information and would require that holders or users of such information
implement specified security measures. We continue to monitor HIPAA activity and
prepared to incorporate any changes to our software products or our operations
that are necessary to ensure compliance.
Fraud and Abuse Statutes: Certain provisions of the Social Security Act,
commonly referred to as the "Anti-kickback Statute," prohibit the offer,
payment, solicitation, or receipt of any form of remuneration which is intended
to induce business for which payment may be made under a federal healthcare
program. A federal healthcare program is any plan or program that provides
health benefits, whether directly, through insurance or otherwise, which is
funded directly, in whole or in part, by the United States government (e.g.,
Medicare, Medicaid and CHAMPUS). Excluded from the definition of federal
healthcare program is the Federal Employee Health Benefits Program.
As a provider of connectivity products between pharmacies and managed care
companies or laboratories and providers, we and our customers are also subject
to the Anti-kickback Statute. The type of remuneration covered by the
Anti-kickback Statute is very broad. It includes not only kickbacks, bribes, and
rebates, but also proscribes any such remuneration, whether made
12
<PAGE> 13
directly or indirectly, overtly or covertly, in cash or in kind. In general, the
Anti-kickback Statute has been broadly interpreted by courts in many
jurisdictions. Read literally, the statute places at risk many business
arrangements potentially subjecting such arrangements to lengthy expensive
investigations and prosecutions initiated by federal and state government
officials. Many states, including some of those in which the Company does
business, have adopted similar prohibitions against payments intended to induce
referrals of Medicaid and other third-party payor patients. The Anti-kickback
Statute provides a number of exceptions or "safe harbors" for specific
transactions. We believe that our arrangements with our customers are in
material compliance with the Anti-kickback Statute and the various other similar
state laws. Nevertheless, because of the breadth of federal and state
anti-kickback statutes and the absence of court decisions interpreting their
application to arrangements such as those entered into by the Company, there can
be no assurance that the Company's activities will not be challenged by
regulatory authorities or that the Company's position will prevail if
challenged.
To the extent the Company is deemed to be a referral source under any
agreements, the Company could be subject to scrutiny and prosecution under the
Anti-kickback Statute. Violation of the Anti-kickback Statute is a felony,
punishable by criminal fines up to $25,000 per violation and imprisonment for up
to five years; a civil monetary penalty of $50,000; and/or civil damages of not
more than three times the amount of remuneration offered, paid, solicited or
received without regard to whether any portion of such remuneration was for a
lawful purpose. In addition, the U.S. Department of Health and Human Services
("HHS") may impose civil penalties excluding violators from participation in
Medicare or state health programs.
Healthcare Reform: As a result of the continued escalation of healthcare costs
and the inability of many individuals to obtain health insurance, numerous
proposals have been and continue to be introduced in the U.S. Congress and state
legislatures relating to healthcare reform, which may contain proposals to
increase government involvement in healthcare, lower reimbursement rates and
otherwise change the operating environment for the Company's customers. There
can be no assurance as to the ultimate content, timing, or effect of any
healthcare reform legislation, nor is it possible at this time to estimate the
impact of potential legislation, which may be material to the Company.
Employees
As of March 31, 2000, the Company had a total of approximately 55 employees. The
Company is not and never has been a party to a collective bargaining agreement.
The Company has never experienced a work stoppage and believes that its employee
relations are satisfactory.
ITEM 2. PROPERTIES
The Company currently leases 26,302 square feet of office space in Tarrytown,
New York, 17,552 square feet of which it occupies, and 8,750 square feet of
which it sublets. The Company is responsible for an annual rent of approximately
$550,000, which includes the sublet portion that generates approximately
$180,000 of rental income. Both the lease and the sublease expire March 2002.
The Company also leases 8,100 square feet in Hawthorne, New York, which expires
October 30, 2000, at an annual rent of approximately $120,000. The Advanced
Health Technologies subsidiary occupies 8,028 square feet of leased office space
in Fort Washington, Pennsylvania, which expires December 2002 and has an annual
rent of approximately $133,000, and 4,184 square feel of office space in
Chicago, Illinois which expires April, 2002, and has an annual rent of
approximately $90,000 annually.
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<PAGE> 14
ITEM 3. LEGAL PROCEEDINGS
From July 1 through August 17, 1998, eleven putative class actions were filed in
the United States District Court for the Southern District of New York, all of
which have been consolidated under the caption In re Advanced Health Corporation
Securities Litigation (the "Class Action"). The consolidated complaint, filed in
February 1999, alleged that the Company and its current or former officers or
directors, Jonathan Edelson, M.D., Steven Hochberg, Alan B. Masarek, Robert
Alger and Michael W. Rogers are liable for certain misrepresentations and
omissions regarding, among other matters, the Company's operations, performance,
and financial condition. The consolidated class action complaint sought, among
other remedies, certification as a class action and unspecified damages.
On January 27, 2000, the Company agreed to a settlement of the Class Action,
pursuant to which the Company has deposited $300,000 in escrow to cover the
costs of notice to the class, administration of the settlement and plaintiff
attorneys' expenses and will, upon final approval of the settlement, issue
886,437 shares of common stock to class members and class counsel (subject to
possible enhancement if the Company's stock price drops below a certain level or
if the Company authorizes and issues additional stock). The settlement is
subject to the District Court's approval. The Court has scheduled a hearing on
the settlement for April 18, 2000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
No matters were submitted to a vote of securityholders during the fourth quarter
of the fiscal year ended December 31, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock trades on the NASDAQ National Market under the symbol
"AHTC."
(a) Market Information
The following sets forth the high and low bid price for the period
commencing January 1, 1999 through December 31, 1999 as reported by NASDAQ.
Quotations reflect inter dealer prices without retail mark-up, mark-down, or
commission, and may not represent actual transactions.
<TABLE>
<CAPTION>
Common Stock High Low
<S> <C> <C>
January 1, 1999 through December 31, 1999 $ 6.250 $ 1.813
First Quarter ended March 31, 1999 4.500 1.813
Second Quarter ended June 30, 1999 6.250 2.750
Third Quarter ended September 30, 1999 4.438 2.750
Fourth Quarter ended December 31, 1999 5.500 2.688
</TABLE>
(b) Approximate Number of Equity Stockholders
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<PAGE> 15
Based upon information supplied from the Company's transfer agent, the
Company believes that the number of record holders of the Company's equity
securities as of March 25, 2000 is approximately 150. The Company believes that
the number of beneficial holders of the Company's Common Stock as of March 25,
1999 is in excess of 300.
(c) Dividends
The Company has not declared or paid any cash dividends on its capital
stock since inception and does not expect to pay cash dividends in the
foreseeable future. The Company presently intends to retain future earnings, if
any, to finance the expansion of its business. The payment of any cash dividends
in the future will depend on the Company's earnings, financial condition,
results of operations, capital needs and other factors deemed pertinent by the
Company's Board of Directors, subject to laws and regulations then in effect.
ITEM 6. SELECTED FINANCIAL DATA.
The selected consolidated statement of operations data for the three years ended
December 31, 1999, 1998 and 1997, and the consolidated balance sheet data as of
December 31, 1998 and 1999, are derived from the consolidated Financial
Statements of the Company included elsewhere in this Annual Report on Form 10-K,
which have been audited by Arthur Andersen LLP, independent public accountants.
The selected consolidated statement of operations for the years ending December
31, 1995 and 1996 and the consolidated balance sheet data as of December 31,
1995, 1996 and 1997, all of which are included on in this Annual Report on Form
10-K, and are derived from the consolidated financial statements of the Company,
which have been audited by Arthur Andersen LLP, independent public accountants.
The selected consolidated financial data set forth below is qualified by
reference to, and should be read in conjunction with, the Company's Consolidated
Financial Statements and the Notes, thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained elsewhere
in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
REVENUE $ 1,054 $ 2,657 $ 11,910 $ 3,530 $ 1,086
COST OF REVENUES 340 799 1,030 1,942 1,261
---------------------------------------------------
Gross profit/(loss) 714 1,858 10,880 1,588 (175)
OPERATING EXPENSES
RESTRUCTURING CHARGES 6,412 6,042 5,169 14,133 13,446
-- -- -- 7,645 --
---------------------------------------------------
Operating income/(loss) (5,698) (4,184) 5,711 (20,190) (13,621)
OTHER INCOME, Net (8) 15 1,144 2,073 793
GAIN ON SALE OF INVESTMENT -- -- -- -- 486
(LOSS) ON IMPAIRMENT OF INVESTMENTS -- -- -- -- (11,000)
-----------------------------------------------------
Net income/(loss) before taxes (5,706) (4,169) 6,855 (18,117) (23,342)
INCOME TAX (BENEFIT) PROVISION -- (1,668) 365 4,722 36
---------------------------------------------------
Net income/(loss) from continuing operations (5,706) (2,501) 6,490 (22,839) (23,378)
DISCONTINUED OPERATION:
Income/(loss) from discontinued operation, net of
income taxes -- 1,036 668 (29,280) 2,574
</TABLE>
15
<PAGE> 16
<TABLE>
<S> <C> <C> <C> <C> <C>
GAIN/(LOSS) ON DISPOSITION OF DISCONTINUED OPERATION (23,074)
---------------------------------------------------
Net income/(loss) $ (5,706) $ (1,465) $ 7,158 $(75,193) $(20,804)
===================================================
PER SHARE INFORMATION
Basic net loss per share:
Loss from continuing operation ($ 1.47) ($ 0.48) $ 0.82 ($ 2.27) ($ 2.19)
Gain from discontinued operation $ 0.00 $ 0.20 $ 0.09 ($ 2.90) $ 0.24
Loss from sale of discontinued operation $ 0.00 $ 0.00 $ 0.00 ($ 2.29) $ 0.00
---------------------------------------------------
Basic net loss per share ($ 1.47) ($ 0.28) $ 0.91 ($ 7.46) ($ 1.95)
===================================================
Diluted net loss per share:
Loss from continuing operation ($ 1.47) ($ 0.48) $ 0.73 ($ 2.27) ($ 2.19)
Gain from discontinued operation $ 0.00 $ 0.20 $ 0.08 ($ 2.90) $ .24
Loss from sale of discontinued operation $ 0.00 $ 0.00 $ 0.00 ($ 2.29) $ .00
---------------------------------------------------
Basic net loss per share ($ 1.47) ($ 0.28) $ 0.81 ($ 7.46) ($ 1.95)
===================================================
Common shares used in computing per share amounts:
Basic 3,893 5,149 7,872 10,085 10,675
Diluted 3,893 5,149 8,891 10,085 10,675
</TABLE>
<TABLE>
<CAPTION>
(In thousands) 1995 1996 1997 1998 1999
------ ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data
Cash and cash equivalents $1,464 $12,086 $ 7,534 $ 9,269 $ 2,528
Investments in marketable securities -- 7,390 34,082 6,972 --
Certificates of deposit -- -- 5,399 2,580 150
Working capital (deficit) 758 26,603 61,644 7,779 679
Total assets 2,888 35,400 94,358 44,634 13,890
Total debt 138 -- -- 809 --
Total Stockholders' equity 2,675 31,884 93,100 29,890 10,564
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
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<PAGE> 17
The following discussion of the results of operations and financial condition of
the Company should be read in conjunction with the Consolidated Financial
Statements and the notes thereto included elsewhere in this Annual Report on
Form 10-K.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's actual results could differ materially from its historical results
or from any forward-looking statements made or incorporated into this Annual
Report. Factors that may cause such differences include, but are not limited to,
failure of the clinical e-commerce industry to develop at anticipated rates,
failure of the Company's clinical information technology products and services
to gain significant market acceptance, failure to meet operating objectives or
to execute the operating plan, competition and other economic factors.
OVERVIEW
AHT Corporation (the "Company") is a national provider of Internet-based
clinical e-commerce among physicians, other healthcare providers, and healthcare
organizations. The Company is focused on automating laboratory and prescription
transactions, the two most frequent clinical transactions initiated by
physicians today. In October 1999, the Company launched its @Rx(TM) prescription
product which is the nation's first comprehensive internet tool to manage all
phases of the prescription writing process from the physician's office. The
Company generates revenues from fees for the use and support of its clinical
information systems, including transaction, license, software installation,
software integration, system support, training and data conversion fees.
The Company believes that its historical results of operations from period to
period are not comparable and that such results are not necessarily indicative
of results for any future periods because the Company has restructured its
continuing business operations, acquired new technology to develop and market
and has discontinued the development and marketing of certain products from its
product line and is marketing its products to different customers.
For the year ended December 31, 1999, the Company reported an operating loss of
$13.6 million and a net loss from continuing operations of $23.4 million that
includes a loss on impairment of minority investments in affiliates of $11.0
million, a gain on sale of investment in affiliate of $.5 million, and a net
gain from discontinued operations of $2.6 million for a total net loss of $20.8
million. Included in the net loss from continuing operations are non-recurring
expenses of $2.5 million which included the settlement cost of $1.5 million of
the action commenced against the Company by Bukstel & Halfpenny, Inc., legal
costs associated with this action and other costs associated with the
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<PAGE> 18
migration of operations from Chicago to the Philadelphia office. In addition,
and as included in the net loss from continuing operations, the Company changed
its goodwill amortization period from 20 to 3 years, thereby increasing the
comparable non-cash expense by approximately $.2 million. In May 1999, the
Company, sold its physician practice management division for approximately $3.1
million in cash plus the assumption of certain payables and capital leases
associated with this division. The Company will now be able to devote its full
resources to expanding its Internet-based laboratory and prescription
transaction management business. The restructuring action described below
contains forward-looking statements that may be significantly impacted by
certain risks and uncertainties, including failure to meet operating objectives
or to execute the operating plan and failure to successfully restructure the
Company's business.
In March 2000, Cybear purchased from the Company for $4 million in cash a 10%
Senior Convertible Note due March 31, 2001 (the "Cybear Loan") secured by the
Company's assets, including its intellectual property, and which is convertible
at Cybear's option into shares of the Company's common stock at a conversion
price per share equal to the lower of $4.34 or 80% of the average market price
prior to the conversion date, provided that Cybear cannot acquire upon
conversion more than approximately 1.9 million of the Company's shares. In
addition, Cybear has received from the Company a five year warrant to purchase
up to 300,000 shares of the Company's common stock at an exercise price per
share of $4.34. In the event that the Company materially defaults under its
agreements with Cybear, then Cybear could take title to some or all of the
Company's assets. The agreements include a co-marketing and distribution
agreement for the Company's Web-based @Rx(TM) electronic prescribing service and
Dr. Chart (R) clinical laboratory transaction management product and Cybear's
Internet portal, dr.cybear.com. In a related agreement, the Company granted
Cybear the exclusive right to migrate the @Rx(TM) prescription system to a hand
held computer that will be marketed exclusively by the Company and Cybear.
In 1998, the Company restructured its information technology unit to increase
its focus on product development and sales in areas such as electronic
laboratory and prescription management. The Company intends to limit product
development efforts that does not focus on electronic laboratory and
prescription management. Further, the Company has redirected its sales efforts
to increase sales for its product lines that offer laboratory and prescription
functionality and to develop distribution channels including Internet portals.
Sales efforts will be focused on strategic sales initiatives that emphasize
long-term, recurring revenue streams rather than large, one-time revenue events
so as to better position the Company to benefit from the electronic commerce
market. Currently, the Company has a contract backlog of approximately $1.3
million of revenue that it expects to recognize in 2000 and $.5 million of
deferred revenue that represents cash received from customers who are in the
process of installing the Company's proprietary software based on specific
milestones.
RESULTS FROM CONTINUING OPERATIONS
YEAR ENDED DECEMBER 31, 1999 AND 1998
Total revenue from continuing operations for the year ended December 31, 1999
decreased to $1.1 million from $3.5 million in the comparable period ended
December 31, 1998, primarily as a result of a change in the Company's strategy
to market and support only its core product offerings of laboratory and
prescription software rather than seeking large, one-time software sales or
licensing from other system offerings. The Company earned these fees for the use
and support of its clinical information systems, including the recognition of
non-recurring license revenues, system support, implementation, programming and
training revenues.
Cost of revenues for the year ended December 31, 1999 decreased to $1.3 million
from $1.9 million for the comparable period ended December 31, 1998. Cost of
revenues includes direct costs associated with core product installation efforts
incurred and amortization expense related to previously capitalized software
development costs. The decrease in cost of revenues related primarily to the
1998 re-structuring action. Cost of revenues for the year ended December 31,
1998 included amortization of capitalized research and development costs prior
to the write-off of these assets and the purchase of hardware associated with
revenue derived from a customer agreement, both of which are non-recurring
expenses.
Operating expenses for the year ended December 31, 1999 decreased to $13.4
million from $14.1 million for the comparable period ended December 31, 1998,
primarily as a result of restructuring actions taken during the second half of
1998 in connection with the Company's business strategy. These restructuring
actions reduced expenses to better align costs with the Company's core product
offerings. Operating expenses for the year ended December 31, 1999 included
software research and development costs of approximately $1.3 million,
depreciation and amortization
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<PAGE> 19
expense of approximately $1.4 million and non-recurring expenses of $2.5 million
which included the $1.5 million cost of settling an action commenced against the
Company by Bukstel & Halfpenny, Inc., legal costs associated with this action
and other costs associated with the migration of operations from its Chicago
office to the Philadelphia office. The cost of launching the Company's @RX TM
prescription product is also included in operating expenses. In 1998, the
Company decided to focus its technology sales efforts around its laboratory and
prescription software products and as a result of this action, software
development assets related to other products, amounting to $6.2 million, were
determined to be unrealizable and the remaining net value of these assets was
charged to restructuring. Since the quarter ended March 31, 1998, the Company
has not incurred any software development costs that could be capitalized. These
costs are being treated as period costs, which are included as operating
expenses in the Company's consolidated financial statements. The foregoing
write-off left $.4 million remaining in unamortized capitalized software
development costs relating to laboratory and prescription software products.
There were no restructuring charges for the year ended December 31, 1999.
Restructuring charges for the year ended December 31, 1998 amounted to
approximately $7.6 million and represent amounts primarily associated with the
write-down of capitalized software assets as explained above. The remaining $1.5
million of the $7.6 million restructuring charge relates primarily to facility
closures and personnel reductions.
Other income, net for the year ended December 31, 1999, was $.8 million as
compared to $2.1 million for the year ended December 31, 1998 and was
attributable to interest earned from investments in marketable securities as a
result of the investment of proceeds from the Company's 1997 follow-on public
offering and operating cash.
LOSS ON IMPAIRMENT OF ASSET
YEAR ENDED DECEMBER 31, 1999 AND 1998
Based on an independent appraisal received by the Company, its minority
investments in affiliates has been written down by $11.0 million to reflect its
estimated fair market value.
GAIN ON SALE OF INVESTMENT IN AFFILIATE
YEAR ENDED DECEMBER 31, 1999 AND 1998
In 1999, the Company sold its minority investment in Caresoft, a company that
provides business solutions to the healthcare community, for approximately $1.0
million. The Company initially invested $.5 million in 1997.
Provision for income taxes includes payments made for state and local income
taxes based on amounts other than taxable income. For the year ended December
31, 1998, a charge of $4.1 million was recorded to provide a valuation allowance
against prior year deferred tax assets, as it is more likely than not that these
assets will not be realized.
The net loss from continuing operations for the year ended December 31, 1999 was
$23.4 million compared to a net loss of $22.8 million for the year ended
December 31, 1998 due to the factors described above.
RESULTS OF DISCONTINUED OPERATIONS
YEAR ENDED DECEMBER 31, 1999 AND 1998
In January 1999, the Company's Board of Directors approved a plan to divest its
practice management services unit and sold the unit in May 1999. Prior to this
action, the Company had restructured this unit into an outsourcing services
company designed to provide professional services to the healthcare industry
that would selectively contract with customers that would potentially generate
increased profitability. For the year ended December 31, 1999, the Company
reported a net gain from discontinued operations net of income taxes of $2.6
million compared to a net loss from discontinued operations net of income taxes
of $29.3 million and an estimated loss of $23.1 million from the anticipated
disposition of the management services unit of which $16.0 million is non-cash,
for each of the discontinued operations and disposition for the comparable
period ending December 31, 1998. The Company's historical financial information
has been restated to report the results of the discontinued operation on a
consistent basis for the years ended December 31, 1999, 1998 and 1997.
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<PAGE> 20
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company had aggregate cash, cash equivalents,
certificates of deposit and marketable securities of $2.7 million, as compared
to $17.1 million at December 31, 1998.
At December 31, 1999, the Company had negative cash flow from its operating
activities of ($13.1) million, compared with a negative ($10.2) million at
December 31, 1998. Included in cash flow from operations for the year ended
December 31, 1999 was $1.5 million for the settlement of an action commenced by
Bukstel & Halfpenny, Inc., and $1.0 million of additional one-time charges for
legal costs associated with this action and other expenses associated with the
migration of the Company's Chicago operations to its Philadelphia office. Net
cash provided by investing activities from continuing operations was $8.2
million for the year ended December 31, 1999, principally attributable to the
net proceeds from investments in marketable securities and certificates of
deposit. Net cash provided by investing activities from continuing operations
was $27.7 million for the comparable period ended December 31, 1998, principally
attributable to the net proceeds from investments in marketable securities, an
additional investment ($5.0 million) in an affiliated entity in which the
Company previously had a minority interest, and increased capitalized software
development costs (other assets) during the first quarter of 1998 ($1.1 million,
net of amortization). Net cash provided by financing activities from continuing
operations was $.8 million for the year ended December 31, 1999, principally
attributable to net proceeds from the exercise of incentive stock options. Net
cash provided by financing activities from continuing operations was $.4 million
for the year ended December 31, 1998, principally attributable to net proceeds
from the exercise of incentive stock options offset by the purchase of treasury
stock under the Company's stock repurchase program. Net cash flows from
discontinued operations for the year ended December 31, 1999 was a negative $2.7
million compared with a negative $16.3 million for the comparable period ended
December 31, 1998. Included in discontinued operating cash flow at December 31,
1999 was the sale of the Company's investment in Southern States Eye Care, LLC.
Based on its current assessment, the Company has recognized an $11.0 million
loss on the minority investments it has made, based on an independent appraisal
received by the Company.
The Company's operating plan for 2000 includes the continuing support and
maintenance of the Company's electronic laboratory and prescription management
products described above, and developing strategic customers, including Merck
Medco, Planet Rx, and Drugstore.com and new proprietary distribution channels
including Internet portals. The principal categories of expenditures include
research and development of the Company's electronic laboratory and prescription
management products as well as ongoing business development and marketing. While
the Company has incurred certain non-recurring charges for settling a lawsuit,
costs associated with such legal action and other one-time charges that have
accelerated its use of cash, the Company believes that based on its cash and
investments on hand, including the March 2000 purchase by Cybear for $4 million
in cash of a 10% Senior Convertible Note due March 31, 2001 with interest paid
quarterly, interest income, collection of officer loans, other receivables and
revenues from operations, it will generate sufficient cash to fund planned
operations of the Company through at least the end of the
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<PAGE> 21
first quarter of 2001. To the extent that the clinical e-commerce industry does
not develop at anticipated rates, or there is a failure of the Company's
clinical information technology products and services to gain significant market
acceptance, or competition or other economic factors impedes the operating
objectives and operating plan, the Company, based on the nature of its business,
has significant variable costs that can be effectively and timely reduced to
offset the above mentioned factors. The Company has no other planned material
capital expenditures or capital commitments.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants................................................... F-1
Consolidated Balance Sheets as of December 31, 1998 and 1999 .............................. F-2
Consolidated Statements of Operations for the three years ended December 31, 1999 ......... F-3
Consolidated Statements of Stockholders' Equity for the three years ended December 31, 1999 F-4
Consolidated Statements of Cash Flows for the three years ended December 31, 1999 ......... F-5
Notes to Consolidated Financial Statements ................................................ F-6
</TABLE>
Financial Statement Schedules
All schedules, other than those disclosed, have been omitted because they are
not applicable or not required or because the required information is included
in the Consolidated Financial Statements or notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this item is incorporated herein by reference to
the sections of the definitive Proxy Statement to be filed with the Securities
and Exchange Commission not later than 120 days after December 31,1999 and
delivered to stockholders in connection with the 2000 Annual Meeting of
Stockholders, captioned "Election of Directors," "Executive Officers" and
"Disclosure Pursuant to Section 16 of the Exchange Act."
21
<PAGE> 22
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this item is incorporated herein by reference to
the sections of the definitive Proxy Statement to be filed with the Securities
and Exchange Commission not later than 120 days after December 31,1999 and
delivered to stockholders in connection with the 2000 Annual Meeting of
Stockholders, captioned "Meetings of the Board of Directors and Committees of
the Board of Directors; Compensation of Directors" and "Executive Compensation
and Related Information."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this item is incorporated herein by reference to
the section of the definitive Proxy Statement to be filed with the Securities
and Exchange Commission not later than 120 days after December 31, 1999 and
delivered to stockholders in connection with the 1999 Annual Meeting of
Stockholders, captioned "Security Ownership of Certain Beneficial Owners,
Directors and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item is incorporated herein by reference to
the section of the definitive Proxy Statement to be filed with the Securities
and Exchange Commission not later than 120 days after December 31, 1999, and
delivered to stockholders in connection with the 2000 Annual Meeting of
Stockholders, captioned "Certain Transactions."
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K.
(a) Documents Filed as Part of the Report
1. Financial Statements.
The financial statements listed under Item 8 are filed as part of this
report.
2. Financial Statement Schedules.
Certain schedules have been omitted because they are either not
applicable or the required information has been disclosed in the financial
statements or notes thereto.
3. Exhibits.
The exhibits listed on the accompanying Exhibit Index are filed as
part of this report or incorporated by reference herein.
(b) Reports on Form 8-K
The registrant filed no Current Reports on Form 8-K during the fourth
quarter of the year ended December 31, 1999.
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned; thereunto duly authorized, on the 12th day of
April, 2000.
ADVANCED HEALTH CORPORATION
By /s/ Jonathan Edelson
---------------------------------
Jonathan Edelson, M.D.,
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Jonathan Edelson Chairman of the Board, Chief April 12, 2000
Jonathan Edelson, MD Executive Officer, President and Director
(Principal Executive Officer)
/s/ Jeffrey M. Sauerhoff Chief Financial Officer (Principal April 12, 2000
Jeffrey M. Sauerhoff Financial and Accounting Officer)
/s/ Robert J. Alger Executive Vice President and April 12, 2000
Chief Information Officer and Director
/s/ James T. Carney Director April 12, 2000
James T. Carney
/s/ Barry Kurokawa Director April 12, 2000
Barry Kurokawa
/s/ Arthur M. Southam Director April 12, 2000
Arthur M. Southam, MD
</TABLE>
23
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
**3.1 Restated Certificate of Incorporation of the Company
**3.2 By-laws of the Company
**10.7 Tarrytown, New York Office Lease Agreement dated November 30, 1995, between Tarrytown Corporate
Center IV, L.P. and the Company.
**10.8 First Amendment to Lease Agreement between Reckon Operating Partnership, LP, as Owner, and the
Company, as Tenant
*10.9 Chicago Office Lease Agreement dated April 16, 1999, between EOP Operating Limited Partnership and
the Company
**10.10 Fort Washington Lease Agreement dated November 13, 1997, between Comdrive Associates, L.P. and
Company as Tenant
**10.11 Hawthorne Lease Agreement dated January 8, 1998, between United Parcel Service, Inc. and Company as
Tenant
**10.12 Form of Director Indemnification Agreement
**10.13 Employment Agreement between the Company and Jonathan Edelson, M.D.
**10.16 Employment Agreement between the Company and Robert Alger
**10.17 Employment Agreement between the Company and Jeffrey M. Sauerhoff
**10.18 Employment Agreement between the Company and Eddy W. Friedfeld
**10.20 Amended and Restated Advanced Health Corporation 1995 Stock Option Plan
* 10.21 Asset Purchase Agreement between the Company and Practicare
* 10.22 Securities Purchase Agreement between the Company and Cybear dated March 27, 2000
* 10.23 10% Senior Secured Convertible Note in favor of Cybear, Inc., dated March 27, 2000
* 10.24 Warrant to purchase 300,000 shares of the Company's Common Stock issued to Cybear, Inc., dated March 27, 2000
**10.21 Employee Stock Purchase Plan
</TABLE>
24
<PAGE> 25
<TABLE>
<S> <C> <C>
**21 List of Subsidiaries
*23.0 Consent of Arthur Andersen LLP
*27 Financial Data Schedule
</TABLE>
* Filed herewith.
** Filed as an exhibit to the Company's Registration Statement on Form S-1,
as amended (Registration No. 333-06283), Company's Registration Statement on
Form S-1, as amended (Registration No. 333-35115), and Company's Form 10-K,
dated March 30, 1999 incorporated herein by reference.
25
<PAGE> 26
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AHT Corporation:
We have audited the accompanying consolidated balance sheets of AHT Corporation
(a Delaware corporation) and subsidiaries as of December 31, 1998 and 1999, and
the related consolidated statements of operations, shareholders' equity and cash
flows for the three years ended December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of AHT Corporation and
subsidiaries as of December 31, 1998 and 1999, and the results of their
operations and their cash flows for the three years ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
New York, New York
April 13, 2000
F-1
<PAGE> 27
AHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(000'S OMITTED, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
December 31
----------------------
ASSETS 1998 1999
------ --------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 9,269 $ 2,528
Certificates of deposit 2,580 150
Investments in marketable securities 6,972 --
Accounts receivable, net 320 262
Other current assets 362 561
Current assets of discontinued operations 2,065 --
-------- -------
Total current assets 21,568 3,501
PROPERTY AND EQUIPMENT, net 2,565 2,055
GOODWILL, net 1,861 2,227
INVESTMENTS IN AFFILIATES 14,000 2,500
OTHER ASSETS 2,001 3,607
NONCURRENT ASSETS OF DISCONTINUED OPERATIONS 2,639 --
-------- --------
Total assets $ 44,634 $ 13,890
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 3,610 $ 2,699
Other current liabilities 875 123
Current liabilities of discontinued operations 9,304 --
-------- --------
Total current liabilities 13,789 2,822
DEFERRED REVENUE 250 504
NON CURRENT LIABILITIES OF DISCONTINUED OPERATIONS 705 --
-------- --------
Total liabilities 14,744 3,326
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 14 and 16)
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value; 5,000,000 shares authorized; 0 shares
issued and outstanding, respectively -- --
Common stock, $.01 par value; 15,000,000 shares authorized;
10,424,127 and 11,069,549 shares issued and outstanding, respectively 103 110
Additional paid-in capital 108,450 109,970
Accumulated deficit (78,277) (99,081)
Net unrealized gain on marketable securities, net of deferred income taxes 3 --
Less- Treasury stock, at cost; 153,937 and 166,337 shares, respectively (389) (435)
-------- --------
Total shareholders' equity 29,890 10,564
-------- --------
Total liabilities and shareholders' equity $ 44,634 $ 13,890
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-2
<PAGE> 28
AHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(000's omitted, except share and per share data)
<TABLE>
<CAPTION>
For the Years Ended December 31
-------------------------------------------
1997 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>
REVENUES $ 11,910 $ 3,530 $ 1,086
COST OF REVENUES 1,030 1,942 1,261
----------- ------------ ------------
Gross profit 10,880 1,588 (175)
OPERATING EXPENSES 5,169 14,133 13,446
RESTRUCTURING CHARGES -- 7,645 --
----------- ------------ ------------
Operating (loss) income 5,711 (20,190) (13,621)
INTEREST EXPENSE (11) (20) (60)
INTEREST INCOME 1,155 2,093 853
GAIN ON SALE OF INVESTMENT -- -- 486
LOSS ON IMPAIRMENT OF INVESTMENTS -- -- (11,000)
----------- ------------ ------------
Net (loss) income from continuing operations before
income taxes 6,855 (18,117) (23,342)
INCOME TAX PROVISION 365 4,722 36
----------- ------------ ------------
Net (loss) income from continuing operations 6,490 (22,839) (23,378)
----------- ------------ ------------
DISCONTINUED OPERATIONS:
(Loss) income from discontinued operations (Note 2) 668 (29,280) 2,574
Loss on disposal of discontinued operations (Note 2) -- (23,074) --
----------- ------------ ------------
Net (loss) income $ 7,158 $ (75,193) $ (20,804)
=========== ============ ============
PER SHARE INFORMATION:
Basic net (loss) income per share-
(Loss) income from continuing operations $ 0.82 $ (2.27) $ (2.19)
(Loss) income from discontinued operations 0.09 (2.90) 0.24
(Loss) on disposal of discontinued operations -- (2.29) --
----------- ------------ ------------
Basic net (loss) income per share
$ 0.91 $ (7.46) $ (1.95)
=========== ============ ============
Diluted net (loss) income per share-
(Loss) income from continuing operations $ 0.73 $ (2.27) $ (2.19)
(Loss) income from discontinued operations 0.08 (2.90) 0.24
(Loss) on disposal of discontinued operations -- (2.29) --
----------- ------------ ------------
Diluted net (loss) income per share
$ 0.81 $ (7.46) $ (1.95)
=========== ============ ============
Common shares used in computing per share amounts-
Basic 7,872,204 10,085,407 10,674,987
=========== ============ ============
Diluted 8,890,856 10,085,407 10,674,987
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE> 29
AHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(000's omitted, except share data)
<TABLE>
<CAPTION> Unrealized
Gain (Loss)
Common Stock Additional on
----------------------- Paid-in Accumulated Marketable
Shares Par Value Capital Deficit Securities
----------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1997 7,166,941 $ 72 $ 42,069 $ (10,242) $ 60
Issuance of common stock, net of expenses
of $4,102 2,250,000 22 45,939 -- --
Exercise of stock options 352,614 4 1,249 -- --
Common stock issued for acquisitions 100,164 1 3,759 -- --
Unrealized gain on marketable securities, net of
deferred income taxes of $79 -- -- -- -- 124
Income tax benefit from exercise of
stock options -- -- 2,960 -- --
Net income -- -- -- 7,158 --
----------- -------- --------- --------- -------
BALANCE, December 31, 1997 9,869,719 99 95,976 (3,084) 184
Exercise of stock options 199,553 1 1,283 -- --
Common stock issued for acquisitions 354,855 3 4,891 -- --
Stock options granted for acquisitions -- -- 6,300 -- --
Repurchase of treasury stock -- -- -- -- --
Unrealized loss on marketable securities, net of
deferred income taxes of $0 -- -- -- -- (181)
Net loss -- -- -- (75,193) --
----------- -------- --------- --------- -------
BALANCE, December 31, 1998 10,424,127 103 108,450 (78,277) 3
Unrealized loss on marketable securities, net of
deferred income taxes of $0 -- -- -- -- (3)
Exercise of stock options 523,151 6 859 -- --
Common stock issued for acquisitions 122,271 1 661 -- --
Repurchase of treasury stock -- -- -- -- --
Net loss -- -- -- (20,804) --
----------- -------- --------- --------- -------
BALANCE, December 31, 1999 11,069,549 $ 110 $109,970 $ (99,081) $ --
=========== ======== ========= ========= =======
</TABLE>
<TABLE>
<CAPTION>
Treasury Stock
--------------------
Shares Amount Total
--------- -------- ---------
<S> <C> <C> <C>
BALANCE, January 1, 1997 8,937 $ (75) $31,884
Issuance of common stock, net of expenses
of $4,102 -- -- 45,961
Exercise of stock options -- -- 1,253
Common stock issued for acquisitions -- -- 3,760
Unrealized gain on marketable securities, net of
deferred income taxes of $79 -- -- 124
Income tax benefit from exercise of
stock options -- -- 2,960
Net income -- -- 7,158
----------- -------- ---------
BALANCE, December 31, 1997 8,937 (75) 93,100
Exercise of stock options -- -- 1,284
Common stock issued for acquisitions -- -- 4,894
Stock options granted for acquisitions -- -- 6,300
Repurchase of treasury stock 145,000 (314) (314)
Unrealized loss on marketable securities, net of
deferred income taxes of $0 -- -- (181)
Net loss -- -- (75,193)
--------- -------- ---------
BALANCE, December 31, 1998 153,937 (389) 29,890
Unrealized loss on marketable securities, net of
deferred income taxes of $0 -- -- (3)
Exercise of stock options -- -- 748
Common stock issued for acquisitions -- -- 2,606
Repurchase of treasury stock 12,400 (46) (46)
Net loss -- -- (20,804)
--------- -------- ---------
BALANCE, December 31, 1999 166,337 $ (435) $ 10,564
========= ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE> 30
AHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000'S OMITTED)
<TABLE>
<CAPTION>
For the Years Ended December 31
--------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income from continuing operations $ 6,490 $(22,839) $(23,378)
Adjustments to reconcile net (loss) income to net cash (used
in) provided by operating activities-
Depreciation and amortization 1,123 2,477 1,354
Deferred income taxes -- 4,092 --
Allowance for doubtful accounts 450 553 18
Gain on sale of investment -- -- (486)
Loss on impairment of investment -- -- 11,000
Changes in operating assets and liabilities-
Accounts receivable (1,330) 1,133 40
Other current assets 205 251 (199)
Accounts payable, accrued expenses and other current
liabilities (2,024) 3,918 (1,663)
Deferred revenue (200) 250 254
-------- -------- --------
Net cash (used in) provided by operating
activities 4,714 (10,165) (13,060)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Minority investment in affiliated entities (9,000) (5,000) --
Other assets (5,307) 4,876 (119)
Investments in certificates of deposit, net (5,399) 2,819 702
Investments in marketable securities, net (26,692) 27,110 6,969
Intangible assets (317) (1,495) --
Sale of investment -- -- 986
Purchases of property and equipment, net (2,246) (592) (337)
-------- -------- --------
Net cash provided by (used in) investing
activities (48,961) 27,718 8,201
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale and issuance of common stock 45,961 -- --
Net proceeds from exercise of stock options 1,254 759 865
Purchase of treasury stock -- (314) (46)
-------- -------- --------
Net cash provided by financing activities 47,215 445 819
-------- -------- --------
NET CASH USED IN DISCONTINUED OPERATIONS (7,520) (16,263) (2,701)
-------- -------- --------
Net change in cash and cash equivalents (4,552) 1,735 (6,741)
CASH AND CASH EQUIVALENTS, beginning of year 12,086 7,534 9,269
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of year $ 7,534 $ 9,269 $ 2,528
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $ 11 $ 100 $ 60
Income taxes 248 648 36
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
Fair market value of common stock issued for acquisitions 3,760 5,415 662
Unrealized gain (loss) on marketable securities 297 (181) --
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 31
AHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 and 1999
(000's omitted, except share and per share data)
1. ORGANIZATION AND BUSINESS
AHT Corporation and subsidiaries ("AHT" or the "Company"), a Delaware
corporation, is a provider of Internet-based clinical e-commerce applications
for physicians and other healthcare providers and organizations. The Company's
clinical information systems consist of proprietary software, third-party
hardware, proprietary third-party databases, and related support services. Such
systems are designed to complement existing healthcare information systems and
to function with third-party applications. The Company is focused on automating
laboratory and prescription transactions, the two most frequent transactions
initiated by physicians today. The Company was formerly a provider of primarily
professional practice and network management services to physician groups and
networks (Note 2).
The Company has suffered losses from continuing operations, decreasing revenues
and negative cash flow from operating activities for the years ended December
31, 1998 and 1999, all of which are primarily due to the exiting of the
physician practice management business and the refocus of the Company's strategy
to be a provider of Internet-based clinical e-commerce products. Management has
developed a detailed plan and has taken certain actions in order to generate the
funding necessary for the Company's operations, including: (1) issuance of
additional capital and debt (Note 17); (2) devoting the Company's full resources
to expanding the Company's Internet-based laboratory and prescription
transaction management business; (3) developing strategic relationships (Notes
15 and 17); (4) immediate reduction of costs; and (5) to the extent that the
Company's operating plans are impeded by outside factors, the timely and
effective reduction of variable costs to offset these factors. Management of the
Company believes that these plans will be adequate to support the Company's
operations at least through March 31, 2001.
2. DISCONTINUED OPERATIONS
In January 1999, the Company's Board of Directors approved a plan to seek
strategic alternatives for the disposal of the Company's physician practice
management line of business, which had been its primary business operation. This
determination was made due to the fact that this business operation was deemed
to be no longer core to the Company's strategy of focusing on healthcare
e-commerce. Accordingly, the results of the physician practice management
business has been accounted for as discontinued operations, and the accompanying
consolidated financial statements presented herein have been restated to report
separately the net assets, net liabilities, operating results and net cash flows
of this discontinued operation. The loss from discontinued operations for the
year ended December 31, 1998 includes the write-down of the assets of the
physician practice management operations to estimated net realizable values and
the estimated costs of disposing of this discontinued operation, less the
expected tax benefits applicable thereto. The loss from discontinued operations
for the year ended December 31, 1999 reflects the operating loss of the
physician practice management unit.
In May 1999, the Company sold the majority of its net assets attributable to the
Company's former physician management services unit to a third party for
approximately $3.1 million in cash plus the assumption of certain payables and
capital leases.
Summarized financial information for the discontinued operation is as follows:
<TABLE>
<CAPTION>
Years Ended December 31
----------------------------
1997 1998 1999
------- -------- ------
<S> <C> <C> <C>
Revenue $50,887 $ 57,979 $2,165
======= ======== ======
(Loss) income before income taxes $ 705 $(29,280) $1,651
Income tax provision 37 -- --
------- -------- ------
Net (loss) income $ 668 $(29,280) $1,651
======= ======== ======
</TABLE>
F-6
<PAGE> 32
AHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 and 1999
(000's omitted, except share and per share data)
No benefit for income taxes has been reflected for 1998 and 1999 in the above
table as the Company has recorded a full valuation allowance against the related
deferred tax assets due to the uncertainty of the realization of these assets.
<TABLE>
<CAPTION>
December 31
-----------
1998
-------
<S> <C>
Accounts receivable, net $ 1,427
Other current assets 638
-------
Total current assets 2,065
-------
Property, plant and equipment 831
Other assets 1,808
-------
Total noncurrent assets 2,639
-------
Current liabilities (9,304)
Noncurrent liabilities (709)
-------
Net assets (liabilities) of discontinued operations $(5,309)
=======
</TABLE>
There were no assets or liabilities from discontinued operations as of December
31, 1999.
Management Service Organizations
The Company previously established Management Service Organizations by forming
majority-owned subsidiaries to facilitate the provision of management services
to physician practice and network clients.
In the two years ended December 31, 1999, the Company obtained a 51% interest in
each of eight and one newly formed MSOs, respectively, whereby the Company
acquired these interests as part of the formation of the MSOs and concurrent
with the signing of long-term management services agreements between the MSOs
and physician practices. The Company did not acquire any interests during 1999.
In forming these MSOs, the Company conveyed 49% interests to the physician
practice or network in exchange for the execution of the long-term management
services agreements described above. The Company recorded the fair value of
these arrangements, which was, in the opinion of management, was more readily
determinable than the 49% MSO interest conveyed.
The structure of the Company's wholly or majority-owned MSOs provided for the
Company to receive activity-based fee income from the MSOs for management
services provided and reimbursement from the MSOs for certain expenses incurred,
with the result being that there are no profits in the MSO entity for which a
minority interest is required to be calculated. Accordingly, the income (loss)
from discontinued operations does not reflect any minority interest in the
operations of the MSOs.
All intercompany accounts and transactions have been eliminated in
consolidation. The results of operations, assets and liabilities attributable to
the MSOs are included in discontinued operations in the accompanying
consolidated financial statements.
The stockholders' agreements for these MSOs, among other issues, (i) restricted
the transfer of MSO equity, (ii) provided the terms upon which the MSO can, at
the Company's option, be merged with and into a wholly
F-7
<PAGE> 33
AHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 and 1999
(000's omitted, except share and per share data)
owned subsidiary of the Company in a transaction in which the physician practice
or network will receive stock of the Company in exchange for shares in the MSO,
and (iii) granted to the physician practice or network the right to put its
equity share in the MSO to the Company within one year of the Company's
satisfaction of certain specified targets if the Company has not called its
right to acquire those interests within that period. The Company had not met the
specified targets prior to the sale of physician practice management unit. The
agreements provided that these call transactions will be paid in the Company's
common stock, and put transactions will be paid in cash, and that either
transaction, if effected, would be based on an agreed-upon amount at the time of
the transaction. No such transactions have taken place as a result of the sale
of the Company's physician practice management business.
Revenues from Discontinued Operations
The Company's revenues from discontinued operations consist primarily of
revenues from the provision of physician and network management services. A
physician group practice is a single legal entity comprised of multiple
physicians. Through its majority or wholly owned consolidated MSOs, the Company
entered into management services agreements with physician group practices,
whereby such physician practices outsourced their nonmedical and administrative
functions to the MSO. Activity-based fees were generated by the MSO through the
provision of these outsourced services as well as certain additional management,
marketing and information services. Fees for such services were either fixed or
based on the level of services provided, as negotiated in the Company's various
agreements for the provision of services, and were recognized monthly or as
these services are rendered, respectively, based on the terms of the related
agreements. The Company's contracts with its physician group practices also
included predetermined incentives, which were earned and recognized as revenue
in the event that the Company is successful in reducing a physician group
practice's administrative overhead as a percentage of collections.
Acquisitions from Discontinued Operations
In connection with a 1995 acquisition agreement, the Company issued options to
purchase 283,010 shares of common stock at $.0112 per share. These options are
only exercisable, as contingent consideration, upon the achievement of certain
capitalization levels related to regulatory requirements. The entire purchase
price of this acquisition has been allocated to intangible assets included in
noncurrent assets from discontinued operations in the accompanying consolidated
balance sheets. The Company reached the stated capitalization level during 1998,
and therefore the stock options became exercisable. As a result, the Company
recorded a $6,300 purchase price adjustment, which represents the fair market
value of the stock options on the date they became exercisable. The remaining
net intangible assets relating to this acquisition were subsequently charged to
loss from discontinued operations in the accompanying consolidated statements of
operations during the year ended December 31, 1998.
In 1997, as a result of the achievement of certain targeted operating goals, as
defined in previous purchase agreements, certain related parties exercised
warrants for 72,196 shares of the Company's common stock valued at $1,354, which
represents the difference between the market value of the stock at the date of
exercise ($23.13 per share) and the value at the date of grant ($4.38 per
share), and the Company issued 33,966 shares of common stock at a value of $21
per share for a total value of $713. These amounts were recorded as adjustments
to the original purchase prices and the remaining net intangible assets relating
to these acquisitions were disposed of in 1999 as part of the sale of the
physician practice management unit.
During 1998, the Company acquired all of the outstanding stock of Integrated
Medical Management, Inc. ("IMM"), a physician practice management organization,
for $1,520 in cash and 354,855 shares of common stock ($13.79 per share, which
was the then fair market value of the Company's common stock), for an
F-8
<PAGE> 34
AHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 and 1999
(000's omitted, except share and per share data)
aggregate purchase price of approximately $6,400. Furthermore, the IMM purchase
agreement calls for the issuance of additional shares of common stock, as
contingent consideration based upon certain targets. As a result of this
acquisition, the Company recorded the excess purchase price over net liabilities
acquired of $8,570, as goodwill. The results of operations, net assets and
resulting goodwill from this entity are included within the discontinued
operations in the accompanying consolidated financial statements.
During 1999, the Company and IMM's former shareholders amended the contingent
consideration provision in the acquisition agreement as a result of the
Company's intention to dispose of its physician practice management businesses.
Pursuant to the amended agreement, the Company paid $1,300 to the former
shareholders, and the former shareholders forfeited their rights to certain of
their respective common stock options. The Company has recorded a charge for
such amount in the results from discontinued operations for the year ended
December 31, 1998. The net assets from this acquisition were included in the
sale of the Company's physician practice management unit in 1999.
Madison Medical - The Private Practice Group of New York, L.L.P. ("Madison")
During 1997, the Company loaned $2,000 to Madison at the prime rate plus 2%, not
to exceed 10%, with interest payable monthly and the outstanding principal
payable in twelve monthly installments beginning in January 1998. Further, the
Company guaranteed a letter of credit in favor of Madison, in the amount of
$1,727, by depositing and restricting cash in the same amount with the same
financial institution providing that letter of credit. These obligations were
secured by the 49% ownership interest in Uptown Physician Management, Inc., an
MSO in which the Company had a 51% interest. On December 12, 1998, the Company
commenced legal action. On January 15, 1999, the Company commenced an
arbitration proceeding against Madison to collect $2,100 in fees owed pursuant
to a management services agreement between the parties. Madison has asserted a
defense in the action and a counterclaim in the arbitration seeking $2,400 in
damages based on the Company's and Uptown's alleged breaches of the management
services agreement. The Company and Madison settled there action in April 1999,
whereby Madison will pay the Company $2.5 million for all amounts owed and both
parties would withdraw all of their respective claims of the amount owed. $700
was paid within one month of the settlement and the remaining principal plus
interest incurring thereon at 8% per annum is to be paid in equal installments
over a five-year period. As of December 31, 1999, $1,604 remains outstanding
under the settlement agreement. However, the Company has provided a full
valuation reserve for this note due to the uncertainty of its collectibility.
Loans to Affiliates
During 1998, the Company loaned $2,000 to a physician, who was a principal in
one of the physician practices with which the Company maintained a management
services agreement, at 10% interest and payable in full on December 31, 1998.
The physician subsequently informed the Company of his inability to repay the
loan and as a result he Company agreed to restructure the loan. The
restructuring did not have a materially adverse effect on the Company's
consolidated financial statements as of and for the year ended December 31,
1998.
Litigation and Disputes from Discontinued Operations
F-9
<PAGE> 35
AHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 and 1999
(000's omitted, except share and per share data)
In January 1999, a physician practice client of the Company, Millennium
Management Group, P.C. ("Millennium") who was in bankruptcy, filed an adversary
proceeding in United States Bankruptcy Court, District of New Jersey, asserting
claims for breach of fiduciary duty, breach of contract and conversion based on
the management services agreement among the parties. The complaint sought the
return of certain property allegedly belonging to Millennium in exchange for a
lien against the assets of Millennium that is senior to all claims other than
Millennium's bank debt. This matter was settled in 1999 and the resolution of
this matter did not have a material impact on the company's consolidated
financial statements.
In September 1998, the Company received notice from Advanced Heart Physicians
and Surgeons Network, P.C. ("Advanced Heart") that Advanced Heart was dissolving
due to irreconcilable differences. Advanced Heart claims that under the terms of
the management services agreement between Advanced Heart and the Company, this
action would cause the management services agreement to be terminated, the
Company would be required to refund certain fees previously received from
Advanced Heart and the Company would be required to repurchase certain
outstanding common shares of the Company held by one of the principals of
Advanced Heart. During 1999, Advanced Heart and the Company agreed to terminate
the management services agreement and settled the matter and the resolution of
this matter did not have a material impact on the Company's consolidated
financial statements.
In December 1998, the Philadelphia Cardiology Group P.C. ("PCG") served the
Company with a notice of default and termination under the management services
agreement. PCG filed a complaint against the Company alleges among other items
that the Company is liable for breach of contract under the parties' management
services agreement for alleged performance defaults. The action is still in the
preliminary stages, and the Company believes that PCG's claims are without merit
and intends to defend against them virgiously. In management's opinion, the
resolution of this matter will not have a materially adverse effect on the
Company's consolidated financial statements.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The accompanying consolidated financial statements include the accounts of AHT
and its wholly owned subsidiaries, Advanced Health Management Corporation
("AHM"), Advanced Health Technologies Corporation, Advanced Health Bukstel &
Halfpenny Corporation and its majority owned Management Service Organizations
("MSOs") discussed above. All intercompany transactions have been eliminated in
consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
specifically for, but not limited to, the useful lives of capitalized software
costs and intangible assets and the loss on disposal of discontinued operations
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-10
<PAGE> 36
AHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 and 1999
(000's omitted, except share and per share data)
Revenue Recognition
The Company's revenue from continuing operations is generated from the
licensing and support of its software to third parties.
The Company recognizes revenue in accordance with Statement of Position ("SOP")
97-2 "Software Revenue Recognition." SOP 97-2 applies to all entities that earn
revenue by licensing, selling, leasing or otherwise marketing computer software.
It does not apply to revenue earned on products or services when the software
contained in those products or services is incidental to the products or
services as a whole. SOP 97-2 requires that revenue be allocated to each product
or service upon a high threshold of "vendor-specific objective evidence" and
deferred until all of the following four criteria are met for that particular
product or service: (1) persuasive evidence of an agreement must exist, (2)
delivery must have occurred, (3) the vendor's fee must be fixed or determinable,
and (4) collectibility must be probable.
Cash and Cash Equivalents
Cash and cash equivalents include cash and highly liquid investments with
original maturities of three months or less when purchased.
Certificates of Deposit
Certificates of deposit consist of a series of time deposits with maturities
from three to twelve months that were pledged as collateral on outstanding
letters of credit related to the Company's management service agreements
previously discussed.
Investments in Marketable Securities
The Company accounts for investments in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." In accordance with this pronouncement, the
investment and debt securities held by the Company and included in the
accompanying consolidated balance sheets that may be sold in response to changes
in interest rates, prepayments, and other factors have been classified as
available-for-sale. Such securities are reported at fair value, with unrealized
gains and losses excluded from earnings and reported in a separate component of
shareholders' equity (on an after-tax basis). Gains and losses on the
disposition of securities are recognized on the specific identification method
in the period in which they occur.
Property and Equipment
Property and equipment, consisting primarily of electronic data processing
equipment, are stated at cost and depreciated on a straight-line basis over the
useful lives of the assets (3 to 5 years). Equipment held under capital leases
is amortized utilizing the straight-line method over the lesser of the term of
the lease or the estimated useful life of the asset.
Capitalized Software Costs
The Company develops computer software, which is marketed to third parties.
Development costs incurred in the research and development of new software
products and enhancements to existing software products are expensed as incurred
until technological feasibility is established. Any additional development costs
are capitalized in accordance with SFAS No. 86, "Accounting for the Costs of
Computer Software to be Sold,
F-11
<PAGE> 37
AHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 and 1999
(000's omitted, except share and per share data)
Leased or Otherwise Marketed." Amortization of such costs is provided using the
straight-line basis over the estimated economic life of the products, as
determined. The Company performs an annual review of the recoverability of such
capitalized software costs. At the time a determination is made that capitalized
amounts are not recoverable based on estimated cash flows to be generated from
the applicable software, any remaining capitalized amounts are expensed. Certain
previously capitalized software costs were charged to restructuring charges
during 1998 (Note 4).
Computer software amortization charged to expense aggregated $300, $1,054 and
$241, respectively, for each of the three years ended December 31, 1999.
Intangible Assets
Goodwill, which represents the excess of the purchase price over the fair value
of the net assets acquired, and covenants not-to-compete are included in
intangible assets and were being amortized over a period of 20 years on a
straight-line basis through the 4th quarter of 1999. During the 4th quarter of
1999 management reevaluated the useful lives and adjusted the amortization
period to 3 years for the remaining goodwill. These amortization periods are
evaluated by management on a continuing basis, and will be adjusted if the lives
of the related intangible assets are impaired. Amortization was $187, $96 and
$268, respectively, for the three years ended December 31, 1999.
Accounting for Long-Lived Assets
The Company accounts for long-lived assets under the provisions of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." This statement establishes financial accounting and reporting
standards for the impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and used, and for
long-lived assets and certain identifiable intangibles to be disposed of.
Management has performed a review of all long-lived assets and has determined
that there are impairments of the respective carrying values of certain
long-lived assets as of December 31, 1999 (Notes 2, 4 and 9).
Investments in Affiliates
Investments in affiliates represent purchased interests of less than 20% and are
accounted for on the cost method. Annually, the Company reviews these
investments for impairment or whenever events or changes in circumstances
indicate that the carrying amounts of the assets may not be recoverable.
Computer Software for Internal Use
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," which provides guidance for
determining whether computer software is internal-use software and on accounting
for the proceeds of computer software originally developed or obtained for
internal use and then subsequently sold to the public. It also provides guidance
on capitalization of the costs incurred for computer software developed or
obtained for internal use. The adoption of SOP 98-1 in 1999 did not have a
material effect on the Company's consolidated financial statements. The Company
has expensed all software development costs for the three years ended December
31, 1999, as the Company has not incurred any costs that are capitalizable under
SOP 98-1.
Research and Development
Research and development costs are expensed as incurred by the Company. Research
and development expense aggregated $770, $2,400 and $1,300, respectively, for
the three years ended December 31, 1999.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable, and
accounts payable approximate fair value due to the short-term maturity of these
instruments. The carrying amounts of notes receivable capital lease obligations,
including current portions, approximate fair value.
F-12
<PAGE> 38
AHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 and 1999
(000's omitted, except share and per share data)
Income Taxes
The Company accounts for income taxes under SFAS No. 109, "Accounting for Income
Taxes," which requires recognition of deferred tax liabilities and assets for
the estimated future tax effects of events that have been recognized in the
financial statements or income tax returns. Under this method, deferred tax
liabilities and assets are determined based on (1) differences between the
financial accounting and income tax bases of assets and liabilities and (2) net
operating loss carryforwards, using enacted tax rates in effect for the years in
which the differences and carryforwards are expected to reverse and be utilized,
respectively (Note 13).
Net Income (Loss) Per Common Share
The Company calculates net income (loss) per common share under the provisions
of SFAS No. 128 "Earnings Per Share." Basic net income (loss) per common share
("Basic EPS") is computed by dividing net income (loss) by the weighted average
number of common shares outstanding. Diluted net income (loss) per common share
("Diluted EPS") is computed by dividing net income (loss) by the weighted
average number of common shares and dilutive potential common shares then
outstanding. SFAS No. 128 requires the presentation of both Basic EPS and
Diluted EPS on the face of the consolidated statements of operations.
Shares used in calculating Basic and Diluted EPS are reconciled as follows:
<TABLE>
<CAPTION>
1997 1998 1999
--------- ---------- ----------
<S> <C> <C> <C>
Average shares outstanding for basic net (loss) income
per share 7,872,204 10,085,407 10,674,987
Diluted effect of stock options and warrants 1,018,652 -- --
--------- ---------- ----------
Weighted average shares outstanding for
diluted net (loss) income per share 8,890,856 10,085,407 10,674,987
========= ========== ==========
</TABLE>
Diluted EPS for 1998 and 1999 does not include the impact of 1,460,607 and
2,138,771 stock options and warrants, respectively, then outstanding, as the
effect of their inclusion would be antidilutive.
Stock-Based Compensation
The Company has elected to follow the accounting set forth in Accounting
Principles Board No. 25, "Accounting for Stock Issued to Employees" ("APB No.
25") and to provide the necessary pro forma disclosures as if the fair value
method had been applied (Note 12).
Comprehensive Income
The components of comprehensive income are as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Net (loss) income $7,158 $(75,193) $(20,804)
Unrealized (loss) gain on marketable
securities 124 (181) --
------ -------- --------
Comprehensive (loss) income $7,282 $(75,374) $(20,804)
====== ======== ========
</TABLE>
F-13
<PAGE> 39
AHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 and 1999
(000's omitted, except share and per share data)
Concentration of Credit Risk
Financial instruments, which subject the Company to concentrations of credit
risk, consist primarily of cash and cash equivalents, certificates of deposit,
marketable securities and trade accounts receivable. The Company maintains cash
and cash equivalents, certificates of deposit and marketable securities with
various financial institutions. The Company performs periodic evaluations of the
relative credit standing of these institutions. The Company's clients are
concentrated in the United States. The Company performs ongoing credit
evaluations, generally does not require collateral and establishes an allowance
for doubtful accounts based upon factors surrounding the credit risk of
customers, historical trends and other information.
Segment Reporting
The Company adopted SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information," in 1998. This statement establishes standards for the
way public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. The Company currently operates in one segment.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging," which establishes accounting and reporting standards of derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. The Company does not expect the adoption
of this standard to have a material effect on the Company's results of
consolidated operations, financial position or cash flows.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
4. RESTRUCTURING CHARGES
During the third and fourth quarters of 1998, the Company recorded total
restructuring charges of $7,648 relating to the Company's former information
technology line of business. Included in this total are noncash write-downs of
capitalized software no longer marketed or supported by the Company of $6,160,
facility closure costs of $281, noncash write-downs of property, plant and
equipment of $70, and severance and other employee-related costs of $1,137. All
of the restructuring costs have been paid as of December 31, 1999.
5. ACQUISITION OF BUSINESSES
During 1997, the Company acquired certain assets of Bukstel & Halfpenny, Inc.
("B&H"), a clinical information technology company, for $306 in cash, 66,201
shares of common stock ($21.81 per share) and options for the purchase of 12,012
shares ($21.00 per share, which was the then fair market value of the Company's
common stock) of the Company's common stock, for an aggregate purchase price of
$2,000. Furthermore, the B&H purchase agreement calls for the issuance of an
additional 114,613 shares of common stock, as contingent consideration. These
shares were issued in 1999 and, as a result, the Company recorded a
F-14
<PAGE> 40
AHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 and 1999
(000's omitted, except share and per share data)
$623 purchase price adjustment, which represents the fair market value of the
common stock on the date of issuance. In September 1998, B&H commenced an action
in the Supreme Court of the State of New York against the Company. In addition
to the Company, the complaint named as defendants Advanced Health Med-E-Systems
Corporation, Advanced Health Bukstel & Halfpenny Corporation and certain current
or former officers or directors of the Company. The complaint asserts violations
of the federal securities laws, common law fraud and other common law claims in
connection with the Company's September 17, 1997 purchase of certain assets from
B&H and seeks rescission of the asset purchase agreement or unspecified damages.
On October 30, 1998, B&H obtained an order to show cause and temporary
restraining order, which temporarily prevented the Company from transferring
certain software code to a certain customer and from including certain "software
escrow" provisions in certain software licensing agreements. In August 1999,
this lawsuit was settled. Under the terms of the settlement, B&H withdrew its
rescission action and released AHT from any other present or future claims in
return for a $1.5 million payment. AHT has gained sole discretion and full
rights to market, sell and transfer, all software purchased from B&H including
the authority to include software licensing escrows in their agreements.
Additionally, the Company agreed to forgive a $225 secured promissory note owed
by B&H to the Company, in exchange for control of the 12,400 shares of the
Company's Common Stock which were pledged as collateral for this note. The
Company recorded the then fair market value of the 12,400 common shares as the
cost of acquiring treasury stock.
The pro forma effects of the Company's acquisitions have not been presented, as
the results are immaterial to the Company's consolidated financial statements
taken as a whole.
6. RELATED PARTY TRANSACTIONS
Software Licensing Agreements
During 1997 and 1998, the Company entered into two separate software licensing
agreements with a company in which AHT holds a common stock investment (Note
9(a)). The Company recognized $2,500 of licensing revenue from each transaction
for each of the years ended December 31, 1997 and 1998, respectively.
Transactions with Officers
In accordance with the Company's Senior Executive Loan Policy, which is
administered by the Compensation Committee of the Board of Directors, the
Company made loans to certain senior executives of the Company aggregating
$1,570 and $1,801, which are included in other assets in the accompanying
consolidated balance sheets as of December 31, 1998 and 1999, respectively.
These loans are due three years from the loan date with interest payable monthly
at a rate of 6% per annum. As of December 31, 1999, certain interest and
principal payments have been made. Subsequent to December 31, 1999,
approximately $340 of interest and principal of the loans have been repaid.
Management of the Company believes that these related party transactions were
effected on terms, which approximate fair market value.
F-15
<PAGE> 41
AHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 and 1999
(000's omitted, except share and per share data)
7. INVESTMENTS IN MARKETABLE SECURITIES
The carrying amounts, gross unrealized gains and losses and estimated market
values of investment securities as of December 31, 1998, are summarized as
follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Carrying Unrealized Unrealized Market
Amount Gains (Losses) Value
------ ---------- ---------- ---------
<S> <C> <C> <C> <C>
Commercial paper $2,200 $ -- $ -- $2,200
U.S. Government and agencies 2,015 -- -- 2,015
Corporate bonds 2,754 3 -- 2,757
------ ------ ------ ------
$6,969 $ 3 $ -- $6,972
====== ====== ====== ======
</TABLE>
All investment securities held as of December 31, 1998 are due in one year or
less. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties. The Company had no marketable securities at December
31, 1999.
8. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31
---------------
1998 1999
------ ------
<S> <C> <C>
Computer equipment and software $4,223 $3,582
Equipment under capital leases 438 58
Furniture and fixtures 632 648
Leasehold improvements 62 79
------ ------
5,355 4,367
Less- Accumulated depreciation and amortization 2,790 2,312
------ ------
Property and equipment, net $2,565 $2,055
====== ======
</TABLE>
Depreciation and amortization aggregated $753, $1,178 and $1,157, respectively,
for the three years ended December 31, 1999.
9. INVESTMENTS IN AFFILIATES
Investments in affiliates consist of the following:
<TABLE>
<CAPTION>
December 31
-----------------
1998 1999
------- -------
<S> <C> <C>
PatientCare Dynamics, LLC (a) $10,000 $ 1,500
ACRM, Inc. (b) 3,500 1,000
Caresoft, Inc. (c) 500 --
------- -------
$14,000 $ 2,500
======= =======
</TABLE>
F-16
<PAGE> 42
AHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 and 1999
(000's omitted, except share and per share data)
(a) On December 30, 1997, the Company purchased Class B Shares and
a Warrant, with a total value of $5,000, of PatientCare
Dynamics, LLC, a corporation that, among other things,
provides technology-based support systems and services to
healthcare professionals. In 1998, the Company purchased
additional Class B Shares and a Warrant with a total value of
$5,000. Management has determined that there is a permanent
impairment in the value of the investment at December 31,
1999 based upon an independent third-party valuation.
Therefore, the Company has adjusted the value of the
investment to its net realizable value of $1,500. As of
December 31, 1999, the Company owns approximately 17.7% of PCD
and has therefore accounted for the remaining investment
under the cost method.
(b) On September 30, 1997, the Company paid $1,000 for 9.9%
preferred stock ownership of Eminent Research Systems, Inc.
(formerly ACRM, Inc.), a corporation that provides advanced
cardiovascular research management. In 1997, the Company
loaned $2,500 to Eminent under a loan agreement. In July 1998,
the preferred stock interest and the loan were converted into
a $3,500 newly issued convertible debenture, bearing interest
at 6.0% per annum and payable in full on July 1, 2003. The
debenture was converted into 15% of the then outstanding
shares of Eminent common stock.
Management has determined that there is a permanent impairment
in the value of the investment at December 31, 1999 based upon
an independent third-party valuation. Therefore, the Company
has adjusted the value of the investment to its net realizable
value of $1,000.
(c) In June 1997, the Company purchased $500 of Series A Preferred
Stock issued by Caresoft, Inc., a corporation that, among
other things, develops chronic disease and patient compliance
software. As of December 31, 1998, the Company owned less than
20% of Caresoft, Inc. and therefore accounted for this
investment under the cost method. The Company sold this
investment in 1999 for $986, recognizing a gain of $486, net
of transaction costs, which is included in other income from
continuing operations in the accompanying statement of
operations for the year ended December 31, 1999.
10. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31
---------------
1998 1999
------ ------
<S> <C> <C>
Professional fees $1,996 $ 958
Accounts payable 441 625
Other 1,173 1,116
------ ------
Total accounts payable and accrued expenses $3,610 $2,699
====== ======
</TABLE>
F-17
<PAGE> 43
AHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 and 1999
(000's omitted, except share and per share data)
11. OTHER CURRENT LIABILITIES
In connection with an acquisition in 1998 (Note 2), the Company assumed amounts
due from a $1,000 line of credit with a bank, which bears interest at prime plus
1.25%. As of December 31, 1998, there was $809 outstanding on the line of
credit. The amounts were repaid during 1999.
12. SHAREHOLDERS' EQUITY
Common Stock
In 1995, the Company sold 79,780 common shares pursuant to a private placement
agreement dated April 21, 1995 for an aggregate of $625. In accordance with this
agreement, the holders of these shares have the right, on two occasions, to
participate on a piggyback basis in a registration by the Company under the
Securities Act of 1933, as amended, subject to certain restrictions, for a
period ending on September 30, 2000, and commencing twelve months from the
closing of an initial public offering of the securities of the Company.
In October 1997, the Company completed a second public offering of its common
stock. The offering included the sale of 2,000,000 shares of common stock by the
Company and 500,000 shares of common stock by existing shareholders, at $22.25
per share plus an underwriter's overallotment of 750,000 shares. Total net
proceeds to the Company from this offering were $45,961.
Stock Repurchase Program
In September 1998, the Board of Directors approved a plan to repurchase up to
3,500,000 shares of the Company's outstanding common stock. The plan provides
that the shares may be repurchased at the discretion of the Company's senior
management over a period of up to six months. As of December 31, 1999, the
Company had repurchased 145,000 shares of treasury stock for total payments of
$315 under this plan.
Stock Options
The Company maintains the 1995 Stock Option Plan (the "1995 Plan") for the
purpose of granting incentive stock options to employees, officers or directors
of, or consultants or advisors to, the Company. Options granted under the 1995
Plan typically vest annually over a three-year period and expire ten years from
the date of grant. The Company reserved 1,500,000 shares of common stock for
issuance under the 1995 Plan, which was increased in 1997 and 1999 by 600,000
and 200,000 shares, respectively, pursuant to a vote by the Company's
shareholders.
The Company also maintains the Advanced Health Corporation Employee Stock
Purchase Plan (the "Employee Plan") in order to allow the employees of the
Company to acquire a proprietary interest in the Company through the purchase of
the Company's common stock. Under the Employee Plan, eligible employees will be
granted options to purchase shares of common stock through regular payroll
deductions. The total number of shares of common stock that are authorized for
issuance under the Employee Plan is 1,200,000. No shares have been issued under
the Employee Plan.
F-18
<PAGE> 44
AHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 and 1999
(000's omitted, except share and per share data)
In August 1998, the Company canceled and reissued all then outstanding stock
options, which had an exercise price above $5.05. Employees whose options were
canceled received an amount equal to 75% of their previous option grants. The
new options were granted at an exercise price of $2.50 per share, which was
equal to or above the then fair market value of the Company's common stock.
The Company accounts for these plans under APB Opinion No. 25, under which no
compensation cost has been recognized.
Had compensation cost for these plans been determined consistent with SFAS No.
123, the Company's net income (loss) and basic net income (loss) per share would
have been changed to the following pro forma amounts:
<TABLE>
<CAPTION>
1997 1998 1999
------- --------- ----------
<S> <C> <C> <C>
Net (loss) income:
As reported $ 7,158 $ (75,193) $ (20,804)
Pro forma 4,370 (81,557) (21,878)
Basic and diluted net (loss)
income per share:
As reported $ .91 $ (7.46) $ (1.95)
Pro forma .56 (8.11) (2.05)
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
A summary of the status of the 1995 Plan at December 31, 1998 and 1999, and
changes during the years then ended, is presented in the table and narrative
below:
<TABLE>
<CAPTION>
1998 1999
----------------------- ---------------------
Wtd. Avg. Wtd. Avg.
Shares Ex Price Shares Ex Price
----------- --------- --------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 2,478,800 $ 13.72 $ 2.53
Granted 1,298,718 2.81 1,851,080 2.94
Exercised (199,553) 5.35 523,250 1.43
Forfeited (1,726,885) 10.34 (523,151) 2.53
(235,559)
---------- --------- ---------
Outstanding at end of year 1,851,080 2.53 1,615,620 2.53
========== ========= =========
Exercisable at end of year 1,205,511 2.53 1,052,168 2.53
========== ========= =========
Weighted average fair value of options
granted $ 2.53 N/A $ 2.60 $ N/A
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1998 and 1999: risk-free interest rates of 5.42%
and 5.36%, respectively; expected dividend yields of 0%; expected lives of 3
years; expected stock price volatility of 154% and 113%, respectively.
F-19
<PAGE> 45
AHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 and 1999
(000's omitted, except share and per share data)
13. INCOME TAXES
Income tax provision (benefit) consists of the following:
<TABLE>
<CAPTION>
Years Ended December 31
------------------------------
1997 1998 1999
------- -------- -------
<S> <C> <C> <C>
Federal:
Current $ -- $ 536 $ --
Deferred 2,556 (19,291) (8,620)
State and local:
Current -- 95 36
Deferred 451 (3,404) (1,557)
Adjustment to valuation allowance for opening net (2,605) 4,092 --
deferred tax assets
Valuation allowance for net deferred tax assets -- 22,694 10,177
------- -------- -------
Total income tax provision (benefit) $ 402 $ 4,722 $ 36
======= ======== =======
</TABLE>
A reconciliation of the difference between the statutory federal income tax rate
and the Company's effective tax rate for the three years ended December 31, 1999
are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Tax provision (benefit) at statutory rate 34% 34% 34%
State and local taxes 6 6 6
Adjustment to valuation allowance for opening net -- 6 --
deferred tax assets
Valuation allowance for net deferred tax assets (35) (40) (40)
---- ---- ----
5% 6% --%
==== ==== ====
</TABLE>
The tax effects of temporary differences that give rise to a significant portion
of the deferred income tax asset, net, at December 31, 1998 and 1999 are as
follows:
<TABLE>
<CAPTION>
December 31
-------------------
1998 1999
-------- -------
<S> <C> <C>
Net operating loss carryforward $ 16,011 $ 21,699
Accrued expenses 4,666 1,206
Allowance for doubtful accounts 2,549 20
Amortization 1,746 1,512
Exercise of stock options 577 577
Impairment of investments 4,400
Other (326) (326)
-------- --------
25,223 29,088
Less- Valuation allowance (25,223) (29,088)
-------- --------
Total deferred income taxes, net $ -- $ --
======== ========
</TABLE>
F-20
<PAGE> 46
AHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 and 1999
(000's omitted, except share and per share data)
At December 31, 1999, the Company had net operating loss carryforwards ("NOLs")
available to offset taxable income of approximately $55,690, expiring in varying
amounts from 2010 through 2019. In 1997, management of the Company determined
that, more likely than not, its previously reserved deferred tax assets would be
realized and, accordingly, reduced the related valuation allowance. The
reduction in the valuation allowance is included in the provision for income
taxes in the accompanying consolidated statement of operations for 1997. The
determination that the net deferred tax asset of $4,092 at December 31, 1997 was
realizable, was based on the Company's profitability during 1997. Based upon the
Company's results of operations for the year ended December 31, 1999, the
Company determined that more likely than not, its deferred tax assets would not
be realized and recorded a full valuation allowance against such assets. The
provision for income taxes for the year ended December 31, 1998 represents the
charge for the valuation allowance for prior year deferred tax assets. Deferred
tax assets of approximately $1,360 for the year ended December 31, 1997, all of
which are related to tax benefits associated with the exercise of stock options,
did not result in a tax benefit in the accompanying consolidated statements of
operations but, rather, an increase to additional paid-in capital.
14. COMMITMENTS
The Company leases certain office space for its operations. Leases for this
space expire through 2002 and call for annual rent, with immaterial escalations
through the end of the leases. The Company has also entered into several
operating leases for office equipment.
Future minimum payments for operating leases at December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31:
2000 $ 693
2001 621
2002 260
</TABLE>
Rent expense was $443, $299 and $515, respectively, for the three years ended
December 31, 1999.
Employment Agreements
The Company maintains employment agreements with certain named executives. The
employment agreements provide for aggregate annual base salaries of $855. These
executives are also entitled to receive discretionary bonuses. The employment
agreements provide for a four-year term that is automatically renewable for
successive one-year terms unless either party gives prior written notice of its
intent not to renew.
15. STRATEGIC PARTNERSHIP AGREEMENTS
In August 1999, the Company entered into a strategic alliance agreement with
Laboratory Corporation of America Holdings ("LabCorp"), a national clinical
laboratory. Under the agreement, the Company will provide computer interfaces
for LabCorp's reference laboratory, hospital, and managed care clients. The
agreement provides for AHT to develop and install specific interfaces based on
AHT's technology, which allows LabCorp and its hospital partners to exchange
laboratory results, demographics, eligibility information, and laboratory
orders. The Company will receive fees based upon the number of interfaces
provided, as defined under the agreement.
F-21
<PAGE> 47
AHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 and 1999
(000's omitted, except share and per share data)
In November 1999, the Company entered into an agreement with drugstore.com, inc.
("drugstore.com"), an online drugstore and information site offering products
and solutions for health, beauty, wellness, personal care, to become a
participatory member in drugstore.com's new certification program for electronic
prescriptions. The certification program will help define the guidelines for
receipt of electronic prescriptions by online pharmacies. Under terms of the
agreement, AHT will work with drugstore.com to help establish and promote the
National Council for Prescription Drug Programs ("NCPDP") industry standard for
transmission of electronic prescriptions to online pharmacies. Through a
six-month test period beginning in early 2000, drugstore.com, AHT and other
program participants will work through technical, regulatory and operational
issues regarding electronic prescriptions with feedback from NCPDP. If
successful under the program, the Company will earn fees on electronic
prescriptions on a transaction basis.
In November 1999, the Company entered into a licensing agreement with
PlanetRx.com, Inc. ("PlanetRx"), an Internet healthcare destination for
commerce, content and community, for the Company's web-enabled electronic
prescription writing and transmission service. Under the terms of the agreement,
PlanetRx.com will pay AHT a transaction-processing fee for each electronic
prescription submitted for fulfillment to PlanetRx.com's website.
No transaction fees were earned during 1999.
In December 1999, the Company entered into an strategic agreement with
Merck-Medco Managed Care, L.L.C. ("Merck-Medco"), a pharmacy benefit management
company serving benefit plans of employers, unions, commercial and government
health plans, a subsidiary of Merck & Co., Inc. Under the agreement, the Company
will provide its web-based prescription management service, which manages
prescriptions electronically to registered users with Merck-Medco, as defined,
and to connect with Merck-Medco through the Company's proprietary web site. The
Company will earn fees on electronic prescriptions on a transaction basis.
16. LITIGATION AND DISPUTES
On September 23, 1997, the Company commenced an action against a customer to
collect $1,000 owed by the customer to the Company pursuant to a software
license agreement dated as of March 31, 1997, as amended (the "License
Agreement"), between the customer and the Company. On October 1, 1997, the
customer filed an answer to this lawsuit and asserted various counterclaims
against the Company, in which the customer alleges that the subject software and
documentation was not timely delivered and installed in accordance with the
License Agreement. As relief, the customer sought a declaratory judgment that
the customer is not obligated to make the $1,000 payment, as well as unspecified
damages. This action was settled in January 1999, all claims were dismissed with
prejudice and the settlement did not have a materially adverse effect on the
Company's consolidated financial statements.
From July 1 through August 17, 1998, eleven putative class actions were filed in
the United States District Court for the Southern District of New York, all of
which have been consolidated under the caption "In re Advanced Health
Corporation Securities Litigation". The amended consolidated complaint filed in
February 1999, seeks, among other remedies, certification as a class action and
unspecified damages resulting from defendants' alleged violations of federal
securities laws. The amended consolidated complaint alleged that the Company and
certain of its current or former officers or directors are liable for certain
misrepresentations and omissions regarding, among other matters, the Company's
operations, performance and financial condition. On January 27, 2000, the
Company agreed to a settlement of the Class Action, pursuant to which the
Company has deposited $300,000 in escrow to cover the costs of notice to the
class, administration of the settlement and plaintiff attorneys' expenses and
will, upon final approval of the settlement, issue 886,437 shares of common
stock to class members and class counsel (subject to possible enhancement if the
Company's stock price drops below a certain level or if the Company authorizes
and issued additional stock). The settlement is subject to the District Court's
approval. The Court has scheduled a hearing on the settlement for April 18,
2000.
F-22
<PAGE> 48
AHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 and 1999
(000's omitted, except share and per share data)
The settlement provides for the dismissal of the suit without any admission of
wrongdoing on the part of the Company.
From time to time, the Company is involved in other litigation. Although the
actual amount of any liability that could arise with respect to any such
litigation cannot be accurately predicted, in the opinion of management, the
resolution of these matters is not expected to have a material adverse effect on
the Company's business, results of operations or financial condition.
17. SUBSEQUENT EVENT
In March 2000, the Company entered into certain agreements with Cybear, Inc.
("Cybear"). As part of the agreements, Cybear purchased a $4 million 10% Senior
Convertible Note (the "Cybear Note") for cash from the Company, due March 31,
2001 and secured by the Company's assets. The Cybear Note is convertible at
Cybear's option into shares of the Company's common stock at a conversion price
equal to the lower of $4.34 per share or 80% of the average market price per
share prior to the conversion date, provided that Cybear cannot acquire upon
conversion approximately more than 1.9 million of the Company's shares. In
addition, Cybear received from the Company a five-year warrant to purchase up to
300,000 shares of the Company's common stock at an exercise price per share of
$4.34. The agreements include a co-marketing and distribution agreement for the
Company's Web-based electronic prescribing service and clinical laboratory
transaction management product and Cybear's Internet portal. In a related
agreement, the Company granted Cybear the exclusive right to migrate the
Company's Web-based prescription system to a hand held computer that will be
marketed exclusively by the Company and Cybear.
F-23
<PAGE> 49
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To AHT Corporation:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements of AHT Corporation and subsidiaries included
in this annual report on Form 10-K and have issued our report thereon dated
April 13, 2000. Our audits were made for the purpose of forming an opinion on
the basic consolidated financial statements taken as a whole. This schedule is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in our audits of the basic consolidated financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic consolidated financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
New York, New York
April 13, 2000
S-1
<PAGE> 50
AHT CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULE II
(000's omitted)
<TABLE>
<CAPTION>
Additions
---------------------------
Balance at Charged to Charged to
Beginning of Cost and Other Balance at
Description Period Expenses Accounts Deductions End of Period
----------- ------ -------- -------- ---------- -------------
DECEMBER 31:
<S> <C> <C> <C> <C> <C>
1997 allowance for doubtful accounts $ 210 $ 450 $ -- $ -- $ 660
1998 allowance for doubtful accounts 660 -- -- (630) 30
1999 allowance for doubtful accounts 30 20 -- -- 50
</TABLE>
S-2
<PAGE> 1
200 WEST ADAMS
STANDARD FORM OFFICE LEASE
BETWEEN
EOP OPERATING LIMITED PARTNERSHIP, a Delaware limited partnership
("LANDLORD")
AND
ADVANCED HEALTH CORPORATION, a Delaware corporation
("TENANT")
<PAGE> 2
I. Basic Lease Information; Definitions ......................... 1
II. Lease Grant .................................................. 3
III. Adjustment of Commencement Date/Possession ................... 3
IV. Rent ......................................................... 4
V. Use .......................................................... 8
VI. Security Deposit ............................................. 9
VII. Services to be Furnished by Landlord ......................... 9
VIII. Leasehold Improvements ....................................... 10
IX. Graphics ..................................................... 10
X. Repairs and Alterations ...................................... 10
XI. Use of Electrical Services by Tenant ......................... 12
XII. Entry by Landlord ............................................ 12
XIII. Assignment and Subletting .................................... 13
XIV. Liens ........................................................ 14
XV. Indemnity and Waiver of Claims ............................... 14
XVI. Tenant's Insurance ........................................... 15
XVII. Subrogation .................................................. 16
XVIII. Landlord's Insurance ......................................... 17
XIX. Casualty Damage .............................................. 17
XX. Demolition ................................................... 17
XXI. Condemnation ................................................. 18
XXII. Events of Default ............................................ 18
XXIII. Remedies ..................................................... 19
XXIV. LIMITATION OF LIABILITY ...................................... 21
XXV. No Waiver .................................................... 21
XXVI. Event of Bankruptcy .......................................... 21
XXVII. Waiver of Jury Trial ......................................... 22
XXVIII. Relocation ................................................... 22
XXIX. Holding Over ................................................. 22
XXX. Subordination to Mortgages; Estoppel Certificate ............. 23
XXXI. Attorneys' Fees .............................................. 23
XXXII. Notice ....................................................... 23
XXXIII. Landlord's Lien .............................................. 24
XXXIV. Excepted Rights .............................................. 24
XXXV. Surrender of Premises ........................................ 25
XXXVI. Miscellaneous ................................................ 25
XXXVII. Entire Agreement ............................................. 27
i
<PAGE> 3
OFFICE LEASE AGREEMENT
This Office Lease Agreement (the "Lease") is made and entered into as of
the 16 day of April, 1999, by and between EOP OPERATING LIMITED PARTNERSHIP, a
Delaware limited partnership ("Landlord") and ADVANCED HEALTH CORPORATION, a
Delaware corporation ("Tenant").
I. Basic Lease Information; Definitions.
A. The following are some of the basic lease information and defined
terms used in this Lease.
1. "Additional Base Rental" shall mean Tenant's Pro Rata Share of
Basic Costs and any other sums (exclusive of Base Rental) that
are required to be paid by Tenant to Landlord hereunder, which
sums are deemed to be additional rent under this Lease.
Additional Base Rental and Base Rental are sometimes
collectively referred to herein as "Rent".
2. "Base Rental" shall mean the sum of One Hundred Forty Four
Thousand Three Hundred Forty Eight and no/100 Dollars
($144,348.00), payable by Tenant to Landlord in thirty-six
(36) monthly installments as follows:
a. Twelve (12) equal installments of Three Thousand Eight
Hundred Thirty Five and 33/100 Dollars ($3,835.33), each
payable on or before the first day of each month during
the period beginning May 1,1999, and ending April 30,
2000, provided that the installment of Base Rental for
the first full calendar month of the Lease Term shall be
payable upon the execution of this Lease by Tenant.
b. Twelve (12) equal installments of Four Thousand Nine and
67/100 Dollars ($4,009.67), each payable on or before
the first day of each month during the period beginning
May 1, 2000, and ending April 30, 2001.
c. Twelve (12) equal installments of Four Thousand One
Hundred Eighty Four and No/100 Dollars ($4,184.00), each
payable on or before the first day of each month during
the period beginning May 1, 2001, and ending April 30,
2002.
3. "Building" shall mean the office building located at 200 West
Adams Street, City of Chicago, County of Cook, State of
Illinois, commonly known as 200 West Adams.
4. The "Commencement Date", "Lease Term" and "Termination Date"
shall have the meanings set forth in subsection l.A.4.a. below
or subsection I.A.4.b. below (delete one):
a. The "Lease Term" shall mean a period of thirty-six
(36) months, commencing on May 1, 1999, (the
"Commencement Date") and, unless sooner terminated
as provided herein, ending on April 30, 2002, (the
"Termination Date").
b. INTENTIONALLY DELETED
5. Premises" shall mean the area located on the seventeenth
(171h) floor of the Building, as outlined on Exhibit A
attached hereto and incorporated herein and known as Suite
#1700. Landlord and Tenant hereby stipulate and agree that the
"Rentable Area of the Premises" shall mean 4,184 square feet
and the "Rentable Area of the Building" shall mean 661,460
square feet. If the Premises being leased to Tenant hereunder
include one or more floors within the Building in their
entirety, the definition of Premises with respect to such full
floor(s) shall include all corridors and restroom facilities
located on such floor(s). Notwithstanding the foregoing,
unless specifically provided herein to the contrary, the
Premises shall not include any telephone closets, electrical
closets, janitorial closets, equipment rooms or similar areas
on any full or partial floor that are used by Landlord for the
operation of the Building.
<PAGE> 4
6. "Permitted Use" shall mean general office use.
7. "Security Deposit" shall mean the sum of None Dollars ($0.00).
8. "Tenant's Pro Rata Share" shall mean six thousand three
hundred twenty five ten thousandths percent (0.6325%), which
is the quotient (expressed as a percentage), derived by
dividing the Rentable Area of the Premises by the Rentable
Area of the Building.
9. INTENTIONALLY OMITTED
10. "Notice Addresses" shall mean the following addresses for
Tenant and Landlord, respectively:
Tenant:
On and after the Commencement Date, notices shall be sent to
Tenant at the Premises.
Prior to the Commencement Date, notices shall be sent to
Tenant at the following address:
200 West Adams Street
Suite 1000
Chicago, Illinois 60606
With a copy to:
Advanced Health Corporation
555 White Plains Road
Tarrytown, New York 10591
Attention: Jeff Sauerhoff, CFO
Landlord:
Equity Office Properties
200 West Adams Street, Suite 1201
Chicago, Illinois 60606
Attention: Property Manager
With a copy to:
EOP Operating Limited Partnership
c/o Equity Office Properties Trust
Two North Riverside Plaza, Suite 2200
Chicago, Illinois 60606
Attention: Regional Counsel - Central
Payments of Rent only shall be made payable to the order of:
Equity Office Properties
at the following address:
EOP for 200 West Adams
Dept. 77-97135
Chicago, Illinois 60678-7135
B. The following are additional definitions of some of the defined
terms used in the Lease.
1. INTENTIONALLY OMITTED.
2. "Basic Costs" shall mean all costs and expenses paid or
incurred in connection with operating, maintaining, repairing,
managing and owning the Building and the Property, as further
described in Article IV hereof.
2
<PAGE> 5
3. "Broker" means Equity Office Properties Trust.
4. "Building Standard" shall mean the type, grade, brand, quality
and/or quantity of materials Landlord designates from time to
time to be the minimum quality and/or quantity to be used in
the Building.
5. "Business Day(s)" shall mean Mondays through Fridays exclusive
of the normal business holidays ("Holidays") of New Year's
Day, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day. Landlord, from time to time during the
Lease Term, shall have the right to designate additional
Holidays, provided that such additional Holidays are commonly
recognized by other office buildings in the area where the
Building is located.
6. "Common Areas" shall mean those areas provided for the common
use or benefit of all tenants generally and/or the public,
such as corridors, elevator foyers, common mail rooms,
restrooms, vending areas, lobby areas (whether at ground level
or otherwise) and other similar facilities.
7. "Landlord Work" shall mean the work, if any, that Landlord is
obligated to perform in the Premises pursuant to the Work
Letter Agreement, if any, attached hereto as Exhibit D. (If
applicable.)
8. "Maximum Rate" shall mean the greatest per annum rate of
interest permitted from time to time under applicable law.
9. "Normal Business Hours" for the Building shall mean 8:00 A.M.
to 6:00 P.M. Mondays through Fridays, and 8:00 A.M. to 1:00
P.M. on Saturdays, exclusive of Holidays.
10. "Prime Rate" shall mean the per annum interest rate publicly
announced by The First National Bank of Chicago or any
successor thereof from time to time (whether or not charged in
each instance) as its prime or base rate in Chicago, Illinois.
11. "Property" shall mean the Building and the parcel(s) of land
on which it is located and, at Landlord's discretion, the
Building garage, if any, and all other improvements owned by
Landlord and serving the Building and the tenants thereof and
the parcel(s) of land on which they are located.
II. Lease Grant.
Subject to and upon the terms herein set forth, Landlord leases to Tenant
and Tenant leases from Landlord the Premises, together with the right, in common
with others, to use the Common Areas.
III. Adjustment of Commencement Date/Possession
A. INTENTIONALLY OMITTED
B. By taking possession of the Premises, Tenant is deemed to have
accepted the Premises and agreed that the Premises is in good order
and satisfactory condition, with no representation or warranty by
Landlord as to the condition of the Premises or the Building or
suitability thereof for Tenant's use.
C. Notwithstanding anything to the contrary contained in the Lease,
Landlord shall not be obligated to tender possession of any portion
of the Premises or other space leased by Tenant from time to time
hereunder that, on the date possession is to be delivered, is
occupied by a tenant or other occupant or that is subject to the
rights of any other tenant or occupant, nor shall Landlord have any
other obligations to Tenant under this Lease with respect to such
space until the date Landlord: (1) recaptures such space from such
existing tenant or occupant; and (2) regains the legal right to
possession thereof. This Lease shall not be affected by any such
failure to deliver possession and Tenant shall have no claim for
damages against Landlord as a result thereof, all of which are
hereby waived and released by Tenant.
3
<PAGE> 6
Landlord and Tenant acknowledge that Tenant is presently occupying
other premises in the Building known as Suite 1000 ("Suite 1000")
pursuant to that certain Office Lease dated December 8, 1995 by and
between Landlord's predecessor-in-interest and Tenant, which lease
has been terminated effective March 31, 1999 pursuant to Section
30(a) thereof. In the event Landlord fails or is unable to tender
possession of the Premises to Tenant on or before the Commencement
Date for any reason whatsoever, Tenant shall continue to occupy
Suite 1000 under the terms and provisions of this Lease as if Suite
1000 were the Premises hereunder until such date as Landlord tenders
possession of the Premises to Tenant, except that in no event shall
Rent and any other charges payable by Tenant hereunder be altered in
any way by reason of the fact that Tenant may be occupying Suite
1000 in lieu of the Premises as provided above.
D. If Tenant takes possession of the Premises prior to the Commencement
Date, such possession shall be subject to all the terms and
conditions of the Lease except that Tenant shall not be required to
pay Base Rental or Additional Base Rental with respect to the period
of time prior to the Commencement Date. Tenant shall, however, be
liable for the cost of any services (e.g. electricity, HVAC, freight
elevators) that are provided to Tenant or the Premises during the
period of Tenant's possession prior to the Commencement Date.
Nothing herein shall be construed as granting Tenant the right to
take possession of the Premises prior to the Commencement Date,
whether for construction, fixturing or any other purpose, without
the prior consent of Landlord.
IV. Rent.
A. During each calendar year, or portion thereof, falling within the
Lease Term, Tenant shall pay to Landlord as Additional Base Rental
hereunder Tenant's Pro Rata Share of Basic Costs (as defined below)
for the applicable calendar year. Prior to the Commencement Date and
prior to January 1 of each calendar year during the Lease Term, or
as soon thereafter as practical, Landlord shall make a good faith
estimate of Basic Costs for the applicable calendar year and
Tenant's Pro Rata Share thereof. On or before the first day of each
month during such calendar year, Tenant shall pay to Landlord, as
Additional Base Rental, a monthly installment equal to one-twelfth
of Tenant's Pro Rata Share of Landlord's estimate of Basic Costs.
Landlord shall have the right from time to time during any such
calendar year to revise the estimate of Basic Costs for such year
and provide Tenant with a revised statement therefor, and thereafter
the amount Tenant shall pay each month shall be based upon such
revised estimate. If Landlord does not provide Tenant with an
estimate of the Basic Costs by January 1 of any calendar year,
Tenant shall continue to pay a monthly installment based on the
previous year's estimate until such time as Landlord provides Tenant
with an estimate of Basic Costs for the current year. Upon receipt
of such current year's estimate, an adjustment shall be made for any
month during the current year with respect to which Tenant paid
monthly installments of Additional Base Rental based on the previous
year's estimate. Tenant shall pay to Landlord for any underpayment
within ten (10) days after demand. Any overpayment shall, at
Landlord's option, be refunded to Tenant or credited against the
installment of Additional Base Rental due for the months immediately
following the furnishing of such estimate. Any amounts paid by
Tenant based on any estimate shall be subject to adjustment pursuant
to the immediately following paragraph when actual Basic Costs are
determined for such calendar year.
As soon as is practical following the end of each calendar year
during the Lease Term, Landlord shall furnish to Tenant a statement
of Landlord's actual Basic Costs for the previous calendar year. If
the amount of estimated Basic Costs actually paid by Tenant for the
prior year is in excess of Tenant's actual Pro Rata Share of Basic
Costs for such prior year, then Landlord shall apply such
overpayment against Additional Base Rental due or to become due
hereunder, provided if the Lease Term expires prior to the
determination of such overpayment, Landlord shall refund such
overpayment to Tenant after first deducting the amount of any Rent
due hereunder. Likewise, Tenant shall pay to Landlord, within ten
(10) days after demand, any underpayment with respect to the prior
year, whether or not the Lease has terminated prior to receipt by
Tenant of a statement for such underpayment, it being understood
that this clause shall survive the expiration of the Lease.
4
<PAGE> 7
B. Basic Costs shall mean all costs and expenses paid or incurred in
each calendar year in connection with operating, maintaining,
repairing, managing and owning the Building and the Property,
including, but not limited to, the following:
1. All labor costs for all persons performing services required
or utilized in connection with the operation, repair,
replacement and maintenance of and control of access to the
Building and the Property, including but not limited to
amounts incurred for wages, salaries and other compensation
for services, payroll, social security, unemployment and other
similar taxes, workers' compensation insurance, uniforms,
training, disability benefits, pensions, hospitalization,
retirement plans, group insurance or any other similar or like
expenses or benefits.
2. All management fees, the cost of equipping and maintaining a
management office at the Building, accounting services, legal
fees not attributable to leasing and collection activity, and
all other administrative costs relating to the Building and
the Property. If management services are not provided by a
third party, Landlord shall be entitled to a management fee
comparable to that due and payable to third parties provided
Landlord or management companies owned by, or management
divisions of, Landlord perform actual management services of a
comparable nature and type as normally would be performed by
third parties.
3. All rental and/or purchase costs of materials, supplies, tools
and equipment used in the operation, repair, replacement and
maintenance and the control of access to the Building and the
Property.
4. All amounts charged to Landlord by contractors and/or
suppliers for services, replacement parts, components,
materials, equipment and supplies furnished in connection with
the operation, repair, maintenance, replacement of and control
of access to any part of the Building, or the Property
generally, including the heating, air conditioning,
ventilating, plumbing, electrical, elevator and other systems
and equipment. At Landlord's option, major repair items may be
amortized over a period of up to five (5) years.
5. All premiums and deductibles paid by Landlord for fire and
extended coverage insurance, earthquake and extended coverage
insurance, liability and extended coverage insurance, rental
loss insurance, elevator insurance, boiler insurance and other
insurance customarily carried from time to time by landlords
of comparable office buildings or required to be carried by
Landlord's Mortgagee.
6. Charges for water, gas, steam and sewer, but excluding those
charges for which Landlord is otherwise reimbursed by tenants,
and charges for Electrical Costs. For purposes hereof, the
term "Electrical Costs" shall mean: (i) all charges paid by
Landlord for electricity supplied to the Building, Property
and Premises, regardless of whether such charges are
characterized as distribution charges, transmission charges,
generation charges, public good charges, disconnection
charges, competitive transaction charges, stranded cost
recoveries or otherwise; (ii) except to the extent otherwise
included in Basic Costs, any costs incurred in connection with
the energy management program for the Building, Property and
Premises, including any costs incurred for the replacement of
lights and ballasts and the purchase and installation of
sensors and other energy saving equipment; and (iii) if and to
the extent permitted by law, a reasonable fee for the services
provided by Landlord in connection with the selection of
utility companies and the negotiation and administration of
contracts for the generation of electricity. Notwithstanding
the foregoing, Electrical Costs shall be adjusted as follows:
(a) any amounts received by Landlord as reimbursement for
above standard electrical consumption shall be deducted from
Electrical Costs, (b) the cost of electricity incurred in
providing overtime HVAC to specific tenants shall be deducted
from Electrical Costs, it being agreed that the electrical
component of overtime HVAC Costs shall be calculated as a
reasonable percentage of the total HVAC costs charged to such
tenants, and (c) if Tenant is billed directly for the cost of
electricity to the Premises as a separate charge in addition
to Base Rental and Basic Costs,
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the cost of electricity to individual tenant spaces in the
Building shall be deducted from Electrical Costs.
7. "Taxes", which for purposes hereof, shall mean: (a) all real
estate taxes and assessments on the Property, the Building or
the Premises, and taxes and assessments levied in substitution
or supplementation in whole or in part of such taxes, (b) all
personal property taxes for the Building's personal property,
including license expenses, (c) all taxes imposed on services
of Landlord's agents and employees, (d) all other taxes, fees
or assessments now or hereafter levied by any governmental
authority on the Property, the Building or its contents or on
the operation and use thereof (except as relate to specific
tenants), and (e) all costs and fees incurred in connection
with seeking reductions in or refunds in Taxes including,
without limitation, any costs incurred by Landlord to
challenge the tax valuation of the Building, but excluding
income taxes. For the purpose of determining real estate taxes
and assessments for any given calendar year, the amount to be
included in Taxes for such year shall be as follows: (1) with
respect to any special assessment that is payable in
installments, Taxes for such year shall include the amount of
the installment (and any interest) due and payable during such
year; and (2) with respect to all other real estate taxes,
Taxes for such year shall, at Landlord's election, include
either the amount accrued, assessed or otherwise imposed for
such year or the amount due and payable for such year,
provided that Landlord's election shall be applied
consistently throughout the Lease Term. If a reduction in
Taxes is obtained for any year of the Lease Term during which
Tenant paid its Pro Rata Share of Basic Costs, then Basic
Costs for such year will be retroactively adjusted and
Landlord shall provide Tenant with a credit, if any, based on
such adjustment. Likewise, if a reduction is subsequently
obtained for Taxes for the Base Year (if Tenant's Pro Rata
Share is based upon increases in Basic Costs over a Base
Year), Basic Costs for the Base Year shall be restated and the
Excess for all subsequent years recomputed. Tenant shall pay
to Landlord Tenant's Pro Rata Share of any such increase in
the Excess within thirty (30) days after Tenant's receipt of a
statement therefor from Landlord.
8. All landscape expenses and costs of maintaining, repairing,
resurfacing and striping of the parking areas and garages of
the Property, if any.
9. Cost of all maintenance service agreements, including those
for equipment, alarm service, window cleaning, drapery or
venetian blind cleaning, janitorial services, pest control,
uniform supply, plant maintenance, landscaping, and any
parking equipment.
10. Cost of all other repairs, replacements and general
maintenance of the Property and Building neither specified
above nor directly billed to tenants.
11. The amortized cost of capital improvements made to the
Building or the Property which are: (a) primarily for the
purpose of reducing operating expense costs or otherwise
improving the operating efficiency of the Property or
Building; or (b) required to comply with any laws, rules or
regulations of any governmental authority or a requirement of
Landlord's insurance carrier. The cost of such capital
improvements shall be amortized over a period of five (5)
years and shall, at Landlord's option, include interest at a
rate that is reasonably equivalent to the interest rate that
Landlord would be required to pay to finance the cost of the
capital improvement in question as of the date such capital
improvement is performed, provided if the payback period for
any capital improvement is less than five (5) years, Landlord
may amortize the cost of such capital improvement over the
payback period.
12. Any other expense or charge of any nature whatsoever which, in
accordance with general industry practice with respect to the
operation of a first-class office building, would be construed
as an operating expense.
Basic Costs shall not include the cost of capital improvements
(except as set forth above and as distinguished from replacement
parts or components purchased and installed in the ordinary course),
depreciation, interest (except as provided above with respect to the
amortization of capital improvements), lease commissions, and
principal payments on mortgage and other non-operating debts of
Landlord. In
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addition, if Landlord incurs any common Expenses in connection with
the Building and one or more other buildings, the cost of such
Expenses shall be equitably prorated between the Building and such
other buildings. If the Building is not at least ninety-five percent
(95%) occupied during any calendar year of the Lease Term or if
Landlord is not supplying services to at least ninety-five percent
(95%) of the total Rentable Area of the Building at any time during
any calendar year of the Lease Term, actual Basic Costs for purposes
hereof shall, at Landlord's option, be determined as if the Building
had been ninety-five percent (95%) occupied and Landlord had been
supplying services to ninety-five percent (95%) of the Rentable Area
of the Building during such year. If Tenant pays for its Pro Rata
Share of Basic Costs based on increases over a "Base Year and Basic
Costs for any calendar year during the Lease Term are determined as
provided in the foregoing sentence, Basic Costs for such Base Year
shall also be determined as if the Building had been ninety-five
percent (95%) occupied and Landlord had been supplying services to
ninety-five percent (95%) of the Rentable Area of the Building. Any
necessary extrapolation of Basic Costs under this Article shall be
performed by adjusting the cost of those components of Basic Costs
that are impacted by changes in the occupancy of the Building
(including, at Landlord's option, Taxes) to the cost that would have
been incurred if the Building had been ninety-five percent (95%)
occupied and Landlord had been supplying services to ninety-five
percent (95%) of the Rentable Area of the Building. In addition, if
Tenant's Pro Rata Share of Basic Costs is determined based upon
increases over a Base Year and Basic Costs for the Base Year include
exit and disconnection fees, stranded cost charges and/or
competitive transaction charges, such fees and charges may, at
Landlord's option, be imputed as a Basic Cost for subsequent years
in which such fees and charges are not incurred. In no event,
however, shall the amount of such imputed fees and charges exceed
the actual amount of exit and disconnection fees, stranded cost
charges and/or competitive transaction charges that were actually
included in Basic Costs for the Base Year.
C. If Basic Costs for any calendar year increase by more than five
percent (5%) over Basic Costs for the immediately preceding calendar
year, Tenant, within ninety (90) days after receiving Landlord's
statement of actual Basic Costs for a particular calendar year,
shall have the right to provide Landlord with written notice (the
"Review Notice") of its intent to review Landlord's books and
records relating to the Basic Costs for such calendar year. Within a
reasonable time after receipt of a timely Review Notice, Landlord
shall make such books and records available to Tenant or Tenant's
agent for its review at either Landlord's home office or at the
office of the Building, provided that if Tenant retains an agent to
review Landlord's books and records for any calendar year, such
agent must be CPA firm licensed to do business in the state in which
the Building is located. Tenant shall be solely responsible for any
and all costs, expenses and fees incurred by Tenant or Tenant's
agent in connection with such review. If Tenant elects to review
Landlord's books and records, within thirty (30) days after such
books and records are made available to Tenant, Tenant shall have
the right to give Landlord written notice stating in reasonable
detail any objection to Landlord's statement of actual Basic Costs
for such calendar year. If Tenant fails to give Landlord written
notice of objection within such thirty (30) day period or fails to
provide Landlord with a Review Notice within the ninety (90) day
period provided above, Tenant shall be deemed to have approved
Landlord's statement of Basic Costs in all respects and shall
thereafter be barred from raising any claims with respect thereto.
Upon Landlord's receipt of a timely objection notice from Tenant,
Landlord and Tenant shall work together in good faith to resolve the
discrepancy between Landlord's statement and Tenant's review. If
Landlord and Tenant determine that Basic Costs for the calendar year
in question are less than reported, Landlord shall provide Tenant
with a credit against future Additional Base Rental in the amount of
any overpayment by Tenant. Likewise, if Landlord and Tenant
determine that Basic Costs for the calendar year in question are
greater than reported, Tenant shall forthwith pay to Landlord the
amount of underpayment by Tenant. Any information obtained by Tenant
pursuant to the provisions of this Section shall be treated as
confidential. Notwithstanding anything herein to the contrary,
Tenant shall not be permitted to examine Landlord's books and
records or to dispute any statement of Basic Costs unless Tenant has
paid to Landlord the amount due as shown on Landlord's statement of
actual Basic Costs, said payment being a condition precedent to
Tenant's right to examine Landlord's books and records.
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D. Tenant covenants and agrees to pay to Landlord during the Lease
Term, without any setoff or deduction whatsoever, the full amount of
all Base Rental and Additional Base Rental due hereunder. In
addition, Tenant shall pay and be liable for, as additional rent,
all rental, sales and use taxes or other similar taxes, if any,
levied or imposed by any city, state, county or other governmental
body having authority, such payments to be in addition to all other
payments required to be paid to Landlord by Tenant under the terms
and conditions of this Lease. Any such payments shall be paid
concurrently with the payments of the Rent on which the tax is
based. The Base Rental, Tenant's Pro Rata Share of Basic Costs and
any recurring monthly charges due hereunder shall be due and payable
in advance on the first day of each calendar month during the Lease
Term without demand, provided that the installment of Base Rental
for the first full calendar month of the Lease Term shall be payable
upon the execution of this Lease by Tenant. All other items of Rent
shall be due and payable by Tenant on or before ten (10) days after
billing by Landlord. If the Lease Term commences on a day other than
the first day of a calendar month or terminates on a day other than
the last day of a calendar month, then the monthly Base Rental and
Tenant's Pro Rata Share of Basic Costs for such month shall be
prorated for the number of days in such month occurring within the
Lease Term based on a fraction, the numerator of which is the number
of days of the Lease Term that fell within such calendar month and
the denominator of which is thirty (30). All such payments shall be
by a good and sufficient check. No payment by Tenant or receipt or
acceptance by Landlord of a lesser amount than the correct amount of
Rent due under this Lease shall be deemed to be other than a payment
on account of the earliest Rent due hereunder, nor shall any
endorsement or statement on any check or any letter accompanying any
check or payment be deemed an accord and satisfaction, and Landlord
may accept such check or payment without prejudice to Landlord's
right to recover the balance or pursue any other available remedy.
The acceptance by Landlord of any Rent on a date after the due date
of such payment shall not be construed to be a waiver of Landlord's
right to declare a default for any other late payment. Tenant's
covenant to pay Rent shall be independent of every other covenant
set forth in this Lease.
E. All Rent not paid when due and payable shall bear interest from the
date due until paid at the lesser of: (1) eighteen percent (18%) per
annum; or (2) the Maximum Rate. In addition, if Tenant fails to pay
any installment of Rent when due and payable hereunder, a service
fee equal to five percent (5%) of such unpaid amount will be due and
payable immediately by Tenant to Landlord.
V. Use.
The Premises shall be used for the Permitted Use and for no other purpose.
Tenant agrees not to use or permit the use of the Premises for any purpose which
is illegal, dangerous to life, limb or property or which, in Landlord's
reasonable opinion, creates a nuisance or which would increase the cost of
insurance coverage with respect to the Building. Tenant shall conduct its
business and control its agents, servants, contractors, employees, customers,
licensees, and invitees in such a manner as not to interfere with, annoy or
disturb other tenants, or in any way interfere with Landlord in the management
and operation of the Building. Tenant will maintain the Premises in a clean and
healthful condition, and comply with all laws, ordinances, orders, rules and
regulations of any governmental entity with reference to the operation of
Tenant's business and to the use, condition, configuration or occupancy of the
Premises, including without limitation, the Americans with Disabilities Act
(collectively referred to as "Laws"). Tenant, within ten (10) days after receipt
thereof, shall provide Landlord with copies of any notices it receives with
respect to a violation or alleged violation of any Laws. Tenant shall reimburse
and compensate Landlord for all expenditures made by, or damages or fines
sustained or incurred by, Landlord due to any violations of Laws by Tenant or
any Tenant Related Parties with respect to the Premises. Tenant will comply with
the rules and regulations of the Building attached hereto as Exhibit B and such
other rules and regulations adopted and altered by Landlord from time to time
and will cause all of its agents, servants, contractors, employees, customers,
licensees and invitees to do so. All changes to such rules and regulations will
be reasonable and shall be sent by Landlord to Tenant in writing.
VI. Security Deposit
The Security Deposit shall be delivered to Landlord upon the execution of
this Lease by Tenant and shall be held by Landlord without liability for
interest (except as required by law) and as security for the performance of
Tenant's obligations under this Lease. The Security Deposit shall not be
considered an advance payment of Rent or a measure of Tenant's liability for
damages.
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Landlord may, from time to time, without prejudice to any other remedy, use all
or a portion of the Security Deposit to make good any arrearage of Rent, to
repair damages to the Premises, to clean the Premises upon termination of this
Lease or otherwise to satisfy any other covenant or obligation of Tenant
hereunder. Following any such application of the Security Deposit, Tenant shall
pay to Landlord on demand the amount so applied in order to restore the Security
Deposit to its original amount. If Tenant is not in default at the termination
of this Lease, after Tenant surrenders the Premises to Landlord in accordance
with this Lease and all amounts due Landlord from Tenant are finally determined
and paid by Tenant or through application of the Security Deposit, the balance
of the Security Deposit remaining after any such application shall be returned
to Tenant. If Landlord transfers its interest in the Premises during the Lease
Term, Landlord may assign the Security Deposit to the transferee and thereafter
shall have no further liability for the return of such Security Deposit. Tenant
agrees to look solely to such transferee or assignee for the return of the
Security Deposit. Landlord and its successors and assigns shall not be bound by
any actual or attempted assignment or encumbrance of the Security Deposit by
Tenant, provided, however, if Tenant's interest in this Lease has been assigned,
Landlord shall, provided that Landlord has been furnished with a fully executed
copy of the agreement assigning such Security Deposit, return the Security
Deposit to such assignee in accordance with the terms and conditions hereof. If
Landlord returns the Security Deposit to Tenant's assignee as aforesaid,
Landlord will have no further obligation to any party with respect thereto.
Landlord shall not be required to keep the Security Deposit separate from its
other accounts.
VII. Services to be Furnished by Landlord.
A. Landlord, as part of Basic Costs (except as otherwise provided),
agrees to furnish Tenant the following services:
13. Water for use in the lavatories on the floor(s) on which the
Premises is located. If Tenant desires water in the Premises
for any approved reason, including a private lavatory or
kitchen, cold water shall be supplied, at Tenant's sole cost
and expense, from the Building water main through a line and
fixtures installed at Tenant's sole cost and expense with the
prior reasonable consent of Landlord. If Tenant desires hot
water in the Premises, Tenant, at its sole cost and expense
and subject to the prior reasonable consent of Landlord, may
install a hot water heater in the Premises. Tenant shall be
solely responsible for maintenance and repair of any such hot
water heater.
14. Central heat and air conditioning in season during Normal
Business Hours, at such temperatures and in such amounts as
are considered by Landlord, in its reasonable judgment, to be
standard for buildings of similar class, size, age and
location, or as required by governmental authority. In the
event that Tenant requires central heat, ventilation or air
conditioning at hours other than Normal Business Hours, such
central heat, ventilation or air conditioning shall be
furnished only upon the written request of Tenant delivered to
Landlord at the office of the Building prior to 3:00 P.M. at
least one Business Day in advance of the date for which such
usage is requested. Tenant shall pay Landlord, as Additional
Base Rental, the entire cost of additional service as such
costs are determined by Landlord from time to time.
15. Maintenance and repair of all Common Areas in the manner and
to the extent reasonably deemed by Landlord to be standard for
buildings of similar class, size, age and location.
16. Janitor service on Business Days; provided, however, if
Tenant's use, floor covering or other improvements require
special services, Tenant shall pay the additional cost
reasonably attributable thereto as Additional Base Rental.
17. Passenger elevator service in common with other tenants of the
Building.
18. Electricity to the Premises for general office use, in
accordance with and subject to the terms and conditions set
forth in Article XI of this Lease.
B. The failure by Landlord to any extent to furnish, or the
interruption or termination of any services in whole or in part,
resulting from adherence to laws, regulations and administrative
orders, wear, use, repairs, improvements, alterations or any causes
beyond the reasonable control of Landlord shall not render Landlord
liable in any
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respect nor be construed as a constructive eviction of Tenant, nor
give rise to an abatement of Rent, nor relieve Tenant from the
obligation to fulfill any covenant or agreement hereof. Should any
of the equipment or machinery used in the provision of such services
for any cause cease to function properly, Landlord shall use
reasonable diligence to repair such equipment or machinery.
C. Tenant expressly acknowledges that if Landlord, from time to time,
elects to provide security services, Landlord shall not be deemed to
have warranted the efficiency of any security personnel, service,
procedures or equipment and Landlord shall not be liable in any
manner for the failure of any such security personnel, services,
procedures or equipment to prevent or control, or apprehend anyone
suspected of personal injury, property damage or any criminal
conduct in, on or around the Property.
VIII. Leasehold Improvements.
Any trade fixtures, unattached and movable equipment or furniture, or
other personalty brought into the Premises by Tenant ("Tenant's Property") shall
be owned and insured by Tenant. Tenant shall remove all such Tenant's Property
from the Premises in accordance with the terms of Article XXXV hereof. Any and
all alterations, additions and improvements to the Premises, including any
built-in furniture (collectively, "Leasehold Improvements") shall be owned and
insured by Landlord and shall remain upon the Premises, all without
compensation, allowance or credit to Tenant. Landlord may, nonetheless, at any
time prior to, or within six (6) months after, the expiration or earlier
termination of this Lease or Tenant's right to possession, require Tenant to
remove any Leasehold Improvements performed by or for the benefit of Tenant and
all electronic, phone and data cabling as are designated by Landlord (the
"Required Removables") at Tenant's sole cost. In the event that Landlord so
elects, Tenant shall remove such Required Removables within ten (10) days after
notice from Landlord, provided that in no event shall Tenant be required to
remove such Required Removables prior to the expiration or earlier termination
of this Lease or Tenant's right to possession. In addition to Tenant's
obligation to remove the Required Removables, Tenant shall repair any damage
caused by such removal and perform such other work as is reasonably necessary to
restore the Premises to a "move in" condition. If Tenant fails to remove any
specified Required Removables or to perform any required repairs and restoration
within the time period specified above, Landlord, at Tenant's sole cost and
expense, may remove, store, sell and/or dispose of the Required Removables and
perform such required repairs and restoration work. Tenant, within five (5) days
after demand from Landlord, shall reimburse Landlord for any and all reasonable
costs incurred by Landlord in connection with the Required Removables.
IX.C Graphics.
Landlord shall provide and install, at Tenant's cost, any suite numbers
and Tenant identification on the exterior of the Premises using the standard
graphics for the Building. Tenant shall not be permitted to install any signs or
other identification without Landlord's prior written consent.
X.C Repairs and Alterations.
D. Except to the extent such obligations are imposed upon Landlord
hereunder, Tenant, at its sole cost and expense, shall perform all
maintenance and repairs to the Premises as are necessary to keep the
same in good condition and repair throughout the entire Lease Term,
reasonable wear and tear excepted. Tenant's repair and maintenance
obligations with respect to the Premises shall include, without
limitation, any necessary repairs with respect to: (1) any carpet or
other floor covering, (2) any interior partitions, (3) any doors,
(4) the interior side of any demising walls, (5) any telephone and
computer cabling that serves Tenant's equipment exclusively, (6) any
supplemental air conditioning units, private showers and kitchens,
including any plumbing in connection therewith, and similar
facilities serving Tenant exclusively, and (7) any alterations,
additions or improvements performed by contractors retained by
Tenant. All such work shall be performed in accordance with section
X.B. below and the rules, policies and procedures reasonably enacted
by Landlord from time to time for the performance of work in the
Building. If Tenant fails to make any necessary repairs to the
Premises, Landlord may, at its option, make such repairs, and Tenant
shall pay the cost thereof to the Landlord on demand as Additional
Base Rental, together with an administrative charge in an amount
equal to ten percent (10%) of the cost of such repairs. Landlord
shall, at its expense (except as included in Basic Costs), keep and
maintain
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in good repair and working order and make all repairs to and perform
necessary maintenance upon: (a) all structural elements of the
Building; and (b) all mechanical, electrical and plumbing systems
that serve the Building in general; and (c) the Building facilities
common to all tenants including, but not limited to, the ceilings,
walls and floors in the Common Areas. In addition, Landlord may
elect, at the expense of Tenant, to repair any damage or injury to
the Building caused by moving property of Tenant in or out of the
Building, or by installation or removal of furniture or other
property, or by misuse by, or neglect, or improper conduct of,
Tenant or any Tenant Related Parties (hereinafter defined).
E. Tenant shall not make or allow to be made any alterations, additions
or improvements to the Premises without first obtaining the written
consent of Landlord in each such instance. Prior to commencing any
such work and as a condition to obtaining Landlord's consent, Tenant
must furnish Landlord with plans and specifications reasonably
acceptable to Landlord; names and addresses of contractors
reasonably acceptable to Landlord; copies of contracts; necessary
permits and approvals; evidence of contractor's and subcontractors
insurance in accordance with Article XVI section B. hereof; and
payment bond or other security, all in form and amount satisfactory
to Landlord. All such improvements, alterations or additions shall
be constructed in a good and workmanlike manner using Building
Standard materials or other new materials of equal or greater
quality. Landlord, to the extent reasonably necessary to avoid any
disruption to the tenants and occupants of the Building, shall have
the right to designate the time when any such alterations, additions
and improvements may be performed and to otherwise designate
reasonable rules, regulations and procedures for the performance of
work in the Building. Upon completion, Tenant shall furnish
"as-built" plans, contractor's affidavits and full and final waivers
of lien and receipted bills covering all labor and materials. All
improvements, alterations and additions shall comply with all
insurance requirements, codes, ordinances, laws and regulations,
including without limitation, the Americans with Disabilities Act.
Tenant shall reimburse Landlord upon demand as Additional Base
Rental for all sums, if any, expended by Landlord for third party
examination of the architectural, mechanical, electric and plumbing
plans for any alterations, additions or improvements. In addition,
if Landlord so requests, Landlord shall be entitled to oversee the
construction of any alterations, additions or improvements that may
affect the structure of the Building or any of the mechanical,
electrical, plumbing or life safety systems of the Building. In the
event Landlord elects to oversee such work, Landlord shall be
entitled to receive a fee for such oversight in an amount equal to
fifteen percent (15%) of the cost of such alterations, additions or
improvements. Landlord's approval of Tenant's plans and
specifications for any work performed for or on behalf of Tenant
shall not be deemed to be a representation by Landlord that such
plans and specifications comply with applicable insurance
requirements, building codes, ordinances, laws or regulations or
that the alterations, additions and improvements constructed in
accordance with such plans and specifications will be adequate for
Tenant's use. Tenant shall pay, as an additional charge, the entire
increase in real estate taxes on the Building which shall, at any
time prior to or after the Commencement Date, result from or be
attributable to any alteration, addition or improvement to the
Premises made by or for the account of Tenant in excess of the
Building Standard improvements for the Building.
XI. Use of Electrical Services by Tenant.
F. All electricity used by Tenant in the Premises shall, at Landlord's
option, be paid for by Tenant either: (1) through inclusion in Base
Rental and Basic Costs (except as provided in Section XI.B. below
with respect to excess usage); or (2) by a separate charge billed
directly to Tenant by Landlord and payable by Tenant as Additional
Base Rental within ten (10) days after billing; or (3) by a separate
charge or charges billed by the utility company(ies) providing
electrical service and payable by Tenant directly to such utility
company(ies). It is understood that the Premises is presently
directly metered by the utility company providing electrical service
to the Building and that alternative (3) in the preceding sentence
presently applies, although the foregoing shall not limit Landlord's
options under this section at any time hereafter. It is further
understood that electrical service to the Premises may be furnished
by one or more companies providing electrical generation,
transmission and/or distribution services and that the cost of
electricity may be billed as a single charge or divided into and
billed in a variety of categories such as distribution charges,
transmission charges, generation charges, public good charges or
other similar
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categories. Landlord shall have the exclusive right to select the
company(ies) providing electrical service to the Building, Premises
and Property, to aggregate the electrical service for the Building,
Premises and Property with other buildings, to purchase electricity
for the Building, Premises and Property through a broker and/or
buyers group and to change the providers and/or manner of purchasing
electricity from time to time. Landlord shall be entitled to receive
a reasonable fee (if permitted by law) for the services provided by
Landlord in connection with the selection of utility companies and
the negotiation and administration of contracts for the generation
of electricity. In addition, if Landlord bills Tenant directly for
the cost of electricity as Additional Base Rental, the cost of
electricity may include (if permitted by law) an administrative fee
to reimburse Landlord for the cost of reading meters, preparing
invoices and related costs.
G. Tenant's use of electrical service in the Premises shall not exceed,
either in voltage, rated capacity, use beyond Normal Business Hours
or overall load, that which Landlord deems to be standard for the
Building. In the event Tenant shall consume (or request that it be
allowed to consume) electrical service in excess of that deemed by
Landlord to be standard for the Building, Landlord may refuse to
consent to such excess usage or may condition its consent to such
excess usage upon such conditions as Landlord reasonably elects
(including the installation of utility service upgrades, submeters,
air handlers or cooling units), and all such additional usage (to
the extent permitted by law), installation and maintenance thereof
shall be paid for by Tenant as Additional Base Rental. Landlord, at
any time during the Lease Term, shall have the right to separately
meter electrical usage for the Premises or to measure electrical
usage by survey or any other method that Landlord, in its reasonable
judgment, deems to be appropriate.
H. Notwithstanding Section A. above to the contrary, if Landlord
permits Tenant to purchase electrical power for the Premises from a
provider other than Landlord's designated company(ies), such
provider shall be considered to be a contractor of Tenant and Tenant
shall indemnify and hold Landlord harmless from such provider's acts
and omissions while in, or in connection with their services to, the
Building or Premises in accordance with the terms and conditions of
Article XV. In addition, at the request of Landlord, Tenant shall
allow Landlord to purchase electricity from Tenant's provider at
Tenant's rate or at such lower rate as can be negotiated by the
aggregation of Landlord's and Tenant's requirements for electricity
power.
XII. Entry by Landlord.
Landlord and its agents or representatives shall have the right to enter
the Premises to inspect the same, or to show the Premises to prospective
purchasers, mortgagees, tenants (during the last twelve months of the Lease Term
or earlier in connection with a potential relocation) or insurers, or to clean
or make repairs, alterations or additions thereto, including any work that
Landlord deems necessary for the safety, protection or preservation of the
Building or any occupants thereof, or to facilitate repairs, alterations or
additions to the Building or any other tenants' premises. Except for any entry
by Landlord in an emergency situation or to provide normal cleaning and
janitorial service, Landlord shall provide Tenant with reasonable prior notice
of any entry into the Premises, which notice may be given verbally. If
reasonably necessary for the protection and safety of Tenant and its employees,
Landlord shall have the right to temporarily close the Premises to perform
repairs, alterations or additions in the Premises, provided that Landlord shall
use reasonable efforts to perform all such work on weekends and after Normal
Business Hours. Entry by Landlord hereunder shall not constitute a constructive
eviction or entitle Tenant to any abatement or reduction of Rent by reason
thereof.
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XIII. Assignment and Subletting.
A. Tenant shall not assign, sublease, transfer or encumber this Lease
or any interest therein or grant any license, concession or other
right of occupancy of the Premises or any portion thereof or
otherwise permit the use of the Premises or any portion thereof by
any party other than Tenant (any of which events is hereinafter
called a "Transfer) without the prior written consent of Landlord,
which consent shall not be unreasonably withheld with respect to any
proposed assignment or subletting. Landlord's consent shall not be
considered unreasonably withheld if: (1) the proposed transferee's
financial responsibility does not meet the same criteria Landlord
uses to select Building tenants; (2) the proposed transferee's
business is not suitable for the Building considering the business
of the other tenants and the Building's prestige or would result in
a violation of an exclusive right granted to another tenant in the
Building; (3) the proposed use is different than the Permitted Use;
(4) the proposed transferee is a government agency or occupant of
the Building; (5) Tenant is in default; or (6) any portion of the
Building or Premises would become subject to additional or different
governmental laws or regulations as a consequence of the proposed
Transfer and/or the proposed transferee's use and occupancy of the
Premises. Tenant acknowledges that the foregoing is not intended to
be an exclusive list of the reasons for which Landlord may
reasonably withhold its consent to a proposed Transfer. Any
attempted Transfer in violation of the terms of this Article shall,
at Landlord's option, be void. Consent by Landlord to one or more
Transfers shall not operate as a waiver of Landlord's rights as to
any subsequent Transfers. In addition, Tenant shall not, without
Landlord's consent, publicly advertise the proposed rental rate for
any Transfer.
B. If Tenant requests Landlord's consent to a Transfer, Tenant,
together with such request for consent, shall provide Landlord with
the name of the proposed transferee and the nature of the business
of the proposed transferee, the term, use, rental rate and all other
material terms and conditions of the proposed Transfer, including,
without limitation, a copy of the proposed assignment, sublease or
other contractual documents and evidence satisfactory to Landlord
that the proposed transferee is financially responsible.
Notwithstanding Landlord's agreement to act reasonably under Section
XIII.A. above, Landlord may, within forty-five (45) days after its
receipt of all information and documentation required herein,
either, (1) consent to or reasonably refuse to consent to such
Transfer in writing; or (2) negotiate directly with the proposed
transferee and in the event Landlord is able to reach an agreement
with such proposed transferee, terminate this Lease (in part or in
whole, as appropriate) upon thirty (30) days' notice; or (3) cancel
and terminate this Lease, in whole or in part as appropriate, upon
thirty (30) days' notice. In the event Landlord consents to any such
Transfer, the Transfer and consent thereto shall be in a form
approved by Landlord, and Tenant shall bear all costs and expenses
incurred by Landlord in connection with the review and approval of
such documentation, which costs and expenses shall be deemed to be
at least Seven Hundred Fifty Dollars ($750.00).
C. All cash or other proceeds (the "Transfer Consideration") of any
Transfer of Tenant's interest in this Lease and/or the Premises,
whether consented to by Landlord or not, shall be paid to Landlord
and Tenant hereby assigns all rights it might have or ever acquire
in any such proceeds to Landlord. In addition to the Rent hereunder,
Tenant hereby covenants and agrees to pay to Landlord all rent and
other consideration which it receives which is in excess of the Rent
payable hereunder within ten (10) days following receipt thereof by
Tenant. In addition to any other rights Landlord may have, Landlord
shall have the right to contact any transferee and require that all
payments made pursuant to the Transfer shall be made directly to
Landlord.
D. If Tenant is a corporation, limited liability company or similar
entity, and if at any time during the Lease Term the entity or
entities who own the voting shares at the time of the execution of
this Lease cease for any reason (including but not limited to
merger, consolidation or other reorganization involving another
corporation) to own a majority of such shares, or if Tenant is a
partnership and if at any time during the Lease Term the general
partner or partners who own the general partnership interests in the
partnership at the time of the execution of this Lease, cease for
any reason to own a majority of such interests (except as the result
of transfers by gift, bequest or inheritance to or for the benefit
of members of the immediate family of such original shareholder[s]
or partner[s]), such an event shall be deemed to be a
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Transfer. The preceding sentence shall not apply whenever Tenant is
a corporation, the outstanding stock of which is listed on a
recognized security exchange, or if at least eighty percent (80%) of
its voting stock is owned by another corporation, the voting stock
of which is so listed.
E. Any Transfer consented to by Landlord in accordance with this
Article XIII shall be only for the Permitted Use and for no
other purpose. In no event shall any Transfer release or
relieve Tenant or any Guarantors from any obligations under
this Lease.
XIV. Liens.
Tenant will not permit any mechanic's liens or other liens to be placed
upon the Premises or Tenant's leasehold interest therein, the Building, or the
Property. Landlord's title to the Building and Property is and always shall be
paramount to the interest of Tenant, and nothing herein contained shall empower
Tenant to do any act that can, shall or may encumber Landlord's title. In the
event any such lien does attach, Tenant shall, within five (5) days of notice of
the filing of said lien, either discharge or bond over such lien to the
satisfaction of Landlord and Landlord's Mortgagee (as hereinafter defined), and
in such a manner as to remove the lien as an encumbrance against the Building
and Property. If Tenant shall fail to so discharge or bond over such lien, then,
in addition to any other right or remedy of Landlord, Landlord may, but shall
not be obligated to bond over or discharge the same. Any amount paid by Landlord
for any of the aforesaid purposes, including reasonable attorneys' fees (if and
to the extent permitted by law) shall be paid by Tenant to Landlord on demand as
Additional Base Rental. Landlord shall have the right to post and keep posted on
the Premises any notices that may be provided by law or which Landlord may deem
to be proper for the protection of Landlord, the Premises and the Building from
such liens.
XV. Indemnity and Waiver of Claims.
A. Tenant shall indemnify, defend and hold Landlord, its members,
principals, beneficiaries, partners, officers, directors, employees,
Mortgagee(s) and agents, and the respective principals and members
of any such agents (collectively the "Landlord Related Parties")
harmless against and from all liabilities, obligations, damages,
penalties, claims, costs, charges and expenses, including, without
limitation, reasonable attorneys' fees and other professional fees
(if and to the extent permitted by law), which may be imposed upon,
incurred by, or asserted against Landlord or any of the Landlord
Related Parties and arising, directly or indirectly, out of or in
connection with the use, occupancy or maintenance of the Premises
by, through or under Tenant including, without limitation, any of
the following: (1) any work or thing done in, on or about the
Premises or any part thereof by Tenant or any of its transferees,
agents, servants, contractors, employees, customers, licensees or
invitees; (2) any use, non-use, possession, occupation, condition,
operation or maintenance of the Premises or any part thereof; (3)
any act or omission of Tenant or any of its transferees, agents,
servants, contractors, employees, customers, licensees or invitees,
regardless of whether such act or omission occurred within the
Premises; (4) any injury or damage to any person or property
occurring in, on or about the Premises or any part thereof; or (5)
any failure on the part of Tenant to perform or comply with any of
the covenants, agreements, terms or conditions contained in this
Lease with which Tenant must comply or perform. In case any action
or proceeding is brought against Landlord or any of the Landlord
Related Parties by reason of any of the foregoing, Tenant shall, at
Tenant's sole cost and expense, resist and defend such action or
proceeding with counsel approved by Landlord or, at Landlord's
option, reimburse Landlord for the cost of any counsel retained
directly by Landlord to defend and resist such action or proceeding.
Notwithstanding the foregoing provisions of this Section XV, nothing
contained in this Lease shall be deemed to constitute a release of
Landlord from, or an obligation to indemnify Landlord for, its own
negligence.
B. Landlord and the Landlord Related Parties shall not be liable for,
and Tenant hereby waives, all claims for loss or damage to Tenant's
business or damage to person or property sustained by Tenant or any
person claiming by, through or under Tenant [including Tenant's
principals, agents and employees (collectively, the "Tenant Related
Parties")] resulting from any accident or occurrence in, on or about
the Premises, the Building or the Property, including, without
limitation, claims for loss, theft or damage resulting from: (1) the
Premises, Building, or Property, or any equipment or appurtenances
becoming out of repair; (2) wind or weather; (3) any defect in or
failure to operate, for whatever reason, any sprinkler, heating or
air-
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conditioning equipment, electric wiring, gas, water or steam pipes;
(4) broken glass; (5) the backing up of any sewer pipe or downspout;
(6) the bursting, leaking or running of any tank, water closet,
drain or other pipe; (7) the escape of steam or water; (8) water,
snow or ice being upon or coming through the roof, skylight, stairs,
doorways, windows, walks or any other place upon or near the
Building; (9) the falling of any fixture, plaster, tile or other
material; (10) any act, omission or negligence of other tenants,
licensees or any other persons or occupants of the Building or of
adjoining or contiguous buildings, or owners of adjacent or
contiguous property or the public, or by construction of any
private, public or quasi-public work; or (11) any other cause of any
nature except, as to items 1-9, where such loss or damage is due to
Landlord's willful failure to make repairs required to be made
pursuant to other provisions of this Lease, after the expiration of
a reasonable time after written notice to Landlord of the need for
such repairs. To the maximum extent permitted by law, Tenant agrees
to use and occupy the Premises, and to use such other portions of
the Building as Tenant is herein given the right to use, at Tenant's
own risk.
XVI. Tenant's Insurance.
A. At all times commencing on and after the earlier of the Commencement
Date and the date Tenant or its agents, employees or contractors
enters the Premises for any purpose, Tenant shall carry and
maintain, at its sole cost and expense:
19. Commercial General Liability Insurance applicable to the
Premises and its appurtenances providing, on an occurrence
basis, a minimum combined single limit of Two Million Dollars
($2,000,000.00), with a contractual liability endorsement
covering Tenant's indemnity obligations under this Lease.
20. All Risks of Physical Loss Insurance written at replacement
cost value and with a replacement cost endorsement covering
all of Tenant's Property in the Premises.
21. Workers' Compensation Insurance as required by the state in
which the Premises is located and in amounts as may be
required by applicable statute, and Employers' Liability
Coverage of One Million Dollars ($1,000,000.00) per
occurrence.
22. Whenever good business practice, in Landlord's reasonable
judgment, indicates the need of additional insurance coverage
or different types of insurance in connection with the
Premises or Tenant's use and occupancy thereof Tenant shall,
upon request, obtain such insurance at Tenant's expense and
provide Landlord with evidence thereof.
B. Except for items for which Landlord is responsible under the Work
Letter Agreement, before any repairs, alterations, additions,
improvements, or construction are undertaken by or on behalf of
Tenant, Tenant shall carry and maintain, at its expense, or Tenant
shall require any contractor performing work on the Premises to
carry and maintain, at no expense to Landlord, in addition to
Workers' Compensation Insurance as required by the jurisdiction in
which the Building is located, All Risk Builder's Risk Insurance in
the amount of the replacement cost of any alterations, additions or
improvements (or such other amount reasonably required by Landlord)
and Commercial General Liability Insurance (including, without
limitation, Contractor's Liability coverage, Contractual Liability
coverage and Completed Operations coverage,) written on an
occurrence basis with a minimum combined single limit of Two Million
Dollars ($2,000,000.00) and adding "the named Landlord hereunder (or
any successor thereto), Equity Office Properties Trust, a Maryland
real estate investment trust, EOP Operating Limited Partnership, a
Delaware limited partnership, and their respective members,
principals, beneficiaries, partners, officers, directors, employees,
agents and any Mortgagee(s)", and other designees of Landlord as the
interest of such designees shall appear, as additional insureds
(collectively referred to as the "Additional Insureds").
C. Any company writing any insurance which Tenant is required to
maintain or cause to be maintained pursuant to the terms of this
Lease (all such insurance as well as any other insurance pertaining
to the Premises or the operation of Tenant's business therein being
referred to as "Tenant's Insurance"), as well as the form of such
insurance, shall at all times be subject to Landlord's reasonable
approval, and each
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such insurance company shall have an A.M. Best rating of "A-" or
better and shall be licensed and qualified to do business in the
state in which the Premises is located. All policies evidencing
Tenant's Insurance (except for Workers' Compensation Insurance)
shall specify Tenant as named insured and the Additional Insureds as
additional insureds. Provided that the coverage afforded Landlord
and any designees of Landlord shall not be reduced or otherwise
adversely affected, all of Tenant's Insurance may be carried under a
blanket policy covering the Premises and any other of Tenant's
locations. All policies of Tenant's Insurance shall contain
endorsements that the insurer(s) will give to Landlord and its
designees at least thirty (30) days' advance written notice of any
change, cancellation, termination or lapse of said insurance. Tenant
shall be solely responsible for payment of premiums for all of
Tenant's Insurance. Tenant shall deliver to Landlord at least
fifteen (15) days prior to the time Tenant's Insurance is first
required to be carried by Tenant, and upon renewals at least fifteen
(15) days prior to the expiration of any such insurance coverage, a
certificate of insurance of all policies procured by Tenant in
compliance with its obligations under this Lease. The limits of
Tenant's Insurance shall in no event limit Tenant's liability under
this Lease.
D. Tenant shall not do or fail to do anything in, upon or about the
Premises which will: (1) violate the terms of any of Landlord's
insurance policies; (2) prevent Landlord from obtaining policies of
insurance acceptable to Landlord or any Mortgagees; or (3) result in
an increase in the rate of any insurance on the Premises, the
Building, any other property of Landlord or of others within the
Building. In the event of the occurrence of any of the events set
forth in this Section, Tenant shall pay Landlord upon demand, as
Additional Base Rental, the cost of the amount of any increase in
any such insurance premium, provided that the acceptance by Landlord
of such payment shall not be construed to be a waiver of any rights
by Landlord in connection with a default by Tenant under the Lease.
If Tenant fails to obtain the insurance coverage required by this
Lease, Landlord may, at its option, obtain such insurance for
Tenant, and Tenant shall pay, as Additional Base Rental, the cost of
all premiums thereon and all of Landlord's costs associated
therewith.
XVII. Subrogation.
Notwithstanding anything set forth in this Lease to the contrary, Landlord
and Tenant do hereby waive any and all right of recovery, claim, action or cause
of action against the other, their respective principals, beneficiaries,
partners, officers, directors, agents, and employees, and, with respect to
Landlord, its Mortgagee(s), for any loss or damage that may occur to Landlord or
Tenant or any party claiming by, through or under Landlord or Tenant, as the
case may be, with respect to their respective property, the Building, the
Property or the Premises or any addition or improvements thereto, or any
contents therein, by reason of fire, the elements or any other cause, regardless
of cause or origin, including the negligence of Landlord or Tenant, or their
respective principals, beneficiaries, partners, officers, directors, agents and
employees and, with respect to Landlord, its Mortgagee(s), which loss or damage
is (or would have been, had the insurance required by this Lease been carried)
covered by insurance. Since this mutual waiver will preclude the assignment of
any such claim by subrogation (or otherwise) to an insurance company (or any
other person), Landlord and Tenant each agree to give each insurance company
which has issued, or in the future may issue, policies of insurance, with
respect to the items covered by this waiver, written notice of the terms of this
mutual waiver, and to have such insurance policies properly endorsed, if
necessary, to prevent the invalidation of any of the coverage provided by such
insurance policies by reason of such mutual waiver. For the purpose of the
foregoing waiver, the amount of any deductible applicable to any loss or damage
shall be deemed covered by, and recoverable by the insured under the insurance
policy to which such deductible relates. In the event that Tenant is permitted
to and self-insures any risk which would have been covered by the insurance
required to be carried by Tenant pursuant to Article XVI of the Lease, or if
Tenant fails to carry any insurance required to be carried by Tenant pursuant to
Article XVI of this Lease, then all loss or damage to Tenant, its leasehold
interest, its business, its property, the Premises or any additions or
improvements thereto or contents thereof shall be deemed covered by and
recoverable by Tenant under valid and collectible policies of insurance.
XVIII. Landlord's Insurance.
Landlord shall maintain property insurance on the Building in such amounts
as Landlord reasonably elects. The cost of such insurance shall be included as a
part of the Basic Costs, and payments for losses and recoveries thereunder shall
be made solely to Landlord or the Mortgagees of Landlord as their interests
shall appear.
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XIX. Casualty Damage.
If the Premises or any part thereof shall be damaged by fire or other
casualty, Tenant shall give prompt written notice thereof to Landlord. In case
the Building shall be so damaged that in Landlord's reasonable judgment,
substantial alteration or reconstruction of the Building shall be required
(whether or not the Premises has been damaged by such casualty) or in the event
Landlord will not be permitted by applicable law to rebuild the Building in
substantially the same form as existed prior to the fire or casualty or in the
event the Premises has been materially damaged and there is less than two (2)
years of the Lease Term remaining on the date of such casualty or in the event
any Mortgagee should require that the insurance proceeds payable as a result of
a casualty be applied to the payment of the mortgage debt or in the event of any
material uninsured loss to the Building, Landlord may, at its option, terminate
this Lease by notifying Tenant in writing of such termination within ninety (90)
days after the date of such casualty. Such termination shall be effective as of
the date of fire or casualty, with respect to any portion of the Premises that
was rendered untenantable, and the effective date of termination specified in
Landlord's notice, with respect to any portion of the Premises that remained
tenantable. If Landlord does not elect to terminate this Lease, Landlord shall
commence and proceed with reasonable diligence to restore the Building (provided
that Landlord shall not be required to restore any unleased premises in the
Building) and the Leasehold Improvements (but excluding any improvements,
alterations or additions made by Tenant in violation of this Lease) located
within the Premises, if any, which Landlord has insured to substantially the
same condition they were in immediately prior to the happening of the casualty.
Notwithstanding the foregoing, Landlord's obligation to restore the Building,
and the Leasehold Improvements, if any, shall not require Landlord to expend for
such repair and restoration work more than the insurance proceeds actually
received by the Landlord as a result of the casualty. When repairs to the
Premises have been completed by Landlord, Tenant shall complete the restoration
or replacement of all Tenant's Property necessary to permit Tenant's reoccupancy
of the Premises, and Tenant shall present Landlord with evidence satisfactory to
Landlord of Tenant's ability to pay such costs prior to Landlord's commencement
of repair and restoration of the Premises. Landlord shall not be liable for any
inconvenience or annoyance to Tenant or injury to the business of Tenant
resulting in any way from such damage or the repair thereof, except that,
subject to the provisions of the next sentence, Landlord shall allow Tenant a
fair diminution of Rent on a per diem basis during the time and to the extent
any damage to the Premises causes the Premises to be rendered untenantable and
not used by Tenant. If the Premises or any other portion of the Building is
damaged by fire or other casualty resulting from the negligence of Tenant or any
Tenant Related Parties, the Rent hereunder shall not be diminished during any
period during which the Premises, or any portion thereof, is untenantable
(except to the extent Landlord is entitled to be reimbursed by the proceeds of
any rental interruption insurance), and Tenant shall be liable to Landlord for
the cost of the repair and restoration of the Building caused thereby to the
extent such cost and expense is not covered by insurance proceeds. Landlord and
Tenant hereby waive the provisions of any law from time to time in effect during
the Lease Term relating to the effect upon leases of partial or total
destruction of leased property. Landlord and Tenant agree that their respective
rights in the event of any damage to or destruction of the Premises shall be
those specifically set forth herein.
XX. Demolition.
Landlord shall have the right to terminate this Lease if Landlord proposes
or is required, for any reason, to remodel, remove, or demolish the Building or
any substantial portion thereof. Such cancellation shall be exercised by
Landlord by the service of not less than ninety (90) days' written notice of
such termination. Such notice shall set forth the date upon which the
termination will be effective. No money or other consideration shall be payable
by Landlord to Tenant for Landlord's exercise of this right, and the right is
hereby reserved to Landlord and all purchasers, successors, assigns,
transferees, and ground tenants of Landlord, as the case may be, and is in
addition to all other rights of Landlord. Tenant has read the foregoing and
understands that Landlord has a right to terminate this Lease as provided above.
XXI. Condemnation.
If (a) the whole or any substantial part of the Premises or (b) any
portion of the Building or Property which would leave the remainder of the
Building unsuitable for use as an office building comparable to its use on the
Commencement Date, shall be taken or condemned for any public or quasi-public
use under governmental law, ordinance or regulation, or by right of eminent
domain, or by private purchase in lieu thereof then Landlord may, at its option,
terminate this Lease effective as of the date the physical taking of said
Premises or said portion of the Building or Property shall occur. In the event
this Lease is not terminated, the Rentable Area of the Building, the Rentable
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<PAGE> 20
Area of the Premises and Tenant's Pro Rata Share shall be appropriately
adjusted. In addition, Rent for any portion of the Premises so taken or
condemned shall be abated during the unexpired term of this Lease effective when
the physical taking of said portion of the Premises shall occur. All
compensation awarded for any such taking or condemnation, or sale proceeds in
lieu thereof, shall be the property of Landlord, and Tenant shall have no claim
thereto, the same being hereby expressly waived by Tenant, except for any
portions of such award or proceeds which are specifically allocated by the
condemning or purchasing party for the taking of or damage to trade fixtures of
Tenant, which Tenant specifically reserves to itself.
XXII. Events of Default.
The following events shall be deemed to be events of default under this
Lease:
A. Tenant shall fail to pay when due any Base Rental, Additional Base
Rental or other Rent under this Lease and such failure shall
continue for three (3) days after written notice from Landlord
(hereinafter sometimes referred to as a "Monetary Default").
B. Any failure by Tenant (other than a Monetary Default) to comply with
any term, provision or covenant of this Lease, including, without
limitation, the rules and regulations, which failure is not cured
within ten (10) days after delivery to Tenant of notice of the
occurrence of such failure, provided that if any such failure
creates a hazardous condition, such failure must be cured
immediately. Notwithstanding the foregoing, if Tenant fails to
comply with any particular provision or covenant of this Lease,
including, without limitation, Tenant's obligation to pay Rent when
due, on three (3) occasions during any twelve (12) month period, any
subsequent violation of such provision or covenant shall be
considered to be an incurable default by Tenant.
C. Tenant or any Guarantor shall become insolvent, or shall make a
transfer in fraud of creditors, or shall commit an act of bankruptcy
or shall make an assignment for the benefit of creditors, or Tenant
or any Guarantor shall admit in writing its inability to pay its
debts as they become due.
D. Tenant or any Guarantor shall file a petition under any section or
chapter of the United States Bankruptcy Code, as amended, pertaining
to bankruptcy, or under any similar law or statute of the United
States or any State thereof, or Tenant or any Guarantor shall be
adjudged bankrupt or insolvent in proceedings filed against Tenant
or any Guarantor thereunder; or a petition or answer proposing the
adjudication of Tenant or any Guarantor as a debtor or its
reorganization under any present or future federal or state
bankruptcy or similar law shall be filed in any court and such
petition or answer shall not be discharged or denied within sixty
(60) days after the filing thereof.
E. A receiver or trustee shall be appointed for all or substantially
all of the assets of Tenant or any Guarantor or of the Premises or
of any of Tenant's Property located thereon in any proceeding
brought by Tenant or any Guarantor, or any such receiver or trustee
shall be appointed in any proceeding brought against Tenant or any
Guarantor and shall not be discharged within sixty (60) days after
such appointment or Tenant or such Guarantor shall consent to or
acquiesce in such appointment.
F. The leasehold estate hereunder shall be taken on execution or other
process of law or equity in any action against Tenant.
G. Tenant shall abandon or vacate any substantial portion of the
Premises without the prior written permission of Landlord.
H. Tenant shall fail to take possession of and occupy the Premises
within thirty (30) days following the Commencement Date and
thereafter continuously conduct its operations in the Premises for
the Permitted Use.
I. The liquidation, termination, dissolution, forfeiture of right to do
business, or death of Tenant or any Guarantor.
J. Tenant is in default beyond any notice and cure period under any
other lease with Landlord.
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XXIII. Remedies.
A. Upon the occurrence of any event or events of default under this
Lease, Landlord shall have the option to pursue any one or more of
the following remedies without any notice (except as expressly
prescribed in Article XXII above) or demand whatsoever (and without
limiting the generality of the foregoing, Tenant hereby specifically
waives notice and demand for payment of Rent or other obligations
due [except as expressly prescribed in Article XXII above] and
waives any and all other notices or demand requirements imposed by
applicable law):
23. Terminate this Lease, in which event Tenant shall immediately
surrender the Premises to Landlord. If Tenant fails to
surrender the Premises upon termination of the Lease
hereunder, Landlord may without prejudice to any other remedy
which it may have, enter upon and take possession of the
Premises and expel or remove Tenant and any other person who
may be occupying said Premises, or any part thereof, and
Tenant hereby agrees to pay to Landlord on demand the amount
of all loss and damage, including consequential damage, which
Landlord may suffer by reason of such termination, whether
through inability to relet the Premises on satisfactory terms
or otherwise, specifically including but not limited to all
Costs of Reletting (hereinafter defined) and any deficiency
that may arise by reason of any reletting or failure to relet.
24. Enter upon and take possession of the Premises and expel or
remove Tenant or any other person who may be occupying said
Premises, or any part thereof, without having any civil or
criminal liability therefor and without terminating this
Lease. Landlord may (but shall be under no obligation to)
relet the Premises or any part thereof for the account of
Tenant, in the name of Tenant or Landlord or otherwise,
without notice to Tenant for such term or terms which may be
greater or less than the period which would otherwise have
constituted the balance of the Lease Term and on such
conditions (which may include concessions, free rent and
alterations of the Premises) and for such uses as Landlord in
its absolute discretion may determine, and Landlord may
collect and receive any rents payable by reason of such
reletting. Tenant agrees to pay Landlord on demand all Costs
of Reletting and any deficiency that may arise by reason of
such reletting or failure to relet. Landlord shall not be
responsible or liable for any failure to relet the Premises or
any part thereof or for any failure to collect any Rent due
upon any such reletting. No such re-entry or taking of
possession of the Premises by Landlord shall be construed as
an election on Landlord's part to terminate this Lease unless
a written notice of such termination is given to Tenant.
25. Enter upon the Premises without having any civil or criminal
liability therefor, and do whatever Tenant is obligated to do
under the terms of this Lease, and Tenant agrees to reimburse
Landlord on demand for any expense which Landlord may incur in
thus affecting compliance with Tenant's obligations under this
Lease together with interest at the lesser of a per annum rate
equal to: (a) the Maximum Rate, or (b) the Prime Rate plus
five percent (5%).
26. In order to regain possession of the Premises and to deny
Tenant access thereto in any instance in which Landlord has
terminated this Lease or Tenant's right to possession, or to
limit access to the Premises in accordance with local law in
the event of a default by Tenant, Landlord or its agent may,
at the expense and liability of the Tenant, alter or change
any or all locks or other security devices controlling access
to the Premises without posting or giving notice of any kind
to Tenant. Landlord shall have no obligation to provide Tenant
a key or grant Tenant access to the Premises so long as Tenant
is in default under this Lease. Tenant shall not be entitled
to recover possession of the Premises, terminate this Lease,
or recover any actual, incidental, consequential, punitive,
statutory or other damages or award of attorneys' fees, by
reason of Landlord's alteration or change of any lock or other
security device. Landlord may, without notice, remove and
either dispose of or store, at Tenant's expense, any property
belonging to Tenant that remains in the Premises after
Landlord has regained possession thereof.
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27. Terminate this Lease, in which event, Tenant shall immediately
surrender the Premises to Landlord and pay to Landlord the sum
of: (a) all Rent accrued hereunder through the date of
termination, and, upon Landlord's determination thereof, (b)
an amount equal to: the total Rent that Tenant would have been
required to pay for the remainder of the Lease Term discounted
to present value at the Prime Rate then in effect, minus the
then present fair rental value of the Premises for the
remainder of the Lease Term, similarly discounted, after
deducting all anticipated Costs of Reletting (as defined
below).
B. For purposes of this Lease, the term "Costs of Reletting" shall mean
all costs and expenses incurred by Landlord in connection with the
reletting of the Premises, including without limitation, the cost of
cleaning, renovation, repairs, decoration and alteration of the
Premises for a new tenant or tenants, advertisement, marketing,
brokerage and legal fees (if and to the extent permitted by law),
the cost of protecting or caring for the Premises while vacant, the
cost of removing and storing any property located on the Premises,
any increase in insurance premiums caused by the vacancy of the
Premises and any other out-of-pocket expenses incurred by Landlord
including tenant incentives, allowances and inducements.
C. Except as otherwise herein provided, no repossession or re-entering
of the Premises or any part thereof pursuant to Article XXIII hereof
or otherwise shall relieve Tenant or any Guarantor of its
liabilities and obligations hereunder, all of which shall survive
such repossession or re-entering. Notwithstanding any such
repossession or re-entering by reason of the occurrence of an event
of default, Tenant will pay to Landlord the Rent required to be paid
by Tenant pursuant to this Lease.
D. No right or remedy herein conferred upon or reserved to Landlord is
intended to be exclusive of any other right or remedy, and each and
every right and remedy shall be cumulative and in addition to any
other right or remedy given hereunder or now or hereafter existing
by agreement, applicable law or in equity. In addition to other
remedies provided in this Lease, Landlord shall be entitled, to the
extent permitted by applicable law, to injunctive relief, or to a
decree compelling performance of any of the covenants, agreements,
conditions or provisions of this Lease, or to any other remedy
allowed to Landlord at law or in equity. Forbearance by Landlord to
enforce one or more of the remedies herein provided upon an event of
default shall not be deemed or construed to constitute a waiver of
such default.
E. This Article XXIII shall be enforceable to the maximum extent such
enforcement is not prohibited by applicable law, and the
unenforceability of any portion thereof shall not thereby render
unenforceable any other portion.
XXIV. LIMITATION OF LIABILITY.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS LEASE, THE
LIABILITY OF LANDLORD (AND OF ANY SUCCESSOR LANDLORD HEREUNDER) TO TENANT SHALL
BE LIMITED TO THE INTEREST OF LANDLORD IN THE BUILDING, AND TENANT AGREES TO
LOOK SOLELY TO LANDLORD'S INTEREST IN THE BUILDING FOR THE RECOVERY OF ANY
JUDGMENT OR AWARD AGAINST THE LANDLORD, IT BEING INTENDED THAT NEITHER LANDLORD
NOR ANY MEMBER, PRINCIPAL, PARTNER, SHAREHOLDER, OFFICER, DIRECTOR OR
BENEFICIARY OF LANDLORD SHALL BE PERSONALLY LIABLE FOR ANY JUDGMENT OR
DEFICIENCY. TENANT HEREBY COVENANTS THAT, PRIOR TO THE FILING OF ANY SUIT FOR AN
ALLEGED DEFAULT BY LANDLORD HEREUNDER, IT SHALL GIVE LANDLORD AND ALL MORTGAGEES
WHOM TENANT HAS BEEN NOTIFIED HOLD MORTGAGES OR DEED OF TRUST LIENS ON THE
PROPERTY, BUILDING OR PREMISES NOTICE AND REASONABLE TIME TO CURE SUCH ALLEGED
DEFAULT BY LANDLORD. WITHOUT LIMITING THE FOREGOING, IN NO EVENT SHALL LANDLORD
OR ANY MORTGAGEES OR LANDLORD RELATED PARTIES EVER BE LIABLE FOR ANY
CONSEQUENTIAL OR INCIDENTAL DAMAGES OR ANY LOST PROFITS OF TENANT.
XXV. No Waiver.
Failure of Landlord to declare any default immediately upon its
occurrence, or delay in taking any action in connection with an event of default
shall not constitute a waiver of such default, nor
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shall it constitute an estoppel against Landlord, but Landlord shall have the
right to declare the default at any time and take such action as is lawful or
authorized under this Lease. Failure by Landlord to enforce its rights with
respect to any one default shall not constitute a waiver of its rights with
respect to any subsequent default. Receipt by Landlord of Tenant's keys to the
Premises shall not constitute an acceptance or surrender of the Premises.
XXVI. Event of Bankruptcy.
In addition to, and in no way limiting the other remedies set forth
herein, Landlord and Tenant agree that if Tenant ever becomes the subject of a
voluntary or involuntary bankruptcy, reorganization, composition, or other
similar type proceeding under the federal bankruptcy laws, as now enacted or
hereinafter amended, then:
A. "Adequate protection" of Landlord's interest in the Premises
pursuant to the provisions of Section 361 and 363 (or their
successor sections) of the Bankruptcy Code, 11 U.S.C. Section 101 et
seq., (such Bankruptcy Code as amended from time to time being
herein referred to as the "Bankruptcy Code"), prior to assumption
and/or assignment of the Lease by Tenant shall include, but not be
limited to all (or any part) of the following:
28. the continued payment by Tenant of the Base Rental and all
other Rent due and owing hereunder and the performance of all
other covenants and obligations hereunder by Tenant;
29. the furnishing of an additional/new security deposit by Tenant
in the amount of three (3) times the then current monthly Base
Rental.
B. "Adequate assurance of future performance" by Tenant and/or any
assignee of Tenant pursuant to Bankruptcy Code Section 365 will
include (but not be limited to) payment of an additional/new
Security Deposit in the amount of three (3) times the then current
monthly Base Rental payable hereunder.
C. Any person or entity to which this Lease is assigned pursuant to the
provisions of the Bankruptcy Code, shall be deemed without further
act or deed to have assumed all of the obligations of Tenant arising
under this Lease on and after the effective date of such assignment.
Any such assignee shall, upon demand by Landlord, execute and
deliver to Landlord an instrument confirming such assumption of
liability.
D. Notwithstanding anything in this Lease to the contrary, all amounts
payable by Tenant to or on behalf of the Landlord under this Lease,
whether or not expressly denominated as "Rent," shall constitute
"rent" for the purposes of Section 502(b) (6) of the Bankruptcy
Code.
E. If this Lease is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code, any and all monies or other
considerations payable or otherwise to be delivered to Landlord
(including Base Rentals and other Rent hereunder), shall be and
remain the exclusive property of Landlord and shall not constitute
property of Tenant or of the bankruptcy estate of Tenant. Any and
all monies or other considerations constituting Landlord's property
under the preceding sentence not paid or delivered to Landlord shall
be held in trust by Tenant or Tenant's bankruptcy estate for the
benefit of Landlord and shall be promptly paid to or turned over to
Landlord.
F. If Tenant assumes this Lease and proposes to assign the same
pursuant to the provisions of the Bankruptcy Code to any person or
entity who shall have made a bona fide offer to accept an assignment
of this Lease on terms acceptable to the Tenant, then notice of such
proposed offer/assignment, setting forth: (1) the name and address
of such person or entity, (2) all of the terms and conditions of
such offer, and (3) the adequate assurance to be provided Landlord
to assure such person's or entity's future performance under the
Lease, shall be given to Landlord by Tenant no later than twenty
(20) days after receipt by Tenant, but in any event no later than
ten (10) days prior to the date that Tenant shall make application
to a court of competent jurisdiction for authority and approval to
enter into such assumption and assignment, and Landlord shall
thereupon have the prior right and option, to be exercised by notice
to Tenant given at any time prior to the effective date of such
proposed assignment, to accept an assignment of this Lease upon the
same terms
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and conditions and for the same consideration, if any, as the bona
fide offer made by such persons or entity, less any brokerage
commission which may be payable out of the consideration to be paid
by such person for the assignment of this Lease.
G. To the extent permitted by law, Landlord and Tenant agree that this
Lease is a contract under which applicable law excuses Landlord from
accepting performance from (or rendering performance to) any person
or entity other than Tenant within the meaning of Sections 365(c)
and 365(e) (2) of the Bankruptcy Code.
XXVII. Waiver of Jury Trial.
Landlord and Tenant hereby waive any right to a trial by jury in any
action or proceeding based upon, or related to, the subject matter of this
Lease. This waiver is knowingly, intentionally, and voluntarily made by Tenant,
and Tenant acknowledges that neither Landlord nor any person acting on behalf of
Landlord has made any representations of fact to induce this waiver of trial by
jury or in any way to modify or nullify its effect. Tenant further acknowledges
that it has been represented (or has had the opportunity to be represented) in
the signing of this Lease and in the making of this waiver by independent legal
counsel, selected of its own free will, and that it has had the opportunity to
discuss this waiver with counsel.
XXVIII. Relocation.
Landlord, at its expense at any time before or during the Lease Term,
shall be entitled to cause Tenant to relocate from the Premises to space
containing approximately the same Rentable Area as the Premises (the "Relocation
Space") within the Building or adjacent buildings within the same project at any
time upon sixty (60) days' prior written notice to Tenant. Such a relocation
shall not affect this Lease except that from and after the date of such
relocation, "Premises" shall refer to the Relocation Space into which Tenant has
been moved, rather than the original Premises as herein defined, and the Base
Rental shall be adjusted so that immediately following such relocation the Base
Rental for the Relocation Space per annum on a per square foot of Rentable Area
basis shall be the same as the Base Rental per annum immediately prior to such
relocation for the original Premises on a per square foot of Rentable Area
basis. Tenant's Pro Rata Share shall also be adjusted in accordance with the
formula set forth in this Lease.
XXIX. Holding Over.
In the event of holding over by Tenant after expiration or other
termination of this Lease or in the event Tenant continues to occupy the
Premises after the termination of Tenant's right of possession pursuant to
Articles XXII and XXIII hereof, occupancy of the Premises subsequent to such
termination or expiration shall be that of a tenancy at sufferance and in no
event for month-to-month or year-to-year. Tenant shall, throughout the entire
holdover period, be subject to all the terms and provisions of this Lease and
shall pay for its use and occupancy an amount (on a per month basis without
reduction for any partial months during any such holdover) equal to twice the
sum of the Base Rental and Additional Base Rental due for the period immediately
preceding such holding over, provided that in no event shall Base Rental and
Additional Base Rental during the holdover period be less than the fair market
rental for the Premises. No holding over by Tenant or payments of money by
Tenant to Landlord after the expiration of the term of this Lease shall be
construed to extend the Lease Term or prevent Landlord from recovery of
immediate possession of the Premises by summary proceedings or otherwise. In
addition to the obligation to pay the amounts set forth above during any such
holdover period, Tenant also shall be liable to Landlord for all damage,
including any consequential damage, which Landlord may suffer by reason of any
holding over by Tenant, and Tenant shall indemnify Landlord against any and all
claims made by any other tenant or prospective tenant against Landlord for delay
by Landlord in delivering possession of the Premises to such other tenant or
prospective tenant.
XXX. Subordination to Mortgages; Estoppel Certificate.
Tenant accepts this Lease subject and subordinate to any mortgage, deed of
trust, ground lease or other lien presently existing or hereafter arising upon
the Premises, or upon the Building and/or the Property and to any renewals,
modifications, refinancings and extensions thereof (any such mortgage, deed of
trust, lease or other lien being hereinafter referred to as a "Mortgage", and
the person or entity having the benefit of same being referred to hereinafter as
a "Mortgagee"), but Tenant agrees that any such Mortgagee shall have the right
at any time to subordinate such Mortgage to this Lease on such terms and subject
to such conditions as such Mortgagee may deem appropriate in its discretion.
This clause shall be self-operative and no further instrument of subordination
shall be required. However, Landlord is hereby irrevocably vested with full
power and
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authority to subordinate this Lease to any Mortgage, and Tenant agrees upon
demand to execute such further instruments subordinating this Lease,
acknowledging the subordination of this Lease or attorning to the holder of any
such Mortgage as Landlord may request. The terms of this Lease are subject to
approval by the Landlord's existing lender(s) and any lender(s) who, at the time
of the execution of this Lease, have committed or are considering committing to
Landlord to make a loan secured by all or any portion of the Property, and such
approval is a condition precedent to Landlord's obligations hereunder. In the
event that Tenant should fail to execute any subordination or other agreement
required by this Article promptly as requested, Tenant hereby irrevocably
constitutes Landlord as its attorney-in-fact to execute such instrument in
Tenant's name, place and stead, it being agreed that such power is one coupled
with an interest in Landlord and is accordingly irrevocable. If any person shall
succeed to all or part of Landlord's interests in the Premises whether by
purchase, foreclosure, deed in lieu of foreclosure, power of sale, termination
of lease or otherwise, and if and as so requested or required by such
successor-in-interest, Tenant shall, without charge, attorn to such
successor-in-interest. Tenant agrees that it will from time to time upon request
by Landlord and, within five (5) days of the date of such request, execute and
deliver to such persons as Landlord shall request an estoppel certificate or
other similar statement in recordable form certifying that this Lease is
unmodified and in full force and effect (or if there have been modifications,
that the same is in full force and effect as so modified), stating the dates to
which Rent and other charges payable under this Lease have been paid, stating
that Landlord is not in default hereunder (or if Tenant alleges a default
stating the nature of such alleged default) and further stating such other
matters as Landlord shall reasonably require.
XXXI. Attorneys' Fees.
In the event that Landlord should retain counsel and/or institute any suit
against Tenant for violation of or to enforce any of the covenants or conditions
of this Lease, or should Tenant institute any suit against Landlord for
violation of any of the covenants or conditions of this Lease, or should either
party intervene in any suit in which the other is a party to enforce or protect
its interest or rights hereunder, the prevailing party in any such suit shall be
entitled to all of its costs, expenses and reasonable fees of its attorney(s)
(if and to the extent permitted by law) in connection therewith.
XXXII. Notice.
Whenever any demand, request, approval, consent or notice ("Notice") shall
or may be given to either of the parties by the other, each such Notice shall be
in writing and shall be sent by registered or certified mail with return receipt
requested, or sent by overnight courier service (such as Federal Express) at the
respective addresses of the parties for notices as set forth in Section I.A.10.
of this Lease, provided that if Tenant has vacated the Premises or is in default
of this Lease Landlord may serve Notice by any manner permitted by law. Any
Notice under this Lease delivered by registered or certified mail shall be
deemed to have been given, delivered, received and effective on the earlier of
(a) the third day following the day on which the same shall have been mailed
with sufficient postage prepaid or (b) the delivery date indicated on the return
receipt. Notice sent by overnight courier service shall be deemed given,
delivered, received and effective upon the day after such notice is delivered to
or picked up by the overnight courier service. Either party may, at any time,
change its Notice Address by giving the other party Notice stating the change
and setting forth the new address.
XXXIII. Landlord's Lien.
In addition to any statutory lien for rent in Landlord's favor, Landlord
(the secured party for purposes hereof) shall have and Tenant (the debtor for
purposes hereof) hereby grants to Landlord, an express contract lien and a
continuing security interest to secure the payment of all Rent due hereunder
from Tenant, upon all goods, wares, equipment, fixtures, furniture, inventory,
accounts, contract rights, chattel paper and other personal property of Tenant
(and any transferees or other occupants of the Premises) presently or hereafter
situated on the Premises and upon all proceeds of any insurance which may accrue
to Tenant by reason of damage or destruction of any such property. In the event
of a default under this Lease, Landlord shall have, in addition to any other
remedies provided herein or by law, all rights and remedies under the Uniform
Commercial Code of the state in which the Premises is located, including without
limitation the right to sell the property described in this paragraph at public
or private sale upon ten (10) days' notice to Tenant, which notice Tenant hereby
agrees is adequate and reasonable. Tenant hereby agrees to execute such other
instruments necessary or desirable in Landlord's discretion to perfect the
security interest hereby created. Any statutory lien for rent is not hereby
waived, the express contractual lien herein granted being in addition and
supplementary thereto. Landlord and Tenant agree that this Lease and the
security interest granted herein serve as a financing statement, and a copy or
photographic or other reproduction of this Paragraph of this Lease may be filed
of record by Landlord and have
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the same force and effect as the original. Tenant warrants and represents that
the collateral subject to the security interest granted herein is not purchased
or used by Tenant for personal, family or household purposes. Tenant further
warrants and represents to Landlord that the lien granted herein constitutes a
first and superior lien and that Tenant will not allow the placing of any other
lien upon any of the property described in this Article without the prior
written consent of Landlord.
XXXIV. Excepted Rights.
This Lease does not grant any rights to light or air over or about the
Building. Landlord specifically excepts and reserves to itself the use of any
roofs, the exterior portions of the Premises, all rights to the land and
improvements below the improved floor level of the Premises, the improvements
and air rights above the Premises and the improvements and air rights located
outside the demising walls of the Premises, and such areas within the Premises
as are required for installation of utility lines and other installations
required to serve any occupants of the Building and the right to maintain and
repair the same, and no rights with respect thereto are conferred upon Tenant
unless otherwise specifically provided herein. Landlord further reserves to
itself the right from time to time: (a) to change the Building's name or street
address; (b) to install, fix and maintain signs on the exterior and interior of
the Building; (c) to designate and approve window coverings; (d) to make any
decorations, alterations, additions, improvements to the Building, or any part
thereof (including the Premises) which Landlord shall desire, or deem necessary
for the safety, protection, preservation or improvement of the Building, or as
Landlord may be required to do by law; (e) to have access to the Premises to
perform its duties and obligations and to exercise its rights under this Lease;
(f) to retain at all times and to use pass-keys to all locks within and into the
Premises; (g) to approve the weight, size, or location of heavy equipment, or
articles in and about the Premises; (h) to close or restrict access to the
Building at all times other than Normal Business Hours subject to Tenant's right
to admittance at all times under such regulations as Landlord may prescribe from
time to time, or to close (temporarily or permanently) any of the entrances to
the Building; (j) to change the arrangement and/or location of entrances of
passageways, doors and doorways, corridors, elevators, stairs, toilets and
public parts of the Building; (i) if Tenant has vacated the Premises during the
last six (6) months of the Lease Term, to perform additions, alterations and
improvements to the Premises in connection with a reletting or anticipated
reletting thereof without being responsible or liable for the value or
preservation of any then existing improvements to the Premises; and (k) to grant
to anyone the exclusive right to conduct any business or undertaking in the
Building. Landlord, in accordance with Article XII hereof, shall have the right
to enter the Premises in connection with the exercise of any of the rights set
forth herein and such entry into the Premises and the performance of any work
therein shall not constitute a constructive eviction or entitle Tenant to any
abatement or reduction of Rent by reason thereof.
XXXV. Surrender of Premises.
At the expiration or earlier termination of this Lease or Tenant's right
of possession hereunder, Tenant shall remove all Tenant's Property from the
Premises, remove all Required Removables designated by Landlord and quit and
surrender the Premises to Landlord, broom clean, and in good order, condition
and repair, ordinary wear and tear excepted. If Tenant fails to remove any of
Tenant's Property within one (1) day after the termination of this Lease or
Tenant's right to possession hereunder, Landlord, at Tenant's sole cost and
expense, shall be entitled to remove and/or store such Tenant's Property and
Landlord shall in no event be responsible for the value, preservation or
safekeeping thereof. Tenant shall pay Landlord, upon demand, any and all
expenses caused by such removal and all storage charges against such property so
long as the same shall be in the possession of Landlord or under the control of
Landlord. In addition, if Tenant fails to remove any Tenant's Property from the
Premises or storage, as the case may be, within ten (10) days after written
notice from Landlord, Landlord, at its option, may deem all or any part of such
Tenant's Property to have been abandoned by Tenant and title thereof shall
immediately pass to Landlord.
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XXXVI. Miscellaneous.
A. If any term or provision of this Lease, or the application thereof
to any person or circumstance shall, to any extent, be invalid or
unenforceable, the remainder of this Lease, or the application of
such term or provision to persons or circumstances other than those
as to which it is held invalid or unenforceable, shall not be
affected thereby, and each term and provision of this Lease shall be
valid and enforced to the fullest extent permitted by law. This
Lease represents the result of negotiations between Landlord and
Tenant, each of which has been (or has had opportunity to be)
represented by counsel of its own selection, and neither of which
has acted under duress or compulsion, whether legal, economic or
otherwise. Consequently, Landlord and Tenant agree that the language
in all parts of the Lease shall in all cases be construed as a whole
according to its fair meaning and neither strictly for nor against
Landlord or Tenant.
B. Tenant agrees not to record this Lease or any memorandum hereof
without Landlord's prior written consent.
C. This Lease and the rights and obligations of the parties hereto
shall be interpreted, construed, and enforced in accordance with the
laws of the state in which the Building is located.
D. Events of "Force Majeure" shall include strikes, riots, acts of God,
shortages of labor or materials, war, governmental law, regulations
or restrictions and any other cause whatsoever that is beyond the
control of Landlord. Whenever a period of time is herein prescribed
for the taking of any action by Landlord, Landlord shall not be
liable or responsible for, and there shall be excluded from the
computation of such period of time, any delays due to events of
Force Majeure.
E. Landlord shall have the right to transfer and assign, in whole or in
part, all of its rights and obligations hereunder and in the
Building and Property referred to herein, and in such event and upon
such transfer Landlord shall be released from any further
obligations hereunder, and Tenant agrees to look solely to such
successor in interest of Landlord for the performance of such
obligations.
F. Tenant hereby represents to Landlord that it has dealt directly with
and only with the Broker as a broker in connection with this Lease.
Tenant agrees to indemnify and hold Landlord and the Landlord
Related Parties harmless from all claims of any brokers claiming to
have represented Tenant in connection with this Lease. Landlord
agrees to indemnify and hold Tenant and the Tenant Related Parties
harmless from all claims of any brokers claiming to have represented
Landlord in connection with this Lease.
G. If there is more than one Tenant, or if the Tenant is comprised of
more than one person or entity, the obligations hereunder imposed
upon Tenant shall be joint and several obligations of all such
parties. If Tenant is a partnership, then each present and future
partner shall be personally bound by and upon all of the covenants,
agreements, terms, provisions and conditions set forth in this Lease
on the part of Tenant to be performed. In confirmation of the
foregoing, Landlord may (but without being required to do so)
request (and Tenant shall duly comply) that Tenant, at the time that
Tenant admits any new partner to its partnership, shall require each
such new partner to execute an agreement in form and substance
satisfactory to Landlord whereby such new partner shall agree to be
personally bound by and upon all of the covenants, agreements,
terms, provisions and conditions of this Lease on the part of Tenant
to be performed, without regard to the time when such new partner is
admitted to partnership or when any obligations under any such
covenants, etc., accrue. All notices, payments, and agreements given
or made by, with or to any one of such persons or entities shall be
deemed to have been given or made by, with or to all of them.
H. In the event Tenant is a corporation (including any form of
professional association), partnership (general or limited), or
other form of organization other than an individual (each such
entity is individually referred to herein as an "Organizational
Entity"), then Tenant hereby covenants, warrants and represents: (1)
that such individual is duly authorized to execute or attest and
deliver this Lease on behalf of Tenant in accordance with the
organizational documents of Tenant; (2) that this Lease is
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binding upon Tenant; (3) that Tenant is duly organized and legally
existing in the state of its organization, and is qualified to do
business in the state in which the Premises is located; and (4) that
the execution and delivery of this Lease by Tenant will not result
in any breach of, or constitute a default under any mortgage, deed
of trust, lease, loan, credit agreement, partnership agreement or
other contract or instrument to which Tenant is a party or by which
Tenant may be bound. If Tenant is an Organizational Entity, upon
request, Tenant will, prior to the Commencement Date, deliver to
Landlord true and correct copies of all organizational documents of
Tenant, including, without limitation, copies of an appropriate
resolution or consent of Tenant's board of directors or other
appropriate governing body of Tenant authorizing or ratifying the
execution and delivery of this Lease, which resolution or consent
will be duly certified to Landlord's satisfaction by an appropriate
individual with authority to certify such documents, such as the
secretary or assistant secretary or the managing general partner of
Tenant.
I. Tenant acknowledges that the financial capability of Tenant to
perform its obligations hereunder is material to Landlord and that
Landlord would not enter into this Lease but for its belief, based
on its review of Tenant's financial statements, that Tenant is
capable of performing such financial obligations. Tenant hereby
represents, warrants and certifies to Landlord that its financial
statements for the year ended 12/31/98 as filed with the SEC and
furnished to Landlord were at the time given true and correct in all
material respects and that there have been no material subsequent
changes thereto as of the date of this Lease. At any time during the
Lease Term, Tenant shall provide Landlord, upon thirty (30) days'
prior written notice from Landlord, with the most current financial
statement that has been filed with the SEC or otherwise been
published in the public domain and financial statements of the two
(2) years prior to the current financial statement year and such
other information as Landlord or its Mortgagee may reasonably
request in order to create a "business profile" of Tenant and
determine Tenant's ability to fulfill its obligations under this
Lease. The annual financial statement shall be prepared in
accordance with generally accepted accounting principles and, if
such is the normal practice of Tenant, shall be audited by an
independent certified public accountant. Notwithstanding the
foregoing, Landlord shall not request financial statements more than
once in each consecutive two (2) year period during the Lease Term
unless Tenant is in default or Landlord reasonably believes that
there has been an adverse change in Tenant's financial position
since the last financial statement provided to Landlord.
J. Except as expressly otherwise herein provided, with respect to all
required acts of Tenant, time is of the essence of this Lease. This
Lease shall create the relationship of Landlord and Tenant between
the parties hereto.
K. This Lease and the covenants and conditions herein contained shall
inure to the benefit of and be binding upon Landlord and Tenant and
their respective permitted successors and assigns.
L. Notwithstanding anything to the contrary contained in this Lease,
the expiration of the Lease Term, whether by lapse of time or
otherwise, shall not relieve Tenant from Tenant's obligations
accruing prior to the expiration of the Lease Term, and such
obligations shall survive any such expiration or other termination
of the Lease Term.
M. The headings and titles to the paragraphs of this Lease are for
convenience only and shall have no affect upon the construction or
interpretation of any part hereof.
N. Landlord has delivered a copy of this Lease to Tenant for Tenant's
review only, and the delivery hereof does not constitute an offer to
Tenant or option. This Lease shall not be effective until an
original of this Lease executed by both Landlord and Tenant and an
original Guaranty, if any, executed by each Guarantor is delivered
to and accepted by Landlord, and this Lease has been approved by
Landlord's Mortgagees, if required.
O. Quiet Enjoyment. Tenant shall, and may peacefully have, hold, and
enjoy the Premises, subject to the other terms of this Lease
(including, without limitation, Article XXX hereof), provided that
Tenant pays the Rent herein recited to be paid by Tenant and
performs all of Tenant's covenants and agreements herein contained.
This covenant and any and all other covenants of Landlord shall be
binding upon Landlord and its successors only during its or their
respective periods of ownership of the Landlord's interest
hereunder.
26
<PAGE> 29
XXXVII.Entire Agreement.
This Lease Agreement, including the following Exhibits:
Exhibit A - Outline and Location of Premises
Exhibit B - Rules and Regulations
Exhibit C - Commencement Letter
Exhibit D - Work Letter Agreement
constitutes the entire agreement between the parties hereto with respect
to the subject matter of this Lease and supersedes all prior agreements
and understandings between the parties related to the Premises, including
all lease proposals, letters of intent and similar documents. TENANT
EXPRESSLY ACKNOWLEDGES AND AGREES THAT LANDLORD HAS NOT MADE AND IS NOT
MAKING, AND TENANT, IN EXECUTING AND DELIVERING THIS LEASE, IS NOT RELYING
UPON, ANY WARRANTIES, REPRESENTATIONS, PROMISES OR STATEMENTS, EXCEPT TO
THE EXTENT THAT THE SAME ARE EXPRESSLY SET FORTH IN THIS LEASE. ALL
UNDERSTANDINGS AND AGREEMENTS HERETOFORE MADE BETWEEN THE PARTIES ARE
MERGED IN THIS LEASE WHICH ALONE FULLY AND COMPLETELY EXPRESSES THE
AGREEMENT OF THE PARTIES, NEITHER PARTY RELYING UPON ANY STATEMENT OR
REPRESENTATION NOT EMBODIED IN THIS LEASE. THIS LEASE MAY BE MODIFIED ONLY
BY A WRITTEN AGREEMENT SIGNED BY LANDLORD AND TENANT. LANDLORD AND TENANT
EXPRESSLY AGREE THAT THERE ARE AND SHALL BE NO IMPLIED WARRANTIES OF
MERCHANTABILITY, HABITABILITY, SUITABILITY, FITNESS FOR A PARTICULAR
PURPOSE OR OF ANY OTHER KIND ARISING OUT OF THIS LEASE, ALL OF WHICH ARE
HEREBY WAIVED BY TENANT, AND THAT THERE ARE NO WARRANTIES WHICH EXTEND
BEYOND THOSE EXPRESSLY SET FORTH IN THIS LEASE.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the
day and year first above written.
WITNESS/ATTEST: LANDLORD: EOP OPERATING LIMITED
PARTNERSHIP, a Delaware
limited partnership
Name (print): /s/ Cheryl [ILLEGIBLE] By: Equity Office Properties
------------------------ Trust, a Maryland real
estate investment trust, its
managing general partner
By: /s/ George J. Kohl
-----------------------
Name (print): Name: George Kohl
------------------------ -----------------------
Title: Vice President Leasing
-----------------------
WITNESS/ATTEST: TENANT: ADVANCED HEALTH CORPORATION,
a Delaware corporation
Name (print): /s/ Aida Rodriguez By: /s/ Jeffrey M. Sauerhoff
------------------------- -----------------------------
Name: Jeffrey M. Sauerhoff
-----------------------------
Title: Chief Financial Officer
-----------------------------
Name (print): Aida Rodriguez
-------------------------
27
<PAGE> 30
EXHIBIT A
PREMISES
This Exhibit is attached to and made a part of the Lease dated April
16, 1999, by and between EOP OPERATING LIMITED PARTNERSHIP, a Delaware limited
partnership ("Landlord") and ADVANCED HEALTH CORPORATION, a Delaware corporation
("Tenant") for space in the Building located at 200 West Adams, Chicago,
Illinois 60606.
[Description of premises]
A-1
<PAGE> 31
EXHIBIT B
BUILDING RULES AND REGULATIONS
The following rules and regulations shall apply, where applicable, to the
Premises, the Building, the parking garage associated therewith (if any), the
Property and the appurtenances thereto:
1. Sidewalks, doorways, vestibules, halls, stairways and other similar areas
shall not be obstructed by Tenant or used by Tenant for any purpose other
than ingress and egress to and from the Premises. No rubbish, litter,
trash, or material of any nature shall be placed, emptied, or thrown in
those areas. At no time shall Tenant permit Tenant's employees to loiter
in common areas or elsewhere in or about the Building or Property.
2. Plumbing fixtures and appliances shall be used only for the purposes for
which designed, and no sweepings, rubbish, rags or other unsuitable
material shall be thrown or placed therein. Damage resulting to any such
fixtures or appliances from misuse by Tenant or its agents, employees or
invitees, shall be paid for by Tenant, and Landlord shall not in any case
be responsible therefor.
3. No signs, advertisements or notices shall be painted or affixed on or to
any windows, doors or other parts of the Building, except those of such
color, size, style and in such places as shall be first approved in
writing by Landlord. No nails, hooks or screws shall be driven or inserted
into any part of the Premises or Building except by the Building
maintenance personnel, nor shall any part of the Building be defaced by
Tenant.
4. Landlord may provide and maintain in the first floor (main lobby) of the
Building an alphabetical directory board listing all Tenants, and no other
directory shall be permitted unless previously consented to by Landlord in
writing.
5. Tenant shall not place any additional lock or locks on any door in the
Premises or Building without Landlord's prior written consent. A
reasonable number of keys to the locks on the doors in the Premises shall
be furnished by Landlord to Tenant at the cost of Tenant, and Tenant shall
not have any duplicate keys made. All keys shall be returned to Landlord
at the expiration or earlier termination of this Lease.
6. All contractors, contractor's representatives, and installation
technicians performing work in the Building shall be subject to Landlord's
prior approval and shall be required to comply with Landlord's standard
rules, regulations, policies and procedures, as the same may be revised
from time to time. Tenant shall be solely responsible for complying with
all applicable laws, codes and ordinances pursuant to which said work
shall be performed. Notwithstanding anything to the contrary herein or in
the Lease contained, Landlord has no obligation to allow any particular
telecommunication service provider to have access to the Building or to
Tenant's premises. If Landlord permits such access, Landlord may condition
such access upon the payment to Landlord by the service provider of fees
assessed by Landlord in its sole discretion.
7. Movement in or out of the Building of furniture or office equipment, or
dispatch or receipt by Tenant of any merchandise or materials which
require the use of elevators, stairways, lobby areas, or loading dock
areas, shall be restricted to hours designated by Landlord. Tenant must
seek Landlord's prior approval by providing in writing a detailed listing
of any such activity. If approved by Landlord, such activity shall be
under the supervision of Landlord and performed in the manner stated by
Landlord. Landlord may prohibit any article, equipment or any other item
from being brought into the Building. Tenant is to assume all risk for
damage to articles moved and injury to any persons resulting from such
activity. If any equipment, property, and/or personnel of Landlord or of
any other tenant is damaged or injured as a result of or in connection
with such activity, Tenant shall be solely liable for any and all damage
or loss resulting therefrom.
8. Landlord shall have the power to prescribe the weight and position of
safes and other heavy equipment or items, which in all cases shall not in
the opinion of Landlord exceed acceptable floor loading and weight
distribution requirements. All damage done to the Building by the
installation, maintenance, operation, existence or removal of any property
of Tenant shall be repaired at the expense of Tenant.
B-1
<PAGE> 32
9. Corridor doors, when not in use, shall be kept closed.
10. Tenant shall not: (1) make or permit any improper, objectionable or
unpleasant noises or odors in the Building, or otherwise interfere in any
way with other tenants or persons having business with them; (2) solicit
business or distribute, or cause to be distributed, in any portion of the
Building any handbills, promotional materials or other advertising; or (3)
conduct or permit any other activities in the Building that might
constitute a nuisance.
11. No animals, except seeing eye dogs, shall be brought into or kept in, on
or about the Premises.
12. No inflammable, explosive or dangerous fluid or substance shall be used or
kept by Tenant in the Premises or Building. Tenant shall not, without
Landlord's prior written consent, use, store, install, spill, remove,
release or dispose of within or about the Premises or any other portion of
the Property, any asbestos-containing materials or any solid, liquid or
gaseous material now or hereafter considered toxic or hazardous under the
provisions of 42 U.S.C. Section 9601 et seq. or any other applicable
environmental law which may now or hereafter be in effect. If Landlord
does give written consent to Tenant pursuant to the foregoing sentence,
Tenant shall comply with all applicable laws, rules and regulations
pertaining to and governing such use by Tenant, and shall remain liable
for all costs of cleanup or removal in connection therewith.
13. Tenant shall not use or occupy the Premises in any manner or for any
purpose which would injure the reputation or impair the present or future
value of the Premises or the Building; without limiting the foregoing,
Tenant shall not use or permit the Premises or any portion thereof to be
used for lodging, sleeping or for any illegal purpose.
14. Tenant shall not take any action which would violate Landlord's labor
contracts affecting the Building or which would cause any work stoppage,
picketing, labor disruption or dispute, or any interference with the
business of Landlord or any other tenant or occupant of the Building or
with the rights and privileges of any person lawfully in the Building.
Tenant shall take any actions necessary to resolve any such work stoppage,
picketing, labor disruption, dispute or interference and shall have
pickets removed and, at the request of Landlord, immediately terminate at
any time any construction work being performed in the Premises giving rise
to such labor problems, until such time as Landlord shall have given its
written consent for such work to resume. Tenant shall have no claim for
damages of any nature against Landlord or any of the Landlord Related
Parties in connection therewith, nor shall the date of the commencement of
the Term be extended as a result thereof.
15. Tenant shall utilize the termite and pest extermination service designated
by Landlord to control termites and pests in the Premises. Except as
included in Basic Costs, Tenant shall bear the cost and expense of such
extermination services.
16. Tenant shall not install, operate or maintain in the Premises or in any
other area of the Building, any electrical equipment which does not bear
the U/L (Underwriters Laboratories) seal of approval, or which would
overload the electrical system or any part thereof beyond its capacity for
proper, efficient and safe operation as determined by Landlord, taking
into consideration the overall electrical system and the present and
future requirements therefor in the Building. Tenant shall not furnish any
cooling or heating to the Premises, including, without limitation, the use
of any electronic or gas heating devices, without Landlord's prior written
consent. Tenant shall not use more than its proportionate share of
telephone lines available to service the Building.
17. Tenant shall not operate or permit to be operated on the Premises any coin
or token operated vending machine or similar device (including, without
limitation, telephones, lockers, toilets, scales, amusement devices and
machines for sale of beverages, foods, candy, cigarettes or other goods),
except for those vending machines or similar devices which are for the
sole and exclusive use of Tenant's employees, and then only if such
operation does not violate the lease of any other tenant of the Building.
18. Bicycles and other vehicles are not permitted inside or on the walkways
outside the Building, except in those areas specifically designated by
Landlord for such purposes.
19. Landlord may from time to time adopt appropriate systems and procedures
for the security or safety of the Building, its occupants, entry and use,
or its contents. Tenant, Tenant's
B-2
<PAGE> 33
agents, employees, contractors, guests and invitees shall comply with
Landlord's reasonable requirements relative thereto.
20. Landlord shall have the right to prohibit the use of the name of the
Building or any other publicity by Tenant that in Landlord's opinion may
tend to impair the reputation of the Building or its desirability for
Landlord or other tenants. Upon written notice from Landlord, Tenant will
refrain from and/or discontinue such publicity immediately.
21. Tenant shall carry out Tenant's permitted repair, maintenance,
alterations, and improvements in the Premises only during times agreed to
in advance by Landlord and in a manner which will not interfere with the
rights of other tenants in the Building.
22. Canvassing, soliciting, and peddling in or about the Building is
prohibited. Tenant shall cooperate and use its best efforts to prevent the
same.
23. At no time shall Tenant permit or shall Tenant's agents, employees,
contractors, guests, or invitees smoke in any common area of the Building,
unless such common area has been declared a designated smoking area by
Landlord, or to allow any smoke from the Premises to emanate into the
common areas or any other tenant's premises. Landlord shall have the right
at any time to designate the Building as a non-smoking building.
24. Tenant shall observe Landlord's rules with respect to maintaining standard
window coverings at all windows in the Premises so that the Building
presents a uniform exterior appearance. Tenant shall ensure that to the
extent reasonably practicable, window coverings are closed on all windows
in the Premises while they are exposed to the direct rays of the sun.
25. All deliveries to or from the Premises shall be made only at such times,
in the areas and through the entrances and exits designated for such
purposes by Landlord. Tenant shall not permit the process of receiving
deliveries to or from the Premises outside of said areas or in a manner
which may interfere with the use by any other tenant of its premises or of
any common areas, any pedestrian use of such area, or any use which is
inconsistent with good business practice.
26. The work of cleaning personnel shall not be hindered by Tenant after 5:30
P.M., and such cleaning work may be done at any time when the offices are
vacant. Windows, doors and fixtures may be cleaned at any time. Tenant
shall provide adequate waste and rubbish receptacles necessary to prevent
unreasonable hardship to Landlord regarding cleaning service.
B-3
<PAGE> 34
EXHIBIT C
COMMENCEMENT LETTER
Date ____________________________
Advanced Health Corporation
200 West Adams
Suite 1700
Chicago, Illinois 60606
Re: Commencement Letter with respect to that certain Lease dated March ____,
1999 by and between EOP OPERATING LIMITED PARTNERSHIP, a Delaware limited
partnership, as Landlord and ADVANCED HEALTH CORPORATION, a Delaware
corporation, as Tenant, for 4,184 square feet of Rentable Area on the 17th
floor of the Building located at 200 West Adams, Chicago, Illinois 60606.
Dear __________________:
In accordance with the terms and conditions of the above referenced Lease,
Tenant hereby accepts possession of the Premises and agrees as follows:
1. The Commencement Date of the Lease is May 1,1999;
2. The Termination Date of the Lease is April 30, 2002.
Please acknowledge your acceptance of possession and agreement to the
terms set forth above by signing all three (3) copies of this Commencement
Letter in the space provided and returning two (2) fully executed copies of the
same to my attention.
Sincerely,
Property Manager
Agreed and Accepted:
Tenant: _____________________________
By:__________________________________
Name:________________________________
Title:_______________________________
Date:________________________________
C-1
<PAGE> 35
EXHIBIT D
WORK LETTER
This Exhibit is attached to and made a part of the Lease dated April 16,
1999, by and between EOP OPERATING LIMITED PARTNERSHIP, a Delaware limited
partnership ("Landlord") and ADVANCED HEALTH CORPORATION, a Delaware corporation
("Tenant") for space in the Building located at 200 West Adams, Chicago,
Illinois 60606.
1. This Work Letter shall set forth the obligations of Landlord and Tenant
with respect to the preparation of the Premises for Tenant's occupancy.
All improvements described in this Work Letter to be constructed in and
upon the Premises by Landlord are hereinafter referred to as the "Landlord
Work." Landlord shall cause the Landlord Work to be constructed
substantially in accordance with the plans identified as Attachment A
hereto (the "Plans") prepared on behalf of Tenant and approved by
Landlord. Tenant shall be responsible for all elements of the design of
the Plans (including, without limitation, compliance with law,
functionality of design, the structural integrity of the design, the
configuration of the premises and the placement of Tenant's furniture,
appliances and equipment), and Landlord's approval of the Plans shall in
no event relieve Tenant of the responsibility for such design. It is
agreed that construction of the Landlord Work is intended to be "turn-key"
and will be completed at Landlord's sole cost and expense, using Building
Standard methods, materials, and finishes. Landlord shall enter into a
direct contract for the Landlord Work with a general contractor selected
by Landlord. In addition, Landlord shall have the right to select and/or
approve of any subcontractors used in connection with the Landlord Work.
2. If Tenant shall request any change, addition or alteration in any of the
Plans after approval by Landlord, Landlord shall have such revisions to
the drawings prepared, and Tenant shall reimburse Landlord for the cost
thereof, plus any applicable state sales or use tax thereon, upon demand.
Promptly upon completion of the revisions, Landlord shall notify Tenant in
writing of the cost, if any, which will be chargeable to Tenant by reason
of such change, addition or deletion. Tenant, within one (1) Business Day,
shall notify Landlord in writing whether it desires to proceed with such
change, addition or deletion. In the absence of such written
authorization, Landlord shall have the option to continue work on the
Premises disregarding the requested change, addition or alteration, or
Landlord may elect to discontinue work on the Premises until it receives
notice of Tenant's decision, in which event Tenant shall be responsible
for any Delay in completion of the Premises resulting therefrom. Tenant
shall pay all costs and expenses of any such change, plus any applicable
state sales or use tax thereon, upon demand.
3. This Exhibit D shall not be deemed applicable to any additional space
added to the original Premises at any time or from time to time, whether
by any options under the Lease or otherwise, or to any portion of the
original Premises or any additions to the Premises in the event of a
renewal or extension of the original Term of this Lease, whether by any
options under the Lease or otherwise, unless expressly so provided in the
Lease or any amendment or supplement to the Lease.
D-1
<PAGE> 36
ATTACHMENT A TO WORKLETTER
FINAL PLANS
[Description of picture]
D-2
<PAGE> 37
IN WITNESS WHEREOF, Landlord and Tenant have executed this exhibit as of
the day and year first above written.
WITNESS/ATTEST: LANDLORD: EOP OPERATING LIMITED
PARTNERSHIP, a Delaware
limited partnership
Name (print): /s/ Cheryl [ILLEGIBLE] By: Equity Office Properties
------------------------ Trust, a Maryland real
estate investment trust, its
managing general partner
By: /s/ George J. Kohl
-----------------------
Name (print): Name: George Kohl
------------------------ -----------------------
Title: Vice President Leasing
-----------------------
WITNESS/ATTEST: TENANT: ADVANCED HEALTH CORPORATION,
a Delaware corporation
Name (print): /s/ Aida Rodriguez By: /s/ Jeffrey M. Sauerhoff
------------------------- -----------------------------
Name: Jeffrey M. Sauerhoff
-----------------------------
Title: Chief Financial Officer
-----------------------------
Name (print): Aida Rodriguez
-------------------------
D-3
<PAGE> 1
Exhibit 10.21
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I PURCHASE AND SALE OF ASSETS ................................................ 1
1.1 Purchased Assets......................................................... 1
1.2 Excluded Assets.......................................................... 3
ARTICLE II PURCHASE PRICE; LIABILITIES; OTHER MATTERS ................................ 3
2.1 Payment of Purchase Price................................................ 3
2.2 Excluded Liabilities..................................................... 4
2.3 Allocation of the Purchase Price Among the Purchased Assets.............. 4
ARTICLE III CLOSING .................................................................. 4
3.1 Time and Place of the Closing............................................ 4
3.2 The Sellers' Deliveries at the Closing................................... 4
3.3 The Buyer's Deliveries at the Closing.................................... 5
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLERS ................................. 6
4.1 Organization, Power and Authority........................................ 6
4.2 Capital Structure........................................................ 7
4.3 Authorization, Binding Obligation........................................ 7
4.4 No Violations or Defaults................................................ 7
4.5 Contracts, Leases and Other Agreements................................... 7
4.6 Litigation............................................................... 8
4.7 Sellers' Employees....................................................... 8
4.8 Labor Relations of Sellers............................................... 8
4.9 No Untrue or Inaccurate Representations or Warranties.................... 9
4.10 Good Title to and Condition of the Purchased Assets..................... 9
4.11 Licenses................................................................ 9
4.12 Proprietary Rights...................................................... 10
4.13 Relationships with Customers and Others................................. 10
4.14 Employee Benefits....................................................... 11
4.15 Legal Compliance........................................................ 12
4.16 No Unrecorded Fund, No False Entries.................................... 12
4.17 Compliance with Fictitious Name Statutes................................ 12
4.18 Brokers' Fees........................................................... 12
</TABLE>
-i-
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
4.19 Year 2000 Compliance.................................................... 13
4.20 Software................................................................ 13
4.21 Billing Practices....................................................... 13
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE BUYER ................................ 13
5.1 Organization, Power and Authority........................................ 13
5.2 Authorization, Binding Obligation........................................ 13
5.3 No Violations or Defaults................................................ 14
5.4 Brokers' Fees............................................................ 14
ARTICLE VI ADDITIONAL COVENANTS OF THE PARTIES ....................................... 14
6.1 Conduct of the Business Pending the Closing.............................. 14
6.2 Access to Each Seller's Premises, Records, Vendors and Suppliers......... 15
6.3 No Other Discussions..................................................... 16
6.4 Noncompetition Agreement................................................. 16
6.5 Prorations and Adjustments............................................... 18
6.6 Holdback Funds........................................................... 18
6.7 Further Assurances....................................................... 19
6.8 Disclosure of Breach or Futility......................................... 19
6.9 Post-Closing Retention of Records........................................ 19
6.10 Termination of Sellers' Employees....................................... 20
6.11 Accounts Receivable..................................................... 20
6.12 Taxes................................................................... 20
6.13 Net Working Capital..................................................... 21
6.14 Timely Compliance With Employment Related Laws.......................... 21
6.15 401(k) Plan Distribution and Rollover................................... 22
ARTICLE VII CONDITIONS TO THE OBLIGATION OF THE BUYER ................................ 22
7.1 Accuracy of Representations and Warranties............................... 22
7.2 Performance of Obligations............................................... 22
7.3 Philadelphia Health and Education Corporation............................ 22
7.4 No Pending or Threatened Litigation...................................... 22
7.5 No Change to the Business................................................ 23
</TABLE>
-ii-
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
7.6 Closing Deliveries....................................................... 23
ARTICLE VIII CONDITIONS TO OBLIGATION OF SELLERS ..................................... 23
8.1 Accuracy of the Buyer's Representations and Warranties................... 23
8.2 Performance of Obligations............................................... 23
8.3 Closing Deliveries....................................................... 23
8.4 No Pending or Threatened Litigation...................................... 24
ARTICLE IX CERTAIN ACTIONS AFTER THE CLOSING ......................................... 24
9.1 Power of Attorney........................................................ 24
9.2 Post-Closing Matters..................................................... 24
9.3 Legal Support Services. ................................................. 25
9.4 Nonassignability of Assets .............................................. 25
9.5 Third Party Consents and Termination Statements ......................... 26
ARTICLE X INDEMNIFICATION ............................................................ 27
10.1 Survival of Representations and Warranties.............................. 27
10.2 The Buyer's Right to Indemnification.................................... 27
10.3 Sellers' Right to Indemnification....................................... 27
10.4 Terms and Conditions of Indemnification................................. 27
10.5 Payment of Indemnity Obligations; Certain Limitations on
Parent's/Sellers' Indemnity Obligations................................. 29
ARTICLE XI MISCELLANEOUS ............................................................. 29
11.1 Failure of Conditions; Breach........................................... 29
11.2 Termination of Obligations by Mutual Agreement.......................... 30
11.3 Risk of Loss of Purchased Assets Prior to Closing....................... 30
11.4 Disclosure Schedules.................................................... 30
11.5 Binding Effect.......................................................... 30
11.6 Entire Agreement........................................................ 31
11.7 Execution in Counterpart................................................ 31
11.8 Notices................................................................. 31
11.9 Governing Law........................................................... 32
11.10 Representation by Counsel.............................................. 32
</TABLE>
-iii-
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
11.11 Assignment, Successors and Assigns..................................... 32
11.12 Specific Performance................................................... 32
11.13 Severability........................................................... 32
</TABLE>
-iv-
<PAGE> 5
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement") is made and entered
into this 14th day of May, 1999 by and among ADVANCED HEALTH MANAGEMENT
CORPORATION, a Delaware corporation, INTEGRATED MEDICAL MANAGEMENT, INC., a
Delaware corporation, ADVANCED HEALTH CORPORATION d/b/a AHT CORPORATION, a
Delaware corporation (the "Parent") (each a "Seller" and collectively, the
"Sellers") and PRACTICARE, INC., a Delaware corporation (the "Buyer") (each, a
"Party" and collectively, the "Parties"). This Agreement and each of the
documents, instruments and certificates contemplated or required hereunder or
delivered in connection herewith or therewith or pursuant hereto or thereto,
collectively, are hereinafter referred to as the "Operative Documents".
WITNESSETH:
WHEREAS, subject to the terms and conditions hereof, the Sellers desire to sell,
transfer and assign to the Buyer, and the Buyer desires to purchase and assume
from the Sellers, as set forth herein: (i) substantially all of the assets of
the Sellers which are used in conducting the Sellers' business of providing
physician practice management, billing and consulting services to independent
and hospital-affiliated physician practices and managed care administrative
services as conducted in Sellers' Atlanta, Georgia and Malvern, Pennsylvania
facilities, as well as with respect to Sellers' Mid Atlantic Cardiology, United
Physicians of Brooklyn, Prime Health Network and Mount Kisco consulting
agreements, except as explicitly excluded in Section 1.2 hereof (the
"Business"); and (ii) certain trade and equipment-related payables incurred by
the Sellers in the ordinary course of the Business for the purchase price
specified herein.
NOW, THEREFORE, in order to consummate said purchase and sale, and in
consideration of the mutual representations, warranties, agreements, covenants
and conditions set forth herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.1 PURCHASED ASSETS.
Each Seller agrees to sell, transfer, assign and deliver to the Buyer
at the Closing (defined in Section 3.1 below), free and clear of all liens,
pledges, options, security interests, charges, mortgages and encumbrances of
every kind (hereinafter, "Encumbrances"), subject: (i) to the obtaining of all
required consents or UCC-3 termination statements (other than from Progress Bank
which shall be obtained pursuant to Section 9.5(b) hereto); (ii) only to those
Encumbrances which exist on the Closing Date and are specifically described in
SCHEDULE 1.1(c) hereto; and (iii) to statutory liens for current Taxes (defined
in Section 4.10(c) below) or assessments not yet due or delinquent and
mechanics', carriers', workers', repairers' and other similar liens arising or
incurred in the ordinary course of business relating to obligations as to which
there is no default on the part of the Sellers (each, a "Permitted
Encumbrance"), for the Cash Purchase Price (defined in Section 2.1(a) below) and
on the terms and subject to the conditions set forth in this
<PAGE> 6
Agreement, all of such Seller's right, title and interest in and to all of the
properties and assets used in the conduct of the Business as conducted by the
Sellers on the date hereof, as set forth below (collectively, the "Purchased
Assets"). For purposes of clarity, the Sellers and the Buyer agree that those
assets of the Sellers which are set forth in Section 1.2 hereof are specifically
excluded from the purchase and sale described herein and such assets will remain
the property of and continue to be owned by the respective Sellers from and
after the Closing Date. The Purchased Assets shall be:
(a) each Seller's equipment, supplies, leasehold improvements,
furniture, fixtures and other fixed assets set forth in SCHEDULE 1.1(a) attached
hereto and made a part hereof (collectively, the "Fixed Assets");
(b) each Seller's receivables set forth in SCHEDULE 1.1(b)
relating to the Business (the "Purchased Receivables");
(c) each Seller's rights and benefits accruing to such Seller
under all orders, contracts, leases and agreements made by such Seller, and each
Seller's vendor and supplier relationships as the same relate to the Business,
as set forth in SCHEDULE 1.1(c) (collectively, the "Purchased Contract and Other
Rights");
(d) each Seller's: (i) accounting records and such other
records in whatever form needed as are reasonably necessary to collect the
Purchased Receivables and pay the Assumed Liabilities; (ii) each Seller's
operating data and operating records in whatever form and media which pertain to
the Business, including supplier lists, manuals, correspondence, mailing lists,
account lists, Works (as defined in various contracts included in the Purchased
Contract and Other Rights, except as specifically excluded on SCHEDULE 1.1(d))
and other similar documents and records as specified in SCHEDULE 1.1(d); and
(iii) advertising and sales materials as specified in SCHEDULE 1.1(d);
(e) the proprietary rights owned or licensed by each Seller
and used in the conduct of the Business, including, without limitation, all
trademarks, service marks and designs, trade names, trade secrets, technology,
software, operating systems, know-how, slogans, copyrights, processes, operating
rights, interfaces and other similar intangible property and rights relating to
the Business, as set forth in SCHEDULE 1.1(e) (collectively, the "Purchased
Proprietary Rights");
(f) each Seller's prepaid expenses relating to the Business
and as set forth in SCHEDULE 1.1(f), subject to adjustment as provided in
Section 6.5 below;
(g) each Seller's right and interest in and to the telephone
and facsimile numbers set forth in the attached SCHEDULE 1.1(g);
(h) each Seller's licenses and permits which pertain to the
Purchased Assets, the Business and/or the operation and conduct thereof, to the
extent transferable, as set forth in SCHEDULE 1.1(h); and
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(i) each Seller's right, title and interest in and to all of
the goodwill associated with the Purchased Assets, the Business and/or the
conduct and operation thereof (the "Purchased Goodwill").
1.2 EXCLUDED ASSETS.
(a) Notwithstanding anything to the contrary in Section 1.1
above, the Purchased Assets shall exclude the following assets of each Seller
(each an "Excluded Asset"): (i) the Purchase Price (as hereinafter defined) and
each Seller's other rights under this Agreement; (ii) any shares of the capital
stock of each Seller which are owned and held by such Seller as treasury shares;
(iii) each Seller's corporate minute books and stock records; (iv) cash on hand
(subject to proration obligations under Section 6.5 hereof) and all marketable
securities of each Seller (other than security deposits); (v) Advanced Health
Management Corporation's investment, and ownership interest, in Southern State
Eyecare, LLC; and (vi) all other assets which are not defined herein as
Purchased Assets.
ARTICLE II
PURCHASE PRICE; LIABILITIES; OTHER MATTERS
2.1 PAYMENT OF PURCHASE PRICE.
(a) In full consideration for performance of this Agreement by
each Seller, and delivery to the Buyer of the Purchased Assets, the Buyer
agrees, subject to the terms, conditions and limitations set forth in this
Agreement, to: (i) pay THREE MILLION ONE HUNDRED THIRTY-NINE THOUSAND DOLLARS
($3,139,000) (the "Cash Purchase Price") to the Sellers; and (ii) assume: (x)
the trade payables (the "Trade Payables") of the Sellers described in SCHEDULE
2.1(a)(ii)(x) attached hereto; (y) the equipment-related payables (the "Cap
Lease Obligations") of the Sellers described in SCHEDULE 2.1(a)(ii)(y) attached
hereto, and (z) the obligations of the Sellers arising and to be performed after
the Closing Date pursuant to the Purchased Contract and Other Rights ((x)
through (z), collectively, the "Assumed Liabilities").
(b) The Buyer will pay the Cash Purchase Price at the Closing
by: (i) delivering to or on behalf of the Sellers an amount equal to TWO MILLION
SIX HUNDRED EIGHTY-NINE THOUSAND DOLLARS ($2,689,000) (the "Closing Payment") by
wire transfer of immediately available funds in such amounts and to such
account(s) as are set forth in SCHEDULE 2.1(b); and (ii) delivering FOUR HUNDRED
FIFTY THOUSAND DOLLARS ($450,000) (the "Holdback Funds") to State Street Bank
and Trust Company, as escrow agent (the "Holdback Escrow Agent"), for the
benefit of the Sellers, and to secure the Sellers' obligations hereunder,
pursuant to the terms and conditions of an escrow agreement (the "Holdback
Escrow Agreement") in the form attached hereto as Exhibit A, subject to offset
as hereinafter provided (to be delivered to the Sellers in accordance with
SCHEDULE 2.3 upon the Holdback Termination Date (as defined in Section 6.6).
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2.2 EXCLUDED LIABILITIES.
Except for the Assumed Liabilities, the Buyer does not assume and shall
not be liable for any of the debts, obligations or liabilities of any nature
whatsoever of any Seller, the Business or any other business of any Seller.
2.3 ALLOCATION OF THE PURCHASE PRICE AMONG THE PURCHASED ASSETS.
The Sellers and the Buyer agree that the Purchase Price shall be
allocated among the Purchased Assets and the noncompetition and nonsolicitation
agreement set forth in Section 6.4 hereof (the "Noncompetition Agreement") in
the manner set forth on the attached SCHEDULE 2.3. Each Seller acknowledges and
agrees that: (i) the Buyer is expressly relying on such Seller entering into the
Noncompetition Agreement; (ii) the Buyer's obligations hereunder are expressly
conditioned on such Seller entering into the Noncompetition Agreement; and (iii)
a portion of the Purchase Price paid hereunder is in consideration of such
Seller entering into the Noncompetition Agreement. Each Seller and the Buyer
agree that they will prepare and file their respective Tax Returns in accordance
with the allocation set forth on Schedule 2.3 hereto. Each Seller and the Buyer
further agree that they will prepare and file asset acquisition statements on
Form 8594 (and any equivalent statements) with their respective federal income
tax returns (and other Tax Returns (defined herein)) for the taxable year that
includes the Closing Date.
ARTICLE III
CLOSING
3.1 TIME AND PLACE OF THE CLOSING.
Subject to the satisfaction or waiver of all conditions to the
obligations of each Seller and the Buyer to consummate the transactions
contemplated hereby (other than conditions with respect to actions the
respective parties will take at the Closing itself), the closing of the
transactions contemplated by this Agreement (the "Closing") shall take place at
the offices of McDermott, Will & Emery, 50 Rockefeller Plaza, New York, New
York, or such other place as mutually agreed to by the Parent and the Buyer,
commencing at 10:00 a.m. local time on the later of: (a) May 14, 1999; or (b)
such other date as the Parent and the Buyer may mutually agree (the "Closing
Date").
3.2 THE SELLERS' DELIVERIES AT THE CLOSING.
At the Closing, each Seller shall execute and deliver or cause to be
delivered to the Buyer, properly executed and acknowledged by the Sellers where
applicable:
(a) General Assignment and Assumption Agreement and Bill of
Sale (the "Bill of Sale") in the form attached hereto as Exhibit B, executed by
the Sellers, and such other instruments, certificates, powers of attorney,
leases, assignments and other transfer documents and agreements, in each case in
such form as is satisfactory to the Buyer and its counsel, and as are necessary
to transfer the Purchased Assets to the Buyer as provided herein;
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(b) Pay off letter evidencing discharge of indebtedness under
the Loan Agreement dated June 26, 1997 between Integrated Medical Management,
Inc. and Progress Bank, in the form attached hereto as Exhibit C;
(c) Corporate resolutions of each Seller, certified as of the
Closing Date by such Seller's Secretary, authorizing such Seller to undertake
the transactions contemplated hereunder and authorizing such Seller's
signatories to execute this Agreement and the other Operative Documents to which
such Seller is a party, such resolutions having been duly adopted and being in
full force and effect on the Closing Date;
(d) Certified copies of each Seller's Certificate of
Incorporation and By-laws, each as amended to date;
(e) A Certificate of each Seller's Secretary, certifying as to
the incumbency and genuine signature of each officer of such Seller executing
any of the Operative Documents;
(f) A Good-Standing Certificate with respect to each Seller
issued by the Secretary of State of: (i) such Seller's state of incorporation;
and (ii) any other state in which any Seller is authorized to do business as a
foreign corporation, each such certificate to be dated within ten (10) days of
the Closing Date;
(g) A certificate of the Chief Executive Officer and the
Treasurer in such capacity and on behalf of each Seller, dated the Closing Date
and in form reasonably satisfactory to the Buyer, certifying that the conditions
precedent set forth in Article VII have been satisfied;
(h) The Holdback Escrow Agreement executed by the Sellers;
(i) An opinion of O'Sullivan, Graev & Karabell, LLP, special
counsel to the Sellers, in the form attached hereto as Exhibit D, dated as of
the Closing Date and addressed to the Buyer; and
(j) Certification from each Seller under Section 1445(b)(2) of
the Internal Revenue Code of 1986, as amended, and the rules and regulations
thereunder, stating such Seller's taxpayer identification number and that such
Seller is not a foreign Person, substantially in the form of Exhibit E attached
hereto.
3.3 THE BUYER'S DELIVERIES AT THE CLOSING.
At the Closing, the Buyer shall execute and deliver or cause to be
delivered to the Sellers, properly executed and acknowledged where applicable:
(a) Corporate resolutions, certified as of the Closing Date by
the Buyer's Secretary, authorizing the Buyer to undertake the transactions
contemplated hereunder and authorizing the Buyer's signatories to execute this
Agreement and the
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other Operative Documents to which the Buyer is a party, such resolutions having
been duly adopted and being in full force and effect on the Closing Date;
(b) The Closing Payment;
(c) The following Certificates, each to be dated the Closing
Date and in form reasonably satisfactory to the Sellers: (i) a Certificate of
the Buyer's Secretary certifying as to the incumbency and genuine signature of
each of the officers of the Buyer executing the Operative Documents; and (ii) a
Certificate of the Buyer's President, in such capacity and on behalf of the
Buyer, certifying that the conditions precedent set forth in Article VIII have
been satisfied;
(d) A Good-Standing Certificate issued by the Secretary of
State of the State of Delaware, such certificate to be dated within ten (10)
days of the Closing Date;
(e) The Holdback Escrow Agreement executed by the Buyer;
(f) Certified copies of the Buyer's Certificate of
Incorporation and By-laws, each as amended to date;
(g) An opinion of McDermott, Will & Emery, counsel to the
Buyer, in the form attached hereto as Exhibit F, dated as of the Closing Date
and addressed to the Sellers; and
(h) The Bill of Sale.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLERS
As a material inducement to the Buyer to enter into this Agreement and
to consummate the transactions contemplated hereunder, each Seller hereby,
jointly and severally, represents and warrants to the Buyer, as of the date of
execution of this Agreement and as of the Closing Date, as follows:
4.1 ORGANIZATION, POWER AND AUTHORITY.
Each Seller is a corporation duly organized, validly existing and in
good standing under the laws of such Seller's respective state of incorporation,
and is qualified as a foreign corporation in such states where qualification is
necessary for the conduct of the Business, except where failure to be so
qualified would not have a Material Adverse Effect (as defined below), and has
full corporate power and authority to: (i) own, lease and operate its properties
and to carry on the Business as it is now being conducted; (ii) enter into this
Agreement and to sell, convey, assign, transfer and deliver the Purchased Assets
for which it has an ownership interest in to the Buyer as provided herein; and
(iii) carry out the other transactions and agreements contemplated hereby.
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4.2 CAPITAL STRUCTURE.
Except as set forth in SCHEDULE 4.2, each Seller, except for Parent, is
a wholly-owned subsidiary of Parent.
4.3 AUTHORIZATION, BINDING OBLIGATION.
The execution and delivery of the Operative Documents to which any
Seller is a party, and the consummation of the transactions contemplated
thereby, have been duly authorized by all requisite corporate action of such
Seller. Each such Operative Document constitutes the legally valid and binding
obligation of such Seller and is enforceable against such Seller in accordance
with its respective terms, except to the extent that such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to creditors' rights generally and to general principles of
equity.
4.4 NO VIOLATIONS OR DEFAULTS.
The execution, delivery and compliance with and performance by each
Seller of the Operative Documents to which it is a party do not and will not:
(i) violate the Certificate of Incorporation or By-laws, or other similar
organizational documents, of any Seller, or any law, statute, rule, regulation,
order, judgment or decree to which any Seller is subject, except where such
violation would not reasonably be expected to have a material adverse effect on
the Purchased Assets, the Business, or the financial condition or results of
operations thereof (a "Material Adverse Effect"); (ii) conflict with, or result
in or constitute a default under, or breach or violation of, or grounds for
termination of, or an event which, with notice or the lapse of time, or both,
would constitute a default under, or breach or violation of, or grounds for
termination of, any agreement or instrument to which any Seller is a party, or
by which any Seller or any of the Purchased Assets which it is assigning and
selling hereunder may be bound, except for such conflicts, breaches, defaults,
violations or grounds for termination, which individually or in the aggregate,
would not reasonably be expected to result in a Material Adverse Effect; (iii)
result in the creation or imposition of any encumbrance (other than a Permitted
Encumbrance) upon any of the Purchased Assets which it is assigning or selling
hereunder; (iv) require any approval or consent which has not been obtained
prior to the Closing of any Person under the organizational documents of any
Seller, or under any contract, agreement or other instrument to which any Seller
is a party or by which any Seller or the Purchased Assets which it is assigning
and selling hereunder are bound or to which any Seller or the Purchased Assets
are subject, except for failures to obtain approvals and consents, which
individually or in the aggregate, would not reasonably be expected to result in
a Material Adverse Effect; or (v) result in the termination, modification or
cancellation of any license, permit, franchise, governmental authorization or
approval which is necessary for the conduct of the Business (provided the
Sellers make no representations or warranty herein as to the transferability of
the license identified on SCHEDULE 4.11).
4.5 CONTRACTS, LEASES AND OTHER AGREEMENTS.
SCHEDULE 1.1(c) sets forth a complete list of all Purchased Contract
and Other Rights used in the Business, including a description of the
significant terms and conditions of all
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Purchased Contract and Other Rights that arose under any oral agreement. Copies
of all written Purchased Contract and Other Rights have been delivered to the
Buyer and are true, complete and correct in all material respects. With respect
to each such lease, contract, commitment and agreement listed on SCHEDULE
1.1(c): (a) with the exception of any oral agreement, as to which no
representation and warranty is made in this Section 4.5(a), each is the legal,
valid, binding and enforceable obligation of, and is in full force and effect
with respect to: (i) the Seller which is a party thereto; and (ii) to the
Knowledge of the Sellers, all other parties thereto except in each instance as
such enforcement shall be limited by bankruptcy and creditors rights laws, and
general principles of equity; (b) except as set forth on SCHEDULE 4.20, no
Seller, and to the Knowledge of the Sellers, no other party, to any such
Purchased Contract and Other Right is in breach or default, and, to the
Knowledge of the Sellers, no event has occurred which, with notice or the lapse
of time, would constitute a breach or default, or permit termination,
modification or acceleration thereunder. For purposes of this Agreement,
"Knowledge" shall mean the knowledge of each Seller after due and reasonable
inquiry.
4.6 LITIGATION.
SCHEDULE 4.6 sets forth each instance in which any Seller: (a) is
subject to any outstanding injunction, judgment, order, decree, ruling or charge
which relates to or is binding upon the Purchased Assets and/or the Business; or
(b) is a party or is threatened in writing to be made a party to any action,
suit, proceeding, hearing or investigation of, in or before any court or
quasi-judicial or administrative agency of any federal, state, local or foreign
jurisdiction or before any arbitrator the subject of which relates to the
Purchased Assets and/or the Business. None of the actions, suits, proceedings,
hearings and investigations set forth in SCHEDULE 4.6, if decided adversely to
such Seller, could result in any Material Adverse Effect after the Closing.
4.7 SELLERS' EMPLOYEES.
(a) SCHEDULE 4.7(a) sets forth a true and complete list of all
employees of the Sellers who are principally involved in the Business at the
Malvern and Atlanta facilities and certain specified employees at the New York
facility showing date of hire, hourly rate or salary, bonus or other basis of
compensation and job title (the "Affected Employees").
There are no employment or consulting contracts or arrangements (other
than those terminable at will) with any employees or consultants of or
associated with the Business and the Purchased Assets, except as described in
SCHEDULE 4.7(b).
4.8 LABOR RELATIONS OF SELLERS.
No Seller is a party to or bound by any collective bargaining agreement
or any other agreement with a labor union, and there has been no effort by any
labor union during the twenty-four (24) months prior to the date hereof to
organize any employees of any Seller into one or more collective bargaining
units. There is not pending nor threatened any labor dispute, strike or work
stoppage by the Affected Employees which affects or which may affect the
Business or which may interfere with the continued operation of the Business by
employees of the Business.
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There is no unfair labor practice complaint pending, or to the Knowledge of the
Sellers, threatened against any Seller before the National Labor Relations
Board.
4.9 NO UNTRUE OR INACCURATE REPRESENTATIONS OR WARRANTIES.
The representations and warranties of the Sellers contained in this
Agreement and the schedules hereto do not contain any untrue statement of a
material fact nor do they omit to state a material fact necessary in order to
make the statements and information contained therein, taken as a whole, not
misleading. There is no fact that materially adversely affects the ability of
any Seller to perform its obligations under this Agreement and to consummate the
transactions contemplated hereby, that has not been set forth and described in
this Agreement or a schedule hereto.
4.10 GOOD TITLE TO AND CONDITION OF THE PURCHASED ASSETS.
(a) Each Seller has good title to, or a valid leasehold
interest in or license to, all of the Purchased Assets which it shall sell and
assign hereunder and has full legal right, power, and authority to sell, assign,
transfer and deliver such Purchased Assets, free and clear of all Encumbrances,
except for the Encumbrances listed and described in SCHEDULE 1.1(c) and the
Permitted Encumbrances, and subject to the obtaining of all required consents.
(b) The Fixed Assets currently in use are in good operating
order, repair and condition, reasonable wear and tear excepted.
(c) The Purchased Assets are free and clear of all
Encumbrances that arose in connection with any failure (or alleged failure) to
pay any Tax. For purposes of this Agreement:
(i) "Tax" shall mean any federal, state, local, or
foreign income, gross receipts, business, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits, environmental
(including taxes under Section 59A of the Code), customs duties, capital stock
franchise, profits, withholding, social security (or similar) unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add on minimum, estimated, or other
tax of any kind whatsoever, including any interest, penalty, or addition
thereto, whether disputed or not.
(ii) "Tax Return" shall mean all returns, reports,
statements, forms, or other documents or information required to be filed with a
taxing authority by a Seller with respect to the Taxes of such Seller.
4.11 LICENSES.
(a) SCHEDULE 4.11 attached hereto contains a complete list of
all governmental licenses, approvals, permits and authorizations held by each
Seller which are currently used by the Sellers, including without limitation,
all licenses
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associated with the Purchased Proprietary Rights (each a "License" and
collectively, "Licenses").
(b) To the Knowledge of the Sellers, each License is valid and
in full force and effect as of the date hereof. There is not pending or, to any
Seller's Knowledge, threatened any investigation or proceeding which could
result in the termination, revocation, limitation, suspension, restriction or
impairment of any License or the imposition of any fine, penalty or other
sanction for violation of any requirements of any License.
4.12 PROPRIETARY RIGHTS.
(a) Except as set forth in SCHEDULE 4.12(a), the Purchased
Proprietary Rights include all proprietary rights used in the operation of the
Purchased Assets and the conduct of the Business as presently operated and
conducted by the Sellers.
(b) Each Seller owns or has the right to use pursuant to
license, sublicense, agreement or permission all Purchased Proprietary Rights
applicable to it and used in the operation of the Business as presently
conducted. Each item of Purchased Proprietary Rights owned or used by any Seller
immediately prior to the Closing hereunder will be owned or available for use by
the Buyer on identical terms and conditions immediately subsequent to the
Closing hereunder. Each Seller has taken all necessary action to maintain and
protect each item of Purchased Proprietary Rights that such Seller owns or uses.
(c) No Seller has interfered with, infringed upon or
misappropriated, while operating the Purchased Assets or conducting the
Business, any trademarks, trade names, service marks, trade secrets, technology,
software, operating systems, know-how, slogans, copyrights, processes, operating
rights and other similar intangible property and rights (collectively,
"Intellectual Property") of third parties, and no Seller has ever received in
writing any charge, complaint, claim, demand or notice alleging any such
interference, infringement, misappropriation or violation (including any claim
that any Seller must license or refrain from using any Intellectual Property
rights of any third party). No Seller has any Knowledge that any third party has
interfered with, infringed upon, misappropriated or otherwise come into conflict
with any Intellectual Property rights of any Seller being transferred to the
Buyer hereunder.
(d) With respect to the conduct of the Business, no Seller:
(i) owns any patents or patent registration, issued or pending; (ii) holds any
rights under patent licenses or patent agreements; or (iii) except as set forth
in SCHEDULE 4.12(d), has granted any license, agreement, right or other
permission to any third party with respect to its Intellectual Property.
4.13 RELATIONSHIPS WITH CUSTOMERS AND OTHERS.
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(a) Except as set forth on SCHEDULE 4.13, no Seller has
received, within ninety (90) days prior to the date of this Agreement, from any
current customer, representing more than 1% of the revenue of the Business any
written communication providing notice of any changes in its practices that
would have a Material Adverse Effect.
(b) No Seller has had any direct or indirect ownership
interest in any customer, supplier or competitor of any Seller associated with
the Business, any Person from or to whom any Seller leases real or personal
property, or any Person with whom any Seller is doing business.
4.14 EMPLOYEE BENEFITS.
(a) SCHEDULE 4.14(a) identifies each "employee benefit plan",
as defined in Section 3(3) of ERISA, that: (i) is subject to any provision of
ERISA; (ii) is maintained, administered, or contributed to by any Seller or any
of its Affiliates (for purposes of this Agreement, an "Affiliate" shall mean any
person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the person
specified); and (iii) covers any employee or former employee of any Seller
(each, an "Employee Plan").
(b) Determination letters have been received by each Seller
confirming that each Employee Plan of such Seller which is intended to be
qualified under Section 401(a) of the Code is so qualified in form and no Seller
knows of any fact or conditions giving rise to a material likelihood that any
such plan would not be treated as so qualified by the Internal Revenue Service.
(c) SCHEDULE 4.14(c) identifies each employment, severance or
similar contract or arrangement (whether or not written) or any plan, policy,
fund, program or contract or arrangement (whether or not written) providing for
compensation, bonus, profit sharing, stock option, or other stock related rights
or other forms of incentive or deferred compensation, vacation benefits,
insurance coverage (including any self insured arrangements), health or medical
benefits, disability benefits, workers' compensation, supplemental unemployment
benefits, severance benefits and post employment or retirement benefits
(including compensation, pension, health, medical or life insurance or other
benefits) that: (i) is not an Employee Plan; (ii) is entered into, maintained,
administered or contributed to, as the case may be, by any Seller or any Sellers
Affiliates; and (iii) covers any Affected Employee (each a "Benefit Arrangement"
and collectively, "Benefit Arrangements").
(d) No Seller contributes to, has ever contributed to, or has
ever been required to contribute to any multiemployer plan or pension plan
subject to Title IV of ERISA and has no Liability (including withdrawal
liability under any multiemployer plan or pension plan subject to Title IV of
ERISA.
(e) No Seller maintains, has ever maintained or contributed
to, and has ever been required to contribute to, any Employee Plan or Benefit
Arrangement
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providing medical, health or life insurance or other welfare type benefits for
Affected Employees, their spouses or their dependents (other than in accordance
with Code Section 4980B).
4.15 LEGAL COMPLIANCE.
(a) Each Seller and its predecessor and Affiliates, if any,
have complied in all material respects with all laws (including, without
limitation, environmental protection laws and regulations, civil rights laws,
fire codes, confidentiality laws, record and document maintenance laws, zoning
ordinances, building, occupancy and use restrictions, and public and
occupational health and safety codes) applicable to the Purchased Assets and the
Business (including rules, regulations, codes, plans, injunctions, judgments,
orders, ordinances, decrees, rulings and charges thereunder) of any court or
federal, state, county, municipal, local or foreign governments (and all
agencies, commissions, boards, bureaus, or instrumentalities thereof).
(b) All financial records, patient records and other
documentation which each Seller is required to maintain under all federal, state
and local laws, rules, ordinances, regulations and orders applicable to the
Purchased Assets and the Business have been continuously maintained, in a timely
manner, for the requisite periods under applicable law.
(c) Except as set forth in SCHEDULE 4.15(c) attached hereto,
each Seller, and the Business, is in full compliance in all material respects
with all applicable health care laws, rules and regulations, including those
relating to the payment or receipt of illegal remuneration, including 42 U.S.C.
Section 1320a-7b(b) (the Medicare/Medicaid anti-kickback statute), 42 U.S.C.
1395nn (the Stark Statute), 42 U.S.C. Section 1320a-7a, 42 U.S.C. Section
1320a-7b(a), 42 U.S.C. Section 1320a-7b(c) and any applicable state law
governing kickbacks and matters similar to such federal statutes (collectively,
the "Fraud and Abuse Laws").
4.16 NO UNRECORDED FUND, NO FALSE ENTRIES.
No officer, partner, employee or agent of any Seller has: (i) knowingly
established or maintained any unrecorded fund (whether cash or assets) for any
purpose related to the Business; or (ii) intentionally made any false entries on
any books or records furnished in connection herewith to the Buyer.
4.17 COMPLIANCE WITH FICTITIOUS NAME STATUTES.
Except as set forth in SCHEDULE 4.17, no Seller conducts the Business
or any portion thereof under any fictitious name.
4.18 BROKERS' FEES.
Except as set forth in SCHEDULE 4.18, no Seller has any liability or
obligation to pay any fees or commissions to any broker, finder or agent with
respect to the transactions contemplated
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by the Operative Documents, and there are no such fees or commissions incurred
by or on behalf of any Seller for which the Buyer could become liable or
obligated.
4.19 YEAR 2000 COMPLIANCE.
Med-E-Net(TM) is Year 2000 Compliant when used in accordance with all
applicable documentation. For the purposes of this Agreement, "Year 2000
Compliant" means being capable of accurately processing, providing and/or
receiving date data from, into and between the twentieth and twenty-first
centuries, and leap year calculations. Notwithstanding anything in this
Agreement to the contrary, this warranty is offered only to the extent that any
and all interfacing equipment, hardware or software made, distributed or
provided by third parties is also Year 2000 Compliant and properly exchanges
date data with Med-E-Net(TM).
4.20 SOFTWARE.
Except as set forth in SCHEDULE 4.20, all software used in connection
with the Purchased Assets and the Business is properly licensed. All software
necessary to conduct the Business, as the Business is currently being conducted,
is listed in SCHEDULE 1.1(e) attached hereto.
4.21 BILLING PRACTICES.
All billing practices of each Seller to all third party payors,
including Medicare, Medicaid and any other governmental payment programs (the
"Government Programs") and private insurance companies, have been in material
compliance with all applicable laws, regulations and policies of such third
party payors and Government Programs.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE BUYER
As a material inducement to each Seller to enter into this Agreement
and to consummate the transactions contemplated hereunder, the Buyer hereby
represents and warrants to each Seller as of the date of execution of this
Agreement and as of the Closing Date as follows:
5.1 ORGANIZATION, POWER AND AUTHORITY.
The Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the state of Delaware, and has full corporate power
and authority to: (i) own, lease and operate its properties and to carry on its
business as it is now being conducted; (ii) enter into this Agreement; and (iii)
carry out the other transactions and agreements contemplated hereby.
5.2 AUTHORIZATION, BINDING OBLIGATION.
The execution and delivery of the Operative Documents to which the
Buyer is a party, and the consummation of the transactions contemplated thereby,
have been duly authorized by all requisite corporate action of the Buyer. Each
such Operative Document constitutes the legally valid and binding obligation of
the Buyer and is enforceable against the Buyer in accordance with its respective
terms, except to the extent the same may be subject to and
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affected by applicable bankruptcy, receivership, insolvency, reorganization,
moratorium, fraudulent conveyance or other laws affecting the enforcement of the
rights and remedies of creditors generally.
5.3 NO VIOLATIONS OR DEFAULTS.
The execution, delivery and compliance with and performance by the
Buyer of the Operative Documents to which it is a party do not and will not: (i)
violate the Certificate of Incorporation or By-laws of the Buyer, or any law,
statute, rule, regulation, order, judgment or decree to which the Buyer is
subject, except where such violation would not reasonably be expected to have a
Material Adverse Effect; (ii) conflict with, or result in or constitute a
default under, or breach or violation of, or grounds for termination of, or an
event which, with notice or the lapse of time, or both, would constitute a
default under, or breach or violation of, or grounds for termination of, any
agreement or instrument to which the Buyer is a party, or by which the Buyer or
any of its assets or properties is bound, except for such conflicts, breaches,
defaults, violations or grounds for termination, which individually or in the
aggregate, would not reasonably be expected to result in a Material Adverse
Effect; (iii) require any approval or consent which has not been obtained prior
to the Closing of any Person under the organizational documents of the Buyer, or
under any contract, agreement or other instrument (other than the Operative
Documents) to which the Buyer is a party or by which the Buyer is bound or to
which the Buyer is subject, except for failures to obtain approvals and
consents, which individually or in the aggregate, would not reasonably be
expected to result in a Material Adverse Effect; or (iv) result in the
termination, modification or cancellation of any license, permit, franchise,
governmental authorization or approval which is necessary for the conduct of the
Business.
5.4 BROKERS' FEES.
Except as set forth in SCHEDULE 5.4, the Buyer has no liability or
obligation to pay any fees or commissions to any broker, finder or agent with
respect to the transactions contemplated by the Operative Documents, and there
are no such fees or commissions incurred by or on behalf of the Buyer for which
the Sellers could become liable or obligated.
ARTICLE VI
ADDITIONAL COVENANTS OF THE PARTIES
6.1 CONDUCT OF THE BUSINESS PENDING THE CLOSING.
From the date hereof until the Closing Date, each Seller shall conduct
its respective portion of the Business in the ordinary course consistent with
past practice and shall use its commercially reasonable efforts to preserve
intact its business organizations and relationships with third parties and to
keep available the services of its present officers and employees. Without
limiting the generality of the foregoing, from the date hereof until the Closing
Date, no Seller will:
(a) adopt or propose any change in its certificate of
incorporation or bylaws;
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(b) merge or consolidate with any entity or acquire a material
amount of assets from any entity;
(c) sell, lease, license or otherwise dispose of any of the
Purchased Assets;
(d) (i) take any action that would make any representation or
warranty of any Seller hereunder inaccurate in any material respect at, or as of
any time prior to, the Closing Date; or (ii) omit to take any action necessary
to prevent any such representation or warranty from being inaccurate in any
material respect at any such time;
(e) absent approval of the Buyer, amend, terminate, or
otherwise waive its rights under any Purchased Contract and Other Rights or any
Purchased Proprietary Rights applicable to such Seller; or (f) agree or commit
to do any of the foregoing.
6.2 ACCESS TO EACH SELLER'S PREMISES, RECORDS, VENDORS AND
SUPPLIERS.
(a) Pending the Closing, each Seller will: (i) give the Buyer,
its counsel, financial advisors, auditors and other authorized representatives
reasonable access during normal business hours to the offices, properties, books
and records of such Seller pertaining to the Business, the Purchased Assets, any
Employee Plan or any Benefit Arrangement; (ii) furnish to the Buyer, its
counsel, financial advisors, auditors and other authorized representatives such
financial and operating data and other information relating to that Seller's
portion of the Business and the Purchased Assets as such Persons may reasonably
request; and (iii) instruct the employees, counsel and financial advisors of
such Seller to cooperate reasonably with the Buyer in its review of the Business
and the Purchased Assets. The foregoing shall be conducted in such manner as not
to interfere unreasonably with the conduct of the Business. Notwithstanding the
foregoing, the Buyer shall not have access to personnel records of any Seller
relating to individual performance or evaluation records, medical histories or
other information which in such Seller's good faith opinion is sensitive or the
disclosure of which could subject such Seller to risk of material liability. No
investigation by the Buyer or other information received by the Buyer shall
operate as a waiver or otherwise affect any representation, warranty or
agreement given or made by any Seller hereunder.
(b) Pending the Closing, each Seller will allow and consent,
which consent shall not be unreasonably withheld, to the contact by the Buyer
and its representatives of each such Seller's vendors, suppliers or clients who
are parties to the agreements which form a part of the Purchased Contract and
Other Rights and the Purchased Proprietary Rights, which the Buyer reasonably
deems necessary to be contacted in order to consummate the transactions
contemplated hereby; provided, however, that any contact and any information
obtained by the Buyer as a result of any such contact shall not affect the right
of the Buyer to rely on the representations and warranties made by each Seller
in or pursuant to any of the Operative Documents; and provided, further, that
the Buyer and its representatives will hold in strict confidence all
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documents and information concerning each Seller so obtained through such
contact, and, if the sale of the Purchased Assets pursuant hereto shall not be
consummated, such confidence shall be maintained.
(c) On and after the Closing Date, each Party shall afford the
other and its representatives reasonable access during normal business hours to,
and the right to make copies of, all such books and records of such Party
pertaining to the Business and the Purchased Assets in connection with the
preparation, documentation and/or handling of any financial statements, tax
returns, tax audits, reports to governmental or regulatory agencies, and any
third-party litigations, disputes, claims or controversies, except to the extent
that such access would, in the good faith opinion of the Party so requested,
waive any privilege otherwise available and necessary to such Party with respect
to any pending litigation, claim, dispute or controversy to which such Party is
or could reasonably be expected to become a party to at the time of such access;
provided, that any such access by any Party shall not unreasonably interfere
with the conduct of the business of the other. Each Party will hold, and will
use its best efforts to cause its officers, directors, employees, accountants,
counsel, consultants, advisors and agents to hold, in confidence, unless
compelled to disclose by judicial or administrative process or by other
requirements of law, all confidential documents and information concerning the
other Party provided to it pursuant to this Section 6.2(c). Any Party shall bear
all out-of-pocket costs and expenses (including, without limitation, attorneys'
fees, but excluding reimbursement for general overhead, salaries and employee
benefits), reasonably incurred in connection with the foregoing.
(d) After the Closing, each Party and each of its Affiliates
will hold, and will use their best efforts to cause their respective officers,
directors, employees, accountants, counsel, consultants, advisors and agents to
hold, in confidence, unless compelled to disclose by judicial or administrative
process or by other requirements of law, all confidential documents and
information concerning the Business and the Purchased Assets, including any
derivative documents containing confidential information furnished to such Party
by the other, except to the extent that such information can be shown to have
been: (i) previously known on a nonconfidential basis by such Party, (ii) in the
public domain through no fault of such Party or its Affiliates or (iii) later
lawfully acquired by such Party from sources other than those related to its
prior ownership of its portion of the Business and the Purchased Assets. The
obligation of each Party and its Affiliates to hold any such information in
confidence shall be satisfied if they exercise the same care with respect to
such information as they would take to preserve the confidentiality of their own
similar information.
6.3 NO OTHER DISCUSSIONS.
Prior to the Closing Date, no Seller will enter into any discussion or
negotiate with or entertain or accept the unsolicited offer of any other party
concerning the potential sale of all or any part of the Purchased Assets or
stock of such Seller to, or the merger or consolidation of such Seller with, any
Person other than the Buyer.
6.4 NONCOMPETITION AGREEMENT.
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(a) As an inducement to the Buyer to enter into this Agreement
and to consummate the transactions contemplated hereby, no Seller, nor any of
its respective subsidiaries, for a period of three (3) years following the
Closing Date, without the prior written consent of the Buyer, shall: (i)
directly or indirectly engage, whether or not such engagement shall be as a
partner, stockholder, member, or other owner or manager, in any Competitive
Business (as defined below) engaged in business within the following states:
Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut, New
York, New Jersey, Pennsylvania, Delaware, Maryland, Virginia, West Virginia,
North Carolina, South Carolina, Georgia, Alabama and Florida; (ii) affirmatively
assist or induce any other Person (including, without limitation, any officer or
director of any Competitive Business) to engage in any Competitive Business in
any manner described in the foregoing clause (i); provided, however, the Buyer
is then engaged, whether directly or indirectly, as a partner, stockholder,
member, or other owner or manager in any aspect of the Competitive Business. For
purposes of this Section 6.4 "Competitive Business" shall mean any business
engaged in physician practice management, billing or consulting services to
independent or hospital-affiliated or other healthcare facility-affiliated
physician practices or managed care administrative services. Anything contained
in this Section 6.4 to the contrary notwithstanding, the following shall not
constitute a breach of this Section 6.4:
(i) Providing consulting services in connection with
the purchase, sale, use, training, maintenance, installation, and/or
implementation of software, information technology, and/or information services
to independent or hospital-affiliated or other healthcare facility-affiliated
physician practices or any other Person;
(ii) Developing, manufacturing, selling and/or
providing software, information technology, and/or information services to the
Competitive Business or otherwise;
(iii) Entering into any agreement with any Person to
develop, sell, market, and/or provide any software, information technology,
and/or information services;
(iv) Providing any services, including, but not
limited to billing services, in connection with laboratory and/or pharmacy
functions; or
(v) Having any ownership interest in Southern State
Eye Care, L.L.C., Patient Care Dynamics, LLC, and ACRM, Inc.
In the event that the provisions contained in this Section 6.4 shall
ever be deemed to exceed the time or geographic limits or any other limitations
permitted by applicable law in any jurisdiction, then such provisions shall be
deemed reformed in such jurisdiction to preserve the effect thereof to the
maximum extent permitted by applicable law. Notwithstanding the provisions of
Section 10.1 hereof, the provisions of this Section 6.4 shall survive the
Closing for a period of three (3) years.
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(b) No Seller nor any of the Seller's respective Subsidiaries
shall, directly or indirectly, recruit or otherwise seek to induce by any means
(other than by general advertisement for such position or in response to an
initiative by an employee responding to such general advertisement) any Affected
Employee at any time during the one (1) year period following the Closing Date,
to terminate his or her employment, to violate any agreement with or duty to the
Buyer or any Affiliate of the Buyer, or to hire any such Affected Employee.
(c) No Seller nor any of its respective Subsidiaries shall
directly or indirectly, solicit or encourage any Person who is or will be (as a
result of the transactions contemplated hereby) a customer or supplier of the
Buyer or any of its Affiliates to terminate its relationship with the Buyer or
any of its Affiliates.
(d) Each Seller acknowledges and agrees that, because legal
remedies may be inadequate in the event of a breach of, or other failure to
perform, any of the covenants and obligations set forth in this Section 6.4, the
Buyer may, in addition to obtaining any damages available to it, enforce this
Section 6.4 by injunction and other equitable remedies. Each Seller also
acknowledges and agrees that no breach by the Buyer or any of its respective
Affiliates of, or other failure by such Person to perform, any of its covenants
and obligations under any of the Operative Documents or otherwise shall relieve
the Sellers or any of their respective Affiliates of any of the obligations
under this Section 6.4.
6.5 PRORATIONS AND ADJUSTMENTS.
Each Seller and the Buyer agree that the following items shall be
prorated as of the Closing Date with respect to the conduct of the Business
during the month in which the Closing occurs in accordance with the provisions
of this Section 6.5: (i) fees generated; (ii) expenses; and (iii) interest on
the Capitalized Leases. All adjustments with respect to the foregoing relating
to any period of time on or prior to the Closing Date shall be credited or
charged, as applicable, to the Sellers, and all adjustments relating to any
period of time after the Closing Date shall be credited or charged, as
applicable, to the Buyer.
The Parties further agree to complete such proration as soon as
practicable following the Closing Date, but in no event later than the six month
anniversary of the Closing Date.
6.6 HOLDBACK FUNDS.
The Holdback Funds shall be deposited in escrow by the Buyer and held
by the Holdback Escrow Agent, pursuant to the terms of the Holdback Escrow
Agreement, in an interest bearing account to be invested in such a manner as is
agreed upon by the Parent and the Buyer until the six (6) month anniversary of
the Closing Date, unless a claim for indemnification is made by the Buyer within
such six-month period (the "Holdback Termination Date"). If a claim for
indemnification is made by the Buyer against any Seller prior to the Holdback
Termination Date, only such amounts which are: (i) subject to offset pursuant to
Section 6.13; or (ii) subject to such claim may be held beyond the Holdback
Termination Date until resolution of such claim pursuant to Article X hereof.
All income earned on the Holdback Funds shall be the property of
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the Sellers to the same extent as the Holdback Funds, but shall be available to
pay any Seller's indemnification obligations hereunder. Thereafter, any
remaining interest not used to pay any Seller's indemnification obligations
shall be distributed in accordance with the disposition of the Holdback Funds.
Such interest income shall be reported for Tax purposes as income of the Parent.
6.7 FURTHER ASSURANCES.
Each of the Parties hereto, upon the request from time to time of the
other Parties hereto and without further consideration, will do each and every
act and thing as may be necessary or reasonably requested to consummate the
transactions contemplated hereby (including, without limitation, the orderly
transfer to the Buyer of the Purchased Assets and assumption by the Buyer of the
Assumed Liabilities), including without limitation: (i) by executing,
acknowledging and delivering assurances, assignments and other documents and
instruments, furnishing information and copies of documents, books and records
(including without limitation tax records); (ii) filing reports, returns,
applications, filings and other documents and instruments with governmental
authorities; and (iii) cooperating with each other Party hereto in exercising
any right or pursuing any claim, whether by litigation or otherwise, other than
rights and claims running against the Party from whom or which such cooperation
is requested. This Section 6.7 shall survive the Closing for an unlimited period
of time.
6.8 DISCLOSURE OF BREACH OR FUTILITY.
If, prior to Closing, any Party acquires Knowledge of: (a) a material
misrepresentation or material breach by any other Party; or (b) an event,
occurrence or circumstance making satisfaction of a condition in Article VII
hereof unlikely, the Party acquiring such Knowledge shall give prompt written
notice thereof to each other Party in sufficient detail to permit a reasonable
analysis thereof.
6.9 POST-CLOSING RETENTION OF RECORDS.
For the requisite periods under applicable law after the Closing Date,
each Party shall preserve and retain such corporate, accounting, legal, auditing
and other books and records pertaining to the Purchased Assets and the Business
in accordance with Section 1.1(d) thereof; provided, however, such period shall
be extended in the event that any action, suit, proceeding or investigation has
been commenced or is pending or threatened at the expiration of such period and
such extension shall continue until any such action, suit, proceeding or
investigation has been settled or resolved with finality or is no longer pending
or threatened. Notwithstanding the foregoing, a Party may discard or destroy any
of such books and records prior to the end of such period or period of extension
if such Party has given the other Party at least sixty (60) days prior written
notice of such Party's intent to discard or destroy such books and records and
has given the other Party the opportunity to take possession of any or all of
such books and records within said (60) day period. Such Party shall afford the
other Party and their representatives reasonable access during normal business
hours to, and the right to make copies of, all such books and records applicable
to it, for any legitimate purpose (including, without limitation, in connection
with the preparation, documentation and/or handling of any financial statements,
Tax Returns, Tax audits, reports to governmental or regulatory agencies,
litigations, disputes, claims or
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controversies); provided, that any such access by such Party shall not
unreasonably interfere with the conduct of the business of the other. Each Party
will hold, and will use its best efforts to cause its officers, directors,
employees, accountants, counsel, consultants, advisors and agents to hold, in
confidence, unless compelled to disclose by judicial or administrative process
or by other requirements of law, all confidential documents and information
concerning the other Party provided to it pursuant to this Section 6.9. Each
Party shall bear all out-of-pocket costs and expenses (including, without
limitation, attorneys' fees, but excluding reimbursement for general overhead,
salaries and employee benefits), reasonably incurred in connection with the
foregoing. The obligation of each Party and its Affiliates to hold any such
information in confidence shall be satisfied if they exercise the same care with
respect to such information as they would take to preserve the confidentiality
of their own similar information.
6.10 TERMINATION OF SELLERS' EMPLOYEES.
Each Seller shall terminate, by notice in the form attached hereto as
Exhibit G and effective as of the Closing Date, all Affected Employees of such
Seller, which termination shall include termination of the active participation
of the Affected Employees in all of the Employee Plans and Benefit Arrangements
covering such Affected Employees. Each Seller shall pay all salaries, wages, and
benefits, including severance benefits and all accrued paid time off, including,
without limitation, accrued vacation and sick time off and all other like
benefits, if any, earned with respect to employment or services rendered to or
on behalf of the Sellers on or before the Closing Date or pursuant to any
retention bonus to which the Affected Employees become entitled. From and after
the Closing Date, each Seller shall remain exclusively liable for the payment to
the Affected Employees of all severance benefits and all benefits specifically
not assumed by the Buyer as an Assumed Liability, including, without limitation,
accrued vacation, sick or other like paid time off, if any. Each Seller shall
remain responsible for and shall retain any and all statutory or contractual
liabilities and obligations relating in any manner to its employees, including
the Affected Employees, former employees, their dependents and beneficiaries,
arising in connection with events or circumstances incurred or existing on or
prior to the Closing Date. Each Seller acknowledges and agrees that Buyer is
under no obligation to hire any of the Affected Employees or any former
employees of any Seller (excepting those whose names the Buyer has initialed on
SCHEDULE 4.7(A) for such term and on such conditions as the Buyer, in its sole
discretion, may determine).
6.11 ACCOUNTS RECEIVABLE.
After the Closing, the Sellers shall permit the Buyer to collect, in
the name of the appropriate Seller, all Purchased Receivables and other items
which shall be transferred hereunder, and to endorse with the name of such
Seller, all checks, receivables or other items received in payment for services
or items provided by the Business. Each Seller shall transfer and deliver to the
Buyer all cash and other property that each Seller may receive after the Closing
in respect of such Purchased Receivables or other items within ten (10) business
days of such receipt. To effectuate the terms and provisions of this Section
6.11, the Sellers shall designate and appoint the Buyer as their
attorney-in-fact as provided in Section 9.1 hereof.
6.12 TAXES.
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Each Party shall be liable for, and shall timely pay, any and all
gains, transfer, sales, use, recording, registration, documentary, stamp, and
other Taxes that may result from, or be incurred in connection with,
consummation of the transactions contemplated by this Agreement which such Party
is required to pay under applicable law.
6.13 NET WORKING CAPITAL.
The Cash Purchase Price shall be increased or decreased, as applicable,
to the extent the Net Working Capital at Closing is greater than or less than
$400,000. As used herein, "Net Working Capital" shall equal an amount equal to:
(i) the AR Balance (as defined herein); minus (ii) the amount of the Trade
Payables at Closing; minus (iii) the amount of the Cap Lease Obligations at
Closing. A final adjustment based on the actual Net Working Capital at Closing
shall be made within six months of Closing. As used herein: (i) "AR Balance"
shall mean the accounts receivable of the Business at the Closing, with any
balance for services performed during the month in which the Closing occurs, to
be prorated for the number of days elapsed in such month, as the Buyer, using
commercially reasonable efforts, collects within six months of the Closing. The
Parties agree that any amounts collected after the Closing from a third party in
respect of the Purchased Contract and Other Rights, shall be credited to such
third party's then most aged payable, unless such third party specifies
otherwise in writing, providing a description of the dispute in such case ; (ii)
"Trade Payables" shall mean the Trade Payables assumed by the Buyer hereunder;
and (iii) "Cap Lease Obligations" shall mean the amount of the Cap Lease
Obligations assumed by the Buyer hereunder at the Closing determined in
accordance with generally accepted accounting principles.
In the event that the Net Working Capital exceeds $400,000, the amount
of such excess shall be paid promptly by the Buyer to one or more account(s) to
be designated by the Sellers in writing. In the event that the Net Working
Capital is less than $400,000, the amount of such deficit shall be paid promptly
by the Sellers to an account to be designated by the Buyer. The Sellers agree
that the amount of such deficit shall first be paid to the Buyer out of amounts
held in the Holdback Escrow. To the extent that the Holdback Escrow is
insufficient to cover such deficit, the Sellers shall pay to the Buyer such
additional amount as is necessary to complete reimbursement to the Buyer of the
deficit amount. The Buyer and Sellers agree that the Net Working Capital shall
be calculated, and any payments owing to any Party in respect thereof shall be
paid promptly upon acceptance of such calculation in accordance with the
provisions of this Section 6.13, on or before the six month anniversary of the
Closing Date. In the event that the Parties are unable to agree on the Net
Working Capital, the Parties will work together in good faith for a period of
ten days in order to reach agreement as to the Net Working Capital. If, after
such ten-day period, the Parties remain unable to agree as to the Net Working
Capital, each Party shall submit its respective supporting documentation to KPMG
Peat Marwick, LLP (the "Independent Accountant"). The Independent Account shall
review such supporting documentation and determine the Net Working Capital,
which determination shall be final and binding upon the Parties. The cost of the
Independent Accountant shall be borne equally among the Parties.
6.14 TIMELY COMPLIANCE WITH EMPLOYMENT RELATED LAWS.
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Each Seller shall be responsible for timely compliance with all
federal, state and local laws respecting the effect to any of the Affected
Employees of the transactions contemplated by this Agreement, including without
limitation, the Worker Adjustment and Retraining Notification Act, 29 U.S.C.
Section 2101, et. Seq. ("WARN"). The Buyer acknowledges and agrees that it shall
bear any such responsibility with respect to the actions it takes after the
Closing Date. Each Seller agrees that it will not take any action which causes
the notice provisions of WARN to be applicable to the transactions contemplated
by this Agreement.
6.15 401(k) PLAN DISTRIBUTION AND ROLLOVER.
Each Seller represents and warrants that benefits shall not be
distributed from such Seller's existing Section 401(k) plans to the Affected
Employees after the Closing unless such Seller either terminates such plan on or
before the Closing or subsequently receives a favorable determination letter
from the IRS providing that such distribution is provided for under the terms of
such plan and does not violate the distribution requirements under Section
401(k)(2)(B)(i)(II) and 401(k)(10) of the Internal Revenue Code of 1986, as
amended. Any determination letter request by any Seller shall include a
disclosure of this asset sale and a description of the tax-qualified plan
covering such Affected Employee established by the Buyer following the Closing.
ARTICLE VII
CONDITIONS TO THE OBLIGATION OF THE BUYER
The obligation of the Buyer to purchase the Purchased Assets shall be
subject to the fulfillment at or prior to the Closing Date of each of the
following conditions:
7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties set forth in Article IV hereof shall
be true, complete and correct in all material respects at and as of the date
hereof, and as of the Closing Date with the same force and effect as though made
at and as of that time.
7.2 PERFORMANCE OF OBLIGATIONS.
Each Seller shall have performed in all material respects all of the
covenants and agreements to be performed and completed by it under the Operative
Documents prior to the Closing.
7.3 PHILADELPHIA HEALTH AND EDUCATION CORPORATION.
The Buyer shall have entered into (or Advanced Health Management
Corporation shall have entered into and shall have assigned to the Buyer as of
the Closing all of its rights and obligations under) the management services
agreement with Philadelphia Health and Education Corporation, substantially in
the form attached hereto as Exhibit H.
7.4 NO PENDING OR THREATENED LITIGATION.
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No action, suit, or proceeding shall be pending or threatened before
any court or quasi-judicial or administrative agency of any Federal, state,
local or foreign jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling or charge would: (i) prevent
consummation of any of the transactions contemplated by this Agreement; (ii)
cause any of the transactions contemplated by this Agreement to be rescinded
following consummation; or (iii) affect adversely the right of the Buyer to own
the Purchased Assets to be acquired hereunder and to operate the Business in or
substantially in the same manner as previously operated (and no such injunction,
judgment, order, decree, ruling or charge shall be in effect).
7.5 NO CHANGE TO THE BUSINESS.
(a) Financial Condition. No material adverse change in the
operations, financial condition or otherwise of the Business shall have occurred
since December 31, 1998 and no fact shall have arisen which has or reasonably
could be expected to have a Material Adverse Effect; and
(b) Loss, Damage, Destruction. No loss, damage or destruction
(whether or not covered by insurance) to any of the Purchased Assets shall have
occurred, from the date hereof up and through the Closing Date, which has or
reasonably could be expected to have a Material Adverse Effect.
7.6 CLOSING DELIVERIES.
Each Seller shall have delivered to the Buyer in form reasonably
satisfactory to the Buyer and its counsel all of the documents, agreements,
certificates, instruments, information and other materials required to be
delivered by it in accordance with the provisions of Section 3.2 hereof.
ARTICLE VIII
CONDITIONS TO OBLIGATION OF SELLERS
The obligation of the Sellers to sell the Purchased Assets shall be
subject to the fulfillment at or prior to the Closing Date of each of the
following conditions:
8.1 ACCURACY OF THE BUYER'S REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Buyer set forth in Article V
hereof shall be true, complete and correct in all material respects at and as of
the date hereof, and as of the Closing Date with the same force and effect as
though made at and as of that time.
8.2 PERFORMANCE OF OBLIGATIONS.
The Buyer shall have performed in all material respects all of the
covenants and agreements to be performed and complied with by it under the
Operative Documents prior to the Closing.
8.3 CLOSING DELIVERIES.
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The Buyer shall have delivered to the Sellers, in form reasonably
satisfactory to the Sellers and its counsel, all of the documents, agreements,
certificates, instruments, information and other materials required to be
delivered by it in accordance with the provisions of Section 3.3 hereof.
8.4 NO PENDING OR THREATENED LITIGATION.
No action, suit, or proceeding shall be pending or threatened before
any court or quasi-judicial or administrative agency of any Federal, state,
local or foreign jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling or charge would: (i) prevent
consummation of any of the transactions contemplated by this Agreement; (ii)
cause any of the transactions contemplated by this Agreement to be rescinded
following consummation of the same.
ARTICLE IX
CERTAIN ACTIONS AFTER THE CLOSING
9.1 POWER OF ATTORNEY.
Effective as of and after the Closing Date, each Seller hereby
irrevocably appoints the Buyer as such Seller's agent and attorney-in-fact, with
full power and authority in the place of such Seller and in the name of such
Seller, from time to time in the Buyer's discretion, to collect the Purchased
Receivables. Such right shall include the right to endorse the name of the
appropriate Seller on any checks received on account of such Purchased
Receivable, to deposit all amounts received by the Buyer on account of the
Purchased Receivables and otherwise to treat the Purchased Receivables as the
Buyer's property. Each Seller agrees that it will promptly tender to the Buyer
any payments received by it with respect to the Purchased Receivables.
9.2 POST-CLOSING MATTERS.
Any asset that is determined by the Parties' agreement, or, absent such
agreement, determined by arbitration or litigation, to be or otherwise relate to
an Excluded Asset and that is or comes into the possession, custody or control
of the Buyer (or its successors in interest or assigns, or its respective
Affiliates) shall forthwith be transferred, assigned or conveyed by the Buyer
(or its respective successors in interest or assigns and its respective
Affiliates) to the appropriate Seller, and until such transfer, assignment and
conveyance, the Buyer (and its respective successors in interest and assigns and
its respective Affiliates) shall not have any right, title or interest in such
asset but instead shall hold such asset in trust for the benefit of such Seller.
Any asset (including all remittances and mail and other communications) that is
determined by the Parties' agreement or, absent such agreement, determined by
arbitration or litigation, to be or otherwise relate to a Purchased Asset and
that is or comes into the possession, custody or control of any Seller or any
Affiliate of any Seller (or its respective successors in interest or assigns)
shall forthwith be transferred, assigned and conveyed by such Seller or the
applicable Affiliate of such Seller (or its respective successors in interest or
assigns) to the Buyer and until such transfer, assignment and conveyance, such
Seller or the applicable Affiliate of such Seller (and its respective successors
in interest and assigns) shall not have any right, title or
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interest in such Purchased Asset, but instead shall hold such asset in trust for
the benefit of the Buyer. The terms of this Section 9.2 shall survive the
Closing for an unlimited period of time.
9.3 LEGAL SUPPORT SERVICES.
The Buyer agrees to make available to any Seller such Affected
Employees as may be requested by such Seller, in accordance with the provisions
set forth in this Section 9.3, in order to assist such Seller in the defense,
prosecution or investigation of claims made by or against any Seller and for the
enforcement of rights held by any Seller (collectively, "Legal Support
Services"). The Buyer shall have no obligation to render Legal Support Services
in those instances in which interests of any Seller directly conflict with the
interests of the Buyer. The Legal Support Services shall be rendered in
accordance with any Seller's reasonable request therefor, after giving due
regard to the operations and needs of the Buyer. The Sellers shall be solely
responsible for the reasonable out-of-pocket cost of such Legal Support
Services.
9.4 NONASSIGNABILITY OF ASSETS.
(a) Notwithstanding any provision of this Agreement to the
contrary, to the extent that any Purchased Asset described in this Agreement as
being sold, assigned, transferred or conveyed ("Transferred") to the Buyer (a
"Commitment") or any claim, right or benefit arising thereunder or resulting
therefrom (collectively with all Commitments, the "Interests"), is not capable
of being Transferred without the approval, consent or waiver of the issuer
thereof or the other party thereto, or if such Transfer or attempted Transfer
would be invalid, would destroy or eliminate the Interests related thereto, or
would constitute a breach of a Commitment or a violation of any applicable law,
this Agreement shall not constitute a Transfer thereof, or an attempted Transfer
thereof in the absence of such approval, consent or waiver. The obligations of
the Buyer and the Sellers with respect to such Interests will be governed by
clause (b) hereof.
(b) The Parties shall co-operate in good faith to take all
actions that may be reasonably necessary to complete the Transfer of the
Purchased Assets. At all times after the Closing Date, the Parties shall take
all actions that may be reasonably required for the purpose of giving to the
Parties the full benefit of all the provisions of this Agreement in respect of
the Interests, including using their reasonable commercial efforts to cause any
third party to execute such documents and take such other actions as may be
reasonably required for such purpose. The Sellers and the Buyer will use their
reasonable commercial efforts to obtain any consent, substitution, approval or
amendment required to novate, reissue or assign all Interests. If the Sellers or
the Buyer are unable to obtain any such required consent, approval, substitution
or amendment, the Sellers (or their Affiliates) shall continue to be bound by
such Commitments and, unless not permitted by applicable law or the terms
thereof, the Buyer shall, as agent for the Seller (or its Affiliates) or as
subcontractor, pay, perform and discharge fully all the obligations (except for
any obligations that are Excluded Liabilities) of the Sellers (or their
Affiliates) thereunder arising or to be performed after the Closing Date. The
Seller (or its Affiliates) shall promptly, without further consideration, pay
and remit to the Buyer all money, rights and other consideration received in
respect of such performance by the Buyer after payment of any Taxes and
reasonable out of pocket costs due from the
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Seller (or its Affiliates) with respect to such receipt. The Sellers (or their
Affiliates) shall exercise their rights and options under all such Commitments
promptly and in such manner as may be reasonably directed by the Buyer, and the
Sellers and their Affiliates shall not terminate any commitment without the
Buyer's prior consent. Furthermore, to the extent that a Commitment expires
without having been Transferred to the Buyer, the Sellers shall use their
commercially reasonable efforts to cause such Commitments to be renewed or
issued at the Buyer's request. If and when any such approval, consent or waiver
shall be obtained or such Commitment shall otherwise become assignable or able
to be novated, the assignment by the Sellers of the Interests and the assumption
by the Buyer of the Assumed Liabilities related to such Interests shall become
effective automatically as of such time, without further action on the part of
the Sellers, the Buyer or any of their respective Affiliates, and without
payment of further consideration. To the extent that the assignment of any
Interest or the proceeds thereof pursuant to this Section 1.3 is prohibited by
any applicable law, the assignment provisions of this paragraph shall operate to
create a subcontract or agency with the Buyer to perform each relevant,
unassignable Commitment, subject to its terms, and the subcontract price shall
be equal to the money, rights and other consideration received by the Sellers
(net of any Taxes imposed on the Sellers or any of its Affiliates with respect
to such money, rights or other consideration) in respect of the performance by
the Buyer under such subcontract.
(c) The provisions of this Section 1.3 shall not apply to the
licenses and permits listed on SCHEDULE 1.1(h) hereof.
(d) Notwithstanding the provisions of Section 10.1 hereof, the
provisions of this Section 9.4 shall survive the Closing until the expiration of
all Interests, after giving effect to the provisions of 9.4(b) above.
9.5 THIRD PARTY CONSENTS AND TERMINATION STATEMENTS
(a) Notwithstanding anything else herein, the Buyer hereby
acknowledges that the Sellers have not obtained and shall not deliver at
Closing: (i) any third party consents required for the valid transfer and
assignment of any of the Purchased Assets; or (ii) any UCC-3 termination
statements (the "Termination Statements") and that such non-deliveries do not
constitute a breach of any representation, warranty or covenant of the Seller,
give rise to any indemnification right of the Buyer or constitute a failure or
non-fulfillment of any condition precedent to the Buyer's obligations hereunder.
(b) The Sellers shall deliver executed UCC-3 termination
statements from Progress Bank to the Buyer, in form and substance suitable for
filing with the appropriate filing office and reasonably satisfactory to the
Buyer within five business days of the Closing and shall deliver to the Buyer a
copy of the promissory note evidencing Integrated Medical Management, Inc.'s
indebtedness to Progress Bank marked "Paid in Full" as soon as is practicable
following the Closing.
(c) Nothing set forth in this Section 9.5 shall limit the
Seller's obligations set forth in Section 9.4.
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ARTICLE X
INDEMNIFICATION
10.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All the representations and warranties contained in Articles iv and v
and all covenants contained herein, unless otherwise indicated, shall survive
the Closing for a period of twenty-four (24) months from the Closing; provided,
however, that as to any representation or warranty related to any tax, such
representation or warranty shall survive until the later of: (a) twenty-four
(24) months following the Closing; or (b) the thirtieth day following the
expiration of any applicable statute of limitations.
10.2 THE BUYER'S RIGHT TO INDEMNIFICATION.
Subject to Section 10.5, the Parent, on behalf of itself and each of
its successors and assigns, hereby agrees to indemnify and hold harmless the
Buyer and its Affiliates (the "Buyer Indemnitees") from and against: (i) any and
all losses, obligations, liabilities, damages, claims, deficiencies, costs and
expenses (including, but not limited to, the amount of any settlement and all
reasonable legal and other expenses incurred in connection with the
investigation, prosecution or defense of the matter) (collectively,
"Liabilities"), which may be asserted against or sustained or incurred by the
Buyer Indemnitees in connection with, arising out of, or relating to (a) the
Excluded Liabilities, (b) any inaccuracy in, misrepresentation or breach of any
of the representations, warranties, agreements and covenants made by any Seller
in the Operative Documents; and (ii) any and all costs and expenses (including,
but not limited to, reasonable legal expenses) incurred by the Buyer Indemnitees
in connection with the enforcement of their respective rights under the
Operative Documents.
10.3 SELLERS' RIGHT TO INDEMNIFICATION.
The Buyer hereby agrees to indemnify and hold harmless each Seller and
its Affiliates (the "Seller Indemnitees") from and against: (i) any and all
Liabilities which may be asserted against or sustained or incurred by the Seller
Indemnitees in connection with, arising out of, or relating to any inaccuracy
in, misrepresentation or breach of any of the representations, warranties,
agreements and covenants made by the Buyer in the Operative Documents including,
without limitation, the payment and/or performance by the Buyer of the Assumed
Liabilities as provided herein; and (ii) any and all costs and expenses
(including, but not limited to, reasonable legal expenses) incurred by the
Seller Indemnitees in connection with the enforcement of their respective rights
under the Operative Documents.
10.4 TERMS AND CONDITIONS OF INDEMNIFICATION.
The obligations and liabilities of the indemnifying parties hereunder
shall be subject to the following terms and conditions:
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(a) Notice of Claims; Dispute of Liability. Any Party claiming
any right of indemnification under the indemnity agreements contained in Section
10.2 or Section 10.3 above (an "Indemnified Party") shall promptly notify the
Party or Parties from whom indemnification is sought (the "Indemnifying
Parties") pursuant to the provisions hereof, specifying the nature of the claim
and the amount or the estimated amount thereof and giving notice of any fact
upon which such Indemnified Party intends to base a claim for indemnification
hereunder (a "Claim Notice"). In the case of a third party's claim or threatened
claim against an Indemnified Party hereunder (a "Third Party Claim"), the
Indemnifying Parties shall have thirty (30) days (the "Notice Period") to notify
the Indemnified Party whether or not they dispute their liability for
indemnification of such claim; provided, however, that the Notice Period for a
Third Party Claim shall be reduced if the date on which a responsive pleading or
other document is required to be filed giving effect to any available extension
occurs sooner than thirty (30) days following receipt of a Claim Notice
therefor. In the event the Indemnifying Parties shall have disputed their
liability for any Third Party Claim in accordance with the provisions of this
Section 10.4(a), the Indemnified Party shall have the right to control the
defense or settlement of such claim, in its sole discretion and at its expense;
provided, however, that the Indemnified Party shall be reimbursed by the
Indemnifying Parties for the costs and expenses of such defense if it shall
thereafter be found that such Third Party Claim was subject to indemnification
by the Indemnifying Parties hereunder. If an Indemnifying Party does not notify
the Indemnified Party within the Notice Period that it disputes liability for a
claim for which it has received a Claim Notice, such Indemnifying Party shall be
liable to pay the indemnity amount to the Indemnified Party.
(b) Claims Against an Indemnitee. In the event any Third Party
Claim is brought against an Indemnified Party with respect to which the
Indemnifying Parties may have liability under the indemnity agreement contained
in Section 10.2 or 10.3 above, the Indemnifying Parties shall elect to either:
(i) defend against such Third Party Claim; or (ii) fund the fees and expenses of
the defense thereof, which election shall be made within the Notice Period. The
counsel selected by the Indemnifying Parties to defend an Indemnified Party in
any such Third Party Claim shall be subject to the consent of such Indemnified
Party, which consent shall not be unreasonably withheld or delayed. The
Indemnified Party shall have the right to employ its own counsel in any case
defended by the Indemnifying Parties, but the fees and expenses of such counsel
shall be at such Indemnified Party's expense unless (a) both the employment of
such counsel and the payment of such fees and expenses shall have been
specifically authorized by the Indemnifying Parties in connection with the
defense of such Third Party Claim, or (b) such Indemnified Party shall have
reasonably concluded and specifically notified the Indemnifying Parties that
there may be specific defenses available to it which are different from or
additional to those available to the Indemnifying Parties or that such Third
Party Claim involves or could have an effect upon matters beyond the scope of
the indemnity agreement contained in Section 10.3 above, in any of which events
the Indemnifying Parties, to the extent made necessary by such defenses, shall
not have the right to direct the defense of such Third Party Claim on behalf of
such Indemnified Party. In such case, only that portion of such fees and
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expenses reasonably related to matters covered by the indemnity agreement
contained in said Section 10.3 shall be borne by the Indemnifying Parties.
(c) Access to Information. The Indemnified Party shall be kept
fully informed of any Third Party Claim for which it has sought indemnification
under this Article X at all stages thereof. The Indemnifying Parties shall make
available to the Indemnified Party and its attorneys and accountants all books
and records of the Indemnifying Parties relating to such Third Party Claim and
the Parties hereto agree to render to each other such assistance as they may
reasonably require of each other in order to ensure the proper and adequate
defense of any such Third Party Claim.
(d) Settlement of Claims. If the Indemnifying Parties are
defending a Third Party Claim on behalf of an Indemnified Party hereunder, they
shall not settle such claim without first obtaining the written consent of the
Indemnified Party or Parties, which consent shall not be unreasonably withheld
or delayed.
10.5 PAYMENT OF INDEMNITY OBLIGATIONS; CERTAIN LIMITATIONS ON
PARENT'S/SELLERS' INDEMNITY OBLIGATIONS.
Any and all amounts due for indemnity hereunder shall be paid promptly
as indemnifiable damages or losses are incurred, as follows: (i) in the case of
a Buyer Indemnitee, pursuant to the Holdback Escrow Agreement, to the extent
Holdback Funds are available therefor; (ii) in the event Holdback Funds are not
available therefor or in the case of a Seller Indemnitee, within thirty (30)
days after written demand therefor; provided, however, that no Party shall have
the obligation, nor, in the case of a Buyer Indemnitee, shall any Holdback Funds
be used, to indemnify any Indemnitee for any Liabilities under Section 10.2 or
10.3 above, as applicable, which may be asserted against or sustained or
incurred by such Indemnitee in connection with, arising out of, or relating to
any inaccuracy in, misrepresentation, breach or alleged breach of any of the
representations, warranties, agreements and covenants made by any Party in the
Operative Documents which do not relate to: (i) the Purchased Assets; or (ii)
the Parties' agreement with respect to Excluded Liabilities set forth in Section
2.3 above, unless and until the aggregate indemnifiable amount of such
Liabilities for the Buyer or one or more of the Sellers as a group, as the case
may be, equals or exceeds $50,000; and provided, further, however, that in the
event the Buyer, any Seller, or the Sellers as a group indemnify and pay,
pursuant to Section 10.2 or 10.3 above to any Indemnitee, or the Indemnitees as
a group, indemnifiable amounts in the aggregate equal to the Purchase Price,
irrespective of whether such indemnifiable amounts were paid solely out of funds
of the Buyer, or one or more of the Sellers, (or in the case of any Seller, in
combination with payments from the Holdback Funds, no Party shall have any
further obligation to indemnify any Indemnitee for any indemnifiable amounts
pursuant to Section 10.2 or 10.3. Payments shall be made in accordance with the
Indemnified Party's reasonable instruction at the time.
ARTICLE XI
MISCELLANEOUS
11.1 FAILURE OF CONDITIONS; BREACH.
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(a) Failure of Conditions to Sellers' Performance. In the
event that any of the conditions set forth in Article VIII of this Agreement
have not been satisfied on or before the Closing Date, time being of the
essence, and each Seller has satisfied its material obligations hereunder, then,
unless each Seller has given the Buyer prior written notice of such Seller's
decision to waive such conditions, any Seller may terminate this Agreement
without prejudice to any rights and remedies available to any Seller.
(b) Failure of Conditions to the Buyer's Performance. In the
event that any of the conditions set forth in Article VII of this Agreement have
not been satisfied on or before the Closing Date, time being of the essence, and
the Buyer has satisfied its material obligations hereunder, then, unless the
Buyer has given each Seller prior written notice of the Buyer's decision to
waive such conditions, the Buyer may terminate this Agreement without prejudice
to any rights and remedies available to the Buyer.
(c) The Buyer may terminate this Agreement by giving written
notice to each Seller at any time prior to the Closing in the event any Seller
has breached any representation, warranty or covenant contained in this
Agreement in any material respect.
(d) Any Seller may terminate this Agreement by giving written
notice to the Buyer at any time prior to the Closing in the event the Buyer has
breached any representation, warranty or covenant contained in this Agreement in
any material respect.
11.2 TERMINATION OF OBLIGATIONS BY MUTUAL AGREEMENT.
Anything to the contrary herein notwithstanding, this Agreement may be
terminated and the transactions contemplated hereby may be abandoned by the
mutual written consent of all of the Parties hereto at any time prior to the
Closing Date, and no Party shall have any liability for any costs, expenses,
losses of anticipated profits or any further obligation for breach of warranty
or otherwise to any other party to the Operative Documents.
11.3 RISK OF LOSS OF PURCHASED ASSETS PRIOR TO CLOSING.
The risk of any loss to the properties to be sold by each Seller
hereunder and all liability with respect to injury and damage occurring in
connection therewith shall be the sole responsibility of such Seller until the
completion of the Closing.
11.4 DISCLOSURE SCHEDULES.
Any item listed on any schedule attached hereto and made a part hereof
by either Party shall be deemed to have been disclosed to the other Party on all
such schedules for purposes hereof.
11.5 BINDING EFFECT.
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This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.
11.6 ENTIRE AGREEMENT.
This Agreement together with the other Operative Documents contains the
entire agreement of the Parties with respect to the purchase of the Purchased
Assets and the other transactions contemplated herein, and supersede all prior
understandings and agreements of the Parties with respect to the subject matter
hereof. Any reference herein to this Agreement shall be deemed to include the
exhibits and schedules attached hereto and any reference herein to the Operative
Documents shall be deemed to include the exhibits and schedules attached
thereto.
11.7 EXECUTION IN COUNTERPART.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original and all of which together shall constitute one
and the same agreement.
11.8 NOTICES.
All notices, requests, demands and other communications hereunder shall
be in writing and shall be deemed to have been given if delivered personally,
sent by Federal Express or other similar overnight delivery service providing
evidence of receipt, or mailed via certified mail, return receipt requested,
postage prepaid as follows:
If to the Sellers: Advanced Health Corporation
560 White Plains Road, 2nd Floor
White Plains, New York 10591
Attn: Chief Executive Officer
and General Counsel
with a copy to: O'Sullivan, Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attn: Jonathan Rosenberg, Esq.
If to the Buyer: PractiCare, Inc.
4 Griffin Road North
Windsor, Connecticut 06095
Attn: President
with a copy to: McDermott, Will & Emery
28 State Street
Boston, Massachusetts 02109
Attn: Michael L. Blau, Esq.
Any Party may change the address to which notices hereunder are to be
sent to it by giving written notice of such change of address in the manner
herein provided for giving notice. Any notice delivered personally shall be
deemed to have been given on the date it is so delivered,
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and any notice delivered by registered or certified mail shall be deemed to have
been given on the date it is received.
11.9 GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York applicable to contracts made and to be
performed therein.
11.10 REPRESENTATION BY COUNSEL.
Each Party hereto represents and agrees that it has been represented by
legal counsel in connection with the negotiation, formation and execution of
this Agreement.
11.11 ASSIGNMENT, SUCCESSORS AND ASSIGNS.
This Agreement and the rights and obligations of each Seller hereunder
shall not be assignable or transferable by any Seller without the prior written
consent of the Buyer. The Buyer, on or after the Closing Date, may assign or
transfer this Agreement and its rights and obligations hereunder, including,
without limitation, the Noncompetition Agreement, without the prior written
consent of any Seller. All of the terms and provisions of this Agreement shall
be binding on and inure to the benefit of the Parties' respective successors and
permitted assignees.
11.12 SPECIFIC PERFORMANCE.
The Sellers acknowledge that the Business and the Purchased Assets are
unique, that a failure by the Sellers to complete the transactions contemplated
by this Agreement will cause irreparable injury to the Buyer, and that actual
damages for any such failure may be difficult to ascertain and may be
inadequate. Accordingly, the Buyer shall be entitled to specific performance of
any of the provisions of this Agreement in addition to any other legal or
equitable remedies to which the Buyer may otherwise be entitled for a failure by
the Seller to complete the transactions contemplated by this Agreement.
11.13 SEVERABILITY.
Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the day and year first above written.
SELLERS:
ADVANCED HEALTH MANAGEMENT
CORPORATION
By: /s/ Jeffrey M. Sauerhoff
----------------------------------
Name: Jeffrey M. Sauerhoff
Title: Chief Financial Officer
INTEGRATED MEDICAL MANAGEMENT, INC.
By: /s/ Jeffrey M. Sauerhoff
----------------------------------
Name: Jeffrey M. Sauerhoff
Title: Chief Financial Officer
ADVANCED HEALTH CORPORATION
d/b/a AHT CORPORATION
By: /s/ Jeffrey M. Sauerhoff
----------------------------------
Name: Jeffrey M. Sauerhoff
Title: Chief Financial Officer
BUYER:
PRACTICARE, INC.
By: /s/ C. Douglas Collins
----------------------------------
Name: C. Douglas Collins, MD
Title: President
<PAGE> 38
SCHEDULES
Schedule 1.1(a) Fixed Assets
Schedule 1.1(b) Purchased Receivables
Schedule 1.1(c) Purchased Contract and Other Rights; Assumed Encumbrances
Schedule 1.1(d) Purchased Operating Data and Records
Schedule 1.1(e) Purchased Proprietary Rights
Schedule 1.1(f) Prepaid Expenses
Schedule 1.1(g) Telephone and Facsimile Numbers
Schedule 1.1(h) Licenses and Permits
Schedule 2.1(a)(ii)(x) Assumed Ordinary Trade Payables
Schedule 2.1(a)(ii)(y) Assumed Equipment-Related Payables
Schedule 2.1(b) Fed Funds Wire Transfer Instructions
Schedule 2.3 Purchase Price Allocation
Schedule 4.2 Capital Structure
Schedule 4.6 Litigation
Schedule 4.7(a) Affected Employees
Schedule 4.7(b) Employees; Employment Terms
Schedule 4.11 Licenses
Schedule 4.12(a) Corporate Services
Schedule 4.12(d) Proprietary Rights
Schedule 4.13 Relationships with Customers
Schedule 4.14(a) Employee Plans
Schedule 4.14(c) Benefit Arrangements
Schedule 4.15(c) Non-Compliance with Health Care Laws, Rules or
Regulations
Schedule 4.17 Compliance with Fictitious Name Statutes
Schedule 4.18 Brokers' Fees of Sellers
Schedule 4.20 Software
Schedule 5.4 Brokers' Fees of Buyer
Schedule 11.7 Finders' Fees
EXHIBITS
Exhibit A Form of Holdback Escrow Agreement
Exhibit B Form of General Assignment and Assumption Agreement and Bill of Sale
Exhibit C Progress Bank Payoff Letter
Exhibit D Form of Opinion of Special Counsel to the Sellers
Exhibit E Form of Section 1445(b)(2) Certification
Exhibit F Form of Opinion of Counsel to the Buyer
Exhibit G Form of Termination Notice
Exhibit H PHEC Management Services Agreement
<PAGE> 39
ASSET PURCHASE AGREEMENT
by and among
ADVANCED HEALTH MANAGEMENT CORPORATION,
a Delaware corporation,
INTEGRATED MEDICAL MANAGEMENT, INC.,
a Delaware corporation,
ADVANCED HEALTH CORPORATION,
d/b/a AHT CORPORATION,
a Delaware corporation
as the Sellers,
and
PRACTICARE, INC.,
a Delaware corporation
as the Buyer
Dated May 14, 1999
<PAGE> 40
EXHIBIT A
HOLDBACK ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is made and entered into as of
the __ day of May, 1999, by and between ADVANCED HEALTH MANAGEMENT CORPORATION,
a Delaware corporation, INTEGRATED MEDICAL MANAGEMENT, INC., a Delaware
corporation and ADVANCED HEALTH CORPORATION d/b/a AHT CORPORATION, a Delaware
corporation ("Parent") (collectively, "Sellers"), PRACTICARE, INC., a Delaware
corporation ("Buyer") and State Street Bank and Trust Company ("Escrow Agent").
R E C I T A L S:
WHEREAS, Sellers and Buyer have entered into that certain Asset
Purchase Agreement, dated May , 1999 (the "Asset Purchase Agreement") for the
sale by Sellers, and the purchase by Buyer, of certain of Sellers' assets; and
WHEREAS, a condition to the obligation of Buyer and Sellers to
consummate the transactions contemplated by the Asset Purchase Agreement is that
this Agreement shall have been executed and delivered; and
WHEREAS, unless otherwise defined herein, the capitalized terms used in
this Agreement shall have those meanings set forth in the Asset Purchase
Agreement, a copy of which is attached hereto; and
WHEREAS, this Agreement is the Escrow Agreement regarding those certain
holdback funds contemplated by Section 2.1(b) of the Asset Purchase Agreement.
NOW, THEREFORE, for the reasons set forth hereinabove, and in
consideration of the mutual promises contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. Recitals. The foregoing recitals are true and correct and form a part of this
Agreement.
2. Escrowed Proceeds. At the time of the execution of this Agreement, Buyer
shall deliver to Escrow Agent $450,000, in accordance with the terms and
conditions of the Asset Purchase Agreement (the "Holdback Funds"). All parties
acknowledge that the Holdback Funds will be held by Escrow Agent in a segregated
account and that such interest as is earned thereon will be reported on Parent's
EIN number.
3. Operation of Holdback Escrow. The Buyer and the Sellers agree and acknowledge
that the Holdback Funds shall be governed in accordance with Section 6.6 of the
Asset Purchase Agreement.
<PAGE> 41
4. Investment of the Holdback Funds. The Escrow Agent shall invest the Holdback
Funds in either treasury obligations of the United States government or in a
money market fund which maintains deposit insurance which is adequate to cover
such Holdback Funds. The Escrow Agent shall not be liable or responsible in any
manner for any loss or depreciation resulting from any such investment or for
any costs in connection therewith. All earnings received from the investment of
the Holdback Funds shall be credited to, and shall become a part of, the
Holdback Fund (and any losses on such investments shall be debited from the
Holdback Funds). The Escrow Agent shall have no liability for any investment
losses, including any losses on any investment required to be liquidated prior
to maturity in order to make a payment required hereunder.
5. Escrow Agent's Duties.
(a) The Escrow Agent shall be obligated only for the performance of
such duties as are specifically set forth herein, and as set forth in any
additional written escrow instructions which Escrow Agent may receive after the
date of this Agreement which are signed by an officer of Buyer, Parent and
Escrow Agent, each of which are ministerial (and shall not be construed to be
fiduciary) in nature, and no implied duties or obligations of any kind shall be
read into this Agreement against or on the part of the Escrow Agent.
(b) If Escrow Agent receives notice from either Buyer or Parent to
release any or all Holdback Funds (a "Release Notice") to such party (the
"Requesting Party"), Escrow Agent shall deliver a copy of such Release Notice to
the other party not requesting such release (the "Non-Requesting Party") by
certified mail, return receipt requested. If Escrow Agent does not receive a
written objection (an "Objection Notice") to such release from the
Non-Requesting Party within ten (10) business days of the date upon which the
copy of such Release Notice was received by the Non-Requesting Party, as
indicated on the certified mail receipt, Escrow Agent shall release to the
Requesting Party the exact amount of Holdback Funds requested by the Requesting
Party. If Escrow Agent does receive a written objection to such release from the
Non-Requesting Party within such ten (10) business day period, Escrow Agent
shall continue to hold, and shall not release, such disputed portion of the
Holdback Funds requested by the Requesting Party until otherwise directed by
written notice from both Buyer and Parent. The Escrow Agent shall release or
distribute the Holdback Funds promptly (i) to the Requesting Party in accordance
with either the Release Notice or joint instructions as set forth above; (ii) to
the Sellers, in the absence of any Release Notice or Objection Notice from
either the Buyer or the Parent, received by the Escrow Agent at 5:00 p.m.
Eastern Time upon the six month anniversary of this Agreement; or (iii) to the
Sellers, such portion of the Holdback Funds which is not the subject of any
Release Notice between the Buyer and the Sellers upon the six month anniversary
of this Agreement.
(c) The Escrow Agent is hereby expressly authorized to respond to
orders or process of courts of law, and is hereby expressly authorized to comply
with any final order, decree or judgement of a court in the United States of
America, the time for perfection of an appeal of such order, decree and judgment
having expired; provided, however, the Escrow Agent shall not be
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<PAGE> 42
obligated to take any legal or other action hereunder which might in its
judgment involve or cause it to incur any expense or liability unless it shall
have been furnished with acceptable indemnification. In case Escrow Agent obeys
or complies with any such order, judgment or decree of any court, Escrow Agent
shall not be liable to any of the parties hereto or to any other person by
reason of such compliance, notwithstanding any such order, judgment or decree
being subsequently reversed, modified, annulled, set aside, vacated or found to
have been entered without jurisdiction.
(d) The Escrow Agent shall not be liable in any respect on account of
the identity, authority or rights of the parties hereto executing or delivering
or purporting to execute or deliver this Agreement, unless the Escrow Agent has
actual knowledge to the contrary.
(e) The Escrow Agent shall not be liable for the expiration of any
rights under any statute of limitations with respect to this Agreement.
(f) In performing any duties under this Agreement, Escrow Agent shall
not be liable to any party for damages, losses, or expenses, except for gross
negligence or willful misconduct on the part of Escrow Agent. In no event shall
the Escrow Agent be liable for indirect, punitive, special or consequential
damage or loss (including but not limited to lost profits) whatsoever, even if
the Escrow Agent has been informed of the likelihood of such loss or damage and
regardless of the form of action. Further, Escrow Agent shall not incur any such
liability for: (i) any act or failure to act made or omitted in good faith; or
(ii) any action taken or omitted in reliance upon any instrument, properly given
and consistent with the provisions contained in this Agreement, including any
written statement of affidavit provided for in this Agreement that Escrow Agent
shall in good faith believe to be genuine, nor will Escrow Agent be liable or
responsible for forgeries, fraud, impersonations, or determining the scope of
any representative authority. In addition, Escrow Agent may consult with legal
counsel, including in-house counsel, in connection with Escrow Agent's duties
under this Agreement and shall be fully protected in any act taken, suffered, or
permitted by him/her in good faith in accordance with the written advice of
counsel. The Escrow Agent is not responsible for determining and verifying the
authority of any person acting or purporting to act on behalf of any party to
this Agreement, unless the Escrow Agent has actual knowledge to the contrary.
(g) The Escrow Agent may resign at any time upon giving at least thirty
(30) days written notice to the parties; provided, however, that no such
resignation shall become effective until the appointment of a successor escrow
agent which shall be accomplished as follows: the parties shall use their best
efforts mutually to agree on a successor escrow agent within thirty (30) days
after receiving such notice. If the parties fail to agree upon a successor
escrow agent within such time, Escrow Agent shall have the right to appoint a
successor escrow agent. The successor escrow agent shall execute and deliver an
instrument accepting such appointment and it shall, without further acts be
vested with all the estates, properties, rights, powers and duties of the
predecessor escrow agent as if originally named as escrow agent. Upon
appointment of a successor escrow agent and transfer of the Holdback Funds
(together with all interest and dividends earned thereon) to the successor
escrow agent, Escrow Agent shall be
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<PAGE> 43
discharged from any further duties and liability under this Agreement.
Notwithstanding anything else herein, any company into which Escrow Agent may be
merged or with which it may be consolidated, or any company to whom Escrow Agent
may transfer a substantial amount of its escrow business, shall be the successor
to Escrow Agent without the execution or filing of any paper or any further act
on the part of any of the parties anything herein to the contrary
notwithstanding.
6. Fees and Costs. The Buyer agrees to pay and reimburse the Escrow Agent for
its attorney's fees and expenses incurred in connection with the preparation of
this Agreement and to pay all fees of Escrow Agent for performance of its duties
hereunder in accordance with the standard fee schedule of Escrow Agent. The
Buyer shall also reimburse Escrow Agent for all reasonable expenses incurred by
it in performance of its duties under this Agreement. It is understood that the
fees and usual charges agreed upon for services of Escrow Agent shall be
considered compensation for ordinary services as contemplated by this Agreement.
In the event that the conditions of this Agreement are not promptly fulfilled,
or if Escrow Agent renders any service not provided for in this Agreement, or if
the parties hereto request a substantial modification of its terms, or if any
controversy arises, or if Escrow Agent is made a party to, or intervenes in, any
litigation pertaining to the Holdback Funds or its subject matter, the Buyer and
Sellers agree, jointly and severally, to pay or reimburse the Escrow Agent for
such extraordinary services and for all costs, attorney's fees, including
allocated costs of in-house counsel, and expenses occasioned by such default,
delay, controversy or litigation.
7. Further Provisions Relating to Holdback Funds. It is understood and agreed
that Escrow Agent shall:
(a) Not be charged with any knowledge of or be bound by or be
under any duty to enforce any of the terms or conditions of
the Asset Purchase Agreement;
(b) Be protected in acting upon any notice, written request,
certificate approval, consent or other paper believed by it to
be genuine and to be signed by the proper party or parties;
(c) Be conclusively deemed to have given and delivered any notice
required to be given or delivered hereunder if the same is in
writing, signed by it and mailed, by registered or certified
mail, in a sealed, postage prepaid wrapper, addressed to the
appropriate party at its address herein set out;
(d) Be entitled to consult with its counsel, including in-house
counsel, and shall not be liable for any action taken or
admitted by it in accordance with the opinion and advice of
such counsel whether such counsel be a member of its staff or
independent counsel;
(e) Be indemnified and held harmless by Buyer and Sellers, and
their respective successors and assigns, jointly and
severally, against any and all claims made against Escrow
Agent by reason of its acting or failing to act in connection
with
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<PAGE> 44
any of the transactions contemplated hereby and against any
and all losses, claims, damages, liabilities, actions, suits
or proceedings at law or in equity or any other expenses,
including reasonable attorneys' fees, it may sustain or with
which it may be threatened by reason of it acting as Escrow
Agent under this Agreement, except such claims which are
occasioned by its gross negligence or willful misconduct; and
(f) Not be liable to Buyer or Sellers, or to any other person or
entity, with respect to any action taken or omitted to be
taken by Escrow Agent in good faith (except where such action
amounts to gross negligence on the part of the Escrow Agent).
(g) The Escrow Agent shall have no more or less responsibility or
liability on account of any action or omission of any
book-entry depository, securities intermediary or other
subescrow agent employed by the Escrow Agent than any such
book-entry depository, securities intermediary or other
subescrow agent has to the Escrow Agent, except to the extent
that such action or omission or any book-entry depository,
securities intermediary or other subescrow agent was caused by
the Escrow Agent's own gross negligence, bad faith or willful
misconduct in breach of this Agreement.
The foregoing indemnification and agreement to hold harmless
of this Section 7 shall survive the termination of this
Agreement.
8. Controversies; Escrow Agent's Right to Interplead. If any controversy arises
between the parties, or with any other party, concerning the subject matter of
this Agreement, its terms or conditions, Escrow Agent will not be required to
determine the controversy or to take any action regarding it. The Escrow Agent
may (at its sole option and election) hold all documents and cash balances until
such dispute shall have been settled either by the mutual written agreement of
the parties involved or by a final order, decree or judgment of a court in the
United States of America, the time for perfection of an appeal of such order,
decree and judgment having expired. The Escrow Agent may, but shall be under no
duty whatsoever to, institute or defend any legal proceedings which relate to
the Holdback Funds. In such event, Escrow Agent will not be liable for any
damage, costs or liabilities. Furthermore, in the event that any controversy
should arise between Buyer and Sellers during the term of this Agreement
concerning the right to any of the Holdback Funds, Escrow Agent shall have the
right to interplead any or all of the Holdback Funds into a court of competent
jurisdiction located in the Commonwealth of Massachusetts, for the purpose of
determining the party or parties entitled thereto. All costs, expenses, charges
and reasonable attorneys' fees incurred by Escrow Agent due to the interpleader
action shall be borne jointly and severally by the Buyer and the Sellers.
9. Termination of Escrow Agent's Liability. The Escrow Agent's responsibilities
and liabilities hereunder shall terminate upon payment by Escrow Agent of the
Holdback Funds in accordance with the provisions of this Agreement. In addition,
Escrow Agent's liability hereunder shall terminate upon its interpleading such
Holdback Funds.
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<PAGE> 45
10. Notices. Any notice or other communication required or which may be given
hereunder shall be in writing and either be delivered personally or be mailed,
certified or registered mail, postage prepaid, and shall be deemed given when so
delivered personally, or if mailed, five (5) days after the date of mailing, as
follows:
If to Buyer to: PractiCare, Inc.
4 Griffin Road North
Windsor, CT 06095
Attn: President
Tel: (860) 688-5370
Fax: (860) 688-5990
with a copy to: McDermott, Will & Emery
28 State Street
Boston, MA 02109
Attn: Michael L. Blau, Esq.
Tel: (617) 535-4010
Fax: (617) 535-3800
If to Sellers: c/o Advanced Health Corporation
555 White Plains Road, 5th Floor
Tarrytown, NY 10591
Attn: President and General Counsel
Tel: (914) 524-4200
Fax: (914) 332-1741
If to Escrow Agent to: State Street Bank & Trust Company
Corporate Trust Department, Fourth Floor
2 International Place
Boston, MA 02110
Attn: PractiCare/Advanced Health Escrow
Tel: (617) 664-5311
Fax: (617) 664-5374
The parties may change the persons and addresses to which the notices
or other communications are to be sent by giving written notice of any such
change in the manner provided herein for giving notice.
(a) Wiring Instructions. Any funds to be paid to or by the Escrow
Agent hereunder shall be sent by wire transfer pursuant to the
following instructions (or by such method or payment and
pursuant to such instruction as may have been given in advance
and in writing to or by the Escrow Agent, as the case may be,
in accordance with Section 10(a) above);
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<PAGE> 46
If to Buyer to: Bank: ________________
ABA #: _______________
A/C#: _______________
Attn: _______________
Ref: ________________
If to Sellers: Bank: Bank of New York
ABA #: 021000018
A/C#: 670-1262466
Attn: _______________
Ref: ________________
If to Escrow Agent to: State Street Bank & Trust Company
ABA#: 0110 0002 8
A/C#: 9903-990-1
Attn: Corporate Trust Department
Ref: 122240-010
Fax: 617-664-5374
11. Waiver. No waiver by a party of any default or nonperformance hereunder
shall be deemed a waiver of any subsequent default or nonperformance. No waiver
shall be effective unless in writing, and signed by the party or parties to
which the performance of duty is owed. No delay in the serving of any right or
remedy shall constitute a waiver of any right or remedy.
12. Independent Covenants. The parties agree that each of the covenants and
provisions contained in this Agreement shall be deemed severable and construed
as independent of any other covenant or provision.
13. Severability. If all or any portion of a covenant or provision in this
Agreement is held invalid, unreasonable or unenforceable by a court or agency
having valid jurisdiction in an unappealed final decision, the remaining
covenants and provisions shall remain valid and enforceable. The parties hereto
agree to be bound by any lesser covenant or provision contained within the terms
of such covenant or provision that imposes the maximum duty permitted by law, as
if the resulting covenant or provision were separately stated in, and made a
part of this Agreement.
14. Modifications and Amendments. This Agreement may not be, and shall not be
construed to have been modified, amended, rescinded, canceled, or waived, in
whole or in part, except if done so in writing and executed by the parties
hereto.
15. Governing Law. The validity, interpretation and enforcement of this
Agreement shall be governed by, and construed and enforced in accordance with
the laws of the Commonwealth of Massachusetts without giving effect to its
conflicts of laws provisions, and to the exclusion of the law of any other
forum.
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<PAGE> 47
16. Exclusive Jurisdiction; Venue. EACH PARTY AGREES TO SUBMIT TO THE EXCLUSIVE
PERSONAL JURISDICTION AND VENUE OF THE STATE AND/OR FEDERAL COURTS LOCATED IN
COMMONWEALTH OF MASSACHUSETTS FOR RESOLUTION OF ALL DISPUTES ARISING OUT OF, IN
CONNECTION WITH, OR BY REASON OF THE INTERPRETATION, CONSTRUCTION, AND
ENFORCEMENT OF THIS AGREEMENT, AND HEREBY WAIVES THE CLAIM OR DEFENSE THEREIN
THAT SUCH COURTS CONSTITUTE AN INCONVENIENT FORUM. In any such action or
proceeding, the parties each hereby absolutely and irrevocably (i) waives
personal service of any summons, compliant, declaration or other process, and
(ii) agrees that the service thereof may be made by certified or registered
first class mail directed to such party, as the case may be, at their respective
addresses in accordance with Section 10 hereof.
17. Waiver of Jury Trial. AS A MATERIAL INDUCEMENT FOR THIS AGREEMENT, EACH
PARTY HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY WAIVES ALL
RIGHTS TO A TRIAL BY JURY OF ANY ISSUES SO TRIABLE.
18. No Third Party Beneficiary. No party other than the parties hereto has, or
shall have, any lien, claim or security interest in the Holdback Funds or any
part thereof. No financing statement under the Uniform Commercial Code is on
file, or will be filed, in any jurisdiction claiming a security interest in or
describing (whether specifically or generally) the Holdback Funds or any part
thereof.
19. Counterparts. This Agreement may be executed by each party upon a separate
counterpart, and in such case one copy of this Agreement shall consist of enough
of such copies to reflect the signature of all of the parties to this Agreement.
This Agreement may be executed in two or more counterparts, each of which shall
be deemed an original, and it shall not be necessary in making proof of this
Agreement or the terms of this Agreement to produce or account for more than one
of such counterparts.
20. Assignment. No party may assign any of its rights or delegate any of its
obligations hereunder without the prior written consent of the other parties.
This Agreement binds, inures to the benefit of and is enforceable by the
respective successors and permitted assigns of the parties and it does not
confer any rights on any other persons or entities.
21. Tax-Related Terms.
(a) Certification of Tax Indemnification Number. The Parent hereto
agrees to provide the Escrow Agent with a certified tax
identification number by signing and returning a Form W-9 (or
Form W-8, in case of non-U.S. persons) to the Escrow Agent
prior to the date on which any income earned on the investment
of the Holdback Funds is credited to the Holdback Escrow. The
Parent understands that, in the event its tax identification
numbers is not certified to the Escrow Agent, the Internal
Revenue Code, as amended from time to time, may require
withholding of a portion of any interest or other income
earned on the investment
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<PAGE> 48
of the Holdback Funds.
(b) Tax Indemnification. Each of the Buyer, on the one hand, and
the Sellers, on the other hand, agree, jointly and severally,
(i) to assume any and all obligations imposed now or hereafter
by any applicable tax law with respect to any payment or
distribution of the Holdback Funds or performance of other
activities under this Agreement, (ii) to instruct the Escrow
Agent in writing with respect to the Escrow Agent's
responsibilities for withholding and other taxes, assessments
or other governmental charges, and to instruct the Escrow
Agent with respect to any certifications and governmental
reporting that may be required under any laws or regulations
that may be applicable in connection with its acting as Escrow
Agent under this Agreement, and (iii) to indemnify and hold
the Escrow Agent harmless from any liability or obligation on
account of taxes, assessments, additions for late payment,
interest, penalties, expenses and other governmental charges
that may be assessed or asserted against the Escrow Agent in
connection with or relating to any payment made or other
activities performed under the terms of this Agreement,
including, without limitation, any liability for the
withholding or deduction of (or the failure to withhold or
deduct) the same, and any liability for failure to obtain
proper certifications or to report properly to governmental
authorities in connection with this Agreement, including costs
and expenses (including reasonable legal fees and expenses),
interest and penalties. The foregoing indemnification and
agreement to hold harmless shall survive the termination of
this Agreement.
22. Force Majeure. The Escrow Agent shall not be responsible for delays or
failures in performance resulting from acts beyond its control. Such acts shall
include but not be limited to acts of God, strikes, lockouts, riots, acts of
war, epidemics, governmental regulations superimposed after the fact, fire,
communication line failures, computer viruses, power failures, earthquakes or
other disasters.
23. Reproduction of Documents. This Agreement and all documents relating
thereto, including, without limitation, (a) consents, waivers and modifications
which may hereafter be executed, and (b) certificates and other information
previously or hereafter furnished, may be reproduced by any photographic,
photostatic, microfilm, optical disk, micro-card, miniature photographic or
other similar process. The parties agree that any such reproduction shall be
admissible in evidence as the original itself in any judicial or administrative
proceeding, whether or not the original is in existence and whether or not such
reproduction was made by a party in the regular course of business, and that any
enlargement, facsimile or further reproduction of such reproduction of such
reproduction shall likewise be admissible in evidence.
[Remainder of this Page Intentionally Left Blank]
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<PAGE> 49
WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above
SELLERS
ADVANCED HEALTH
MANAGEMENT CORPORATION
Attest:__________________________
By:_____________________________
Name:
Its:
INTEGRATED MEDICAL MANAGEMENT, INC.
Attest:__________________________
By:_____________________________
Name:
Its:
ADVANCED HEALTH CORPORATION
d/b/a AHT CORPORATION
Attest:__________________________
By:_____________________________
Name:
Its:
BUYER
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<PAGE> 50
PRACTICARE, INC.
Attest:__________________________
By: /s/ C. Douglas Collins
------------------------------
Name: C. Douglas Collins, MD
Its: President
ESCROW AGENT
STATE STREET BANK AND
TRUST COMPANY
Attest:__________________________
By: /s/ Arthur L. Blakeslee
------------------------------
Name: Arthur L. Blakeslee
Its: President
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<PAGE> 51
EXHIBIT B
GENERAL ASSIGNMENT AND ASSUMPTION OF LIABILITIES
AND BILL OF SALE
ADVANCED HEALTH MANAGEMENT
CORPORATION, INTEGRATED
MEDICAL MANAGEMENT, INC. and
ADVANCED HEALTH CORPORATION
d/b/a AHT CORPORATION, PRACTICARE, INC.,
Assignors to Assignee
Pursuant to and in accordance with the terms and provisions of that
certain Asset Purchase Agreement, dated as of May , 1999 (the "Agreement") by
and among Advanced Health Management Corporation, a Delaware corporation,
Integrated Medical Management, Inc., a Delaware corporation and Advanced Health
Corporation d/b/a AHT Corporation, a Delaware corporation (the "Parent") (each
an "Assignor" and collectively, the "Assignors") and PractiCare, Inc., a
Delaware corporation (the "Assignee") and for the consideration therein
specified, Assignors do hereby (subject to Section 9.4 of the Agreement) sell,
convey, deliver, assign and transfer to Assignee, free and clear of any
Encumbrance except as permitted therein, and Assignee does hereby acquire from
Assignors, all of Assignors' right, title and interest in and to the Purchased
Assets, namely:
(a) each Assignor's equipment, supplies, leasehold
improvements, furniture, fixtures and other fixed
assets set forth in Schedule 1.1(a) to the Agreement;
(b) each Assignor's receivables relating to the Business
as set forth in Schedule 1.1(b) to the Agreement;
(c) each Assignor's rights and benefits accruing to such
Assignor under all orders, contracts, leases and
agreements made by such Assignor, and each Assignor's
vendor and supplier relationships as the same relate
to the Business, as set forth in Schedule 1.1(c) to
the Agreement;
(d) each Assignor's operating data and operating records
in whatever form and media which pertain to: (i) the
Purchased Assets, including any accounting records
and such other records as are reasonably necessary to
collect the Purchased Receivables and pay the Assumed
Liabilities; (ii) the Business, including supplier
lists, manuals, correspondence, mailing lists,
account lists, Works (as defined in various contracts
included in the Purchased Contract and Other Rights
except as specifically excluded on SCHEDULE 1.1 (d))
and other similar documents and records as specified
in Schedule 1.1(d) to the Agreement; and (iii)
advertising and sales materials as specified in
Schedule 1.1(d) to the Agreement;
<PAGE> 52
(e) the proprietary rights owned or licensed by each
Assignor and used in the conduct of the Business,
including, without limitation, all trademarks,
service marks and designs, trade names, trade
secrets, technology, software, operating systems,
know-how, slogans, copyrights, processes, operating
rights, Marks (as defined in various contracts
included in the Purchased Contract and Other Rights,
to the extent permitted thereby) and other similar
intangible property and rights relating to the
Business, as set forth in Schedule 1.1(e) to the
Agreement;
(f) each Assignor's prepaid expenses relating to the
Business and as set forth in Schedule 1.1(f) to the
Agreement, subject to adjustment as provided in
Section 6.5 therein;
(g) each Assignor's right and interest in and to the
telephone and facsimile numbers set forth in Schedule
1.1(g) to the Agreement;
(h) each Assignor's licenses and permits which pertain to
the Purchased Assets, the Business and/or the
operation and conduct thereof, to the extent
transferable, as set forth in Schedule 1.1(h) to the
Agreement; and
(i) each Assignor's right, title and interest in and to
all of the goodwill associated with the Purchased
Assets, the Business and/or the conduct and operation
thereof.
TO HAVE AND TO HOLD the same, with the appurtenances thereof, unto
Assignee, its successors and assigns, forever, to its own use and behalf.
Pursuant to Section 2.1 of the Agreement, the Assignee hereby assumes
and agrees to pay or discharge when due in accordance with their respective
terms only: (a) the ordinary trade payables of the Assignors, which payables
have arisen in the ordinary course of the Business and which are more fully
described in Schedule 2.1(a)(ii)(x) to the Agreement; (b) the equipment-related
payables of the Assignors, which payables have arisen in the ordinary course of
the Business and which are more fully described in Schedule 2.1(a)(ii)(y) to the
Agreement; and (c) the obligations of the Assignors arising and to be performed
after the Closing Date pursuant to the Purchased Contract and Other Rights and
Purchaser Proprietary Rights. The Assignee expressly does not assume and will
not have any responsibility, however, with respect to any other obligation or
liability of any Assignor.
Capitalized terms used herein and not otherwise defined herein shall
have the meanings respectively ascribed to them in the Agreement.
This General Assignment and Assumption of Liabilities and Bill of Sale
shall be effective for all purposes upon its delivery and shall inure to the
benefit of, and shall be binding upon and enforceable against, each of the
undersigned and their respective successors and assigns. This
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<PAGE> 53
General Assignment and Assumption of Liabilities and Bill of Sale may be
executed in any number of counterparts, each of which shall be an original and
all of which shall constitute one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 54
IN WITNESS WHEREOF, each of the undersigned has caused this instrument
to be executed under seal by its duly authorized officer, respectively, as of
May __, 1999.
ASSIGNORS: ASSIGNEE:
ADVANCED HEALTH MANAGEMENT PRACTICARE, INC.
CORPORATION
By: ________________________________ By: ______________________________
Name: Name:
Title: Title:
INTEGRATED MEDICAL MANAGEMENT,
INC.
By: ________________________________
Name:
Title:
ADVANCED HEALTH CORPORATION
d/b/a AHT CORPORATION
By: ________________________________
Name:
Title:
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<PAGE> 55
EXHIBIT E
TRANSFEROR'S CERTIFICATION OF NON-FOREIGN STATUS
UNDER TREAS. REG. SECTION 1.1445-2(b)(2)
Section 1445 of the Internal Revenue Code of 1986, as amended
(the "Code"), provides that a transferee of a U.S. real property interest must
withhold tax if the transferor is a foreign person. To inform the transferee
that withholding of tax is not required upon the disposition of a U.S. real
property interest by Integrated Medical Management, Inc., a Delaware corporation
(the "Seller"), the undersigned hereby certifies the following on behalf of the
Seller:
1. The Seller is not a foreign corporation, foreign
partnership, foreign trust, or foreign estate (as those terms are defined in the
Code and the Income Tax Regulations);
2. The Seller's U.S. employer identification number is
__-_______; and
3. The Seller's office address is __________________________.
The Seller understands that this certification may be
disclosed to the Internal Revenue Service by the transferee and that any false
statement contained herein could be punished by fine, imprisonment, or both.
Under penalties of perjury I declare that I have examined this
certification and to the best of my knowledge and belief it is true, correct and
complete, and I further declare that I have authority to sign this document on
behalf of the Seller.
INTEGRATED MEDICAL MANAGEMENT, INC
__________________________________
Name:
Title:
Date:
<PAGE> 1
Exhibit 10.22
SECURITIES PURCHASE AGREEMENT
BY AND BETWEEN
AHT CORPORATION
AS THE COMPANY
AND
CYBEAR, INC.
AS THE PURCHASER
DATED: MARCH 27, 2000
<PAGE> 2
SECURITIES PURCHASE AGREEMENT
AGREEMENT, dated March 27, 2000, by and between AHT CORPORATION, a
Delaware corporation (the "Company"), and CYBEAR, INC., a Delaware corporation
(the "Purchaser").
R E C I T A L S:
WHEREAS, the Company is currently contemplating raising up to
$4,000,000 in a private placement of debt securities (the "Offering"); and
WHEREAS, the Company desires to sell and issue to the Purchaser, and
the Purchaser desires to purchase from the Company, $4,000,000 aggregate
principal amount of the Company's 10% Senior Secured Convertible Note due March
31, 2001 (the "Convertible Note"), with terms and conditions as set forth in the
form of Convertible Note attached hereto as EXHIBIT A (with such changes and
modifications as may be approved by the Purchaser); and
WHEREAS, in order to induce the Purchaser to enter into the
transactions described in this Agreement, the Company desires to issue to the
Purchaser warrants to purchase 300,000 shares of the Company's common stock,
$.01 par value (the "Common Stock") on the terms and conditions described in the
Common Stock Purchase Warrant in the form attached hereto as EXHIBIT B (with
such changes and modifications as may be approved by the Purchaser) (the
"Warrants"); and
WHEREAS, the Convertible Note will be convertible into shares of Common
Stock, and the Purchaser will have registration rights with respect to such
shares of Common Stock issuable upon conversion as set forth in the Registration
Rights Agreement in the form attached hereto as EXHIBIT C; and
WHEREAS, the Purchaser will have certain registration rights with
respect to the shares of Common Stock issuable upon exercise of the Warrants as
set forth in the Registration Rights Agreement;
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. DEFINITIONS
1.1 Definitions. The following terms, as used herein, have the following
meanings:
"Affiliate" means, with respect to any Person (the "Subject Person"),
(i) any other Person (a "Controlling Person") that directly, or indirectly
through one or more intermediaries, Controls the Subject Person or (ii) any
other Person (other than the Subject Person or a Consolidated Subsidiary
<PAGE> 3
of the Subject Person) which is Controlled by or is under common Control with a
Controlling Person.
"Agreement" means this Securities Purchase Agreement, as amended,
supplemented or otherwise modified from time to time in accordance with its
terms.
"Asset Sale" has the meaning set forth in Section 8.7.
"Average Market Price" means, for any security as of any date, the
average of the closing price on the Nasdaq Market as reported by Bloomberg or,
if the Nasdaq Market is not the principal trading market for such security, the
closing price of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the closing price of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no closing price is reported for such security by
Bloomberg, then the average of the high bid prices of any market makers for such
security as reported in the "pink sheets" by the National Quotation Bureau,
Inc., in each case for the thirty (30) consecutive Trading Days immediately
prior to such date.
"Balance Sheet Date" has the meaning set forth in Section 4.7.
"Benefit Arrangement" means at any time an employee benefit plan within
the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan
and which is maintained or otherwise contributed to by the Company.
"Benefit Plans" has the meaning set forth in Section 4.9(b).
"Bloomberg" means Bloomberg, L.P.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in New York, New York and Miami, Florida are authorized
or required by law to close.
"Capital Reorganization" has the meaning set forth in Section 11.5.
"Change of Control" means:
(i) after the date of this Agreement any Person, other than
the Purchaser or an Affiliate of the Purchaser, shall have acquired
beneficial ownership (within the meaning of Rules 13d-3 and 13d-5
promulgated by the SEC pursuant to the Exchange Act) of 33.3% or more
of the outstanding shares of Common Stock of the Company;
(ii) a transfer of all or substantially all of the assets of
the Company to any Person, other than the Purchaser or an Affiliate of
the Purchaser, in a single transaction or series of related
transactions;
(iii) a consolidation, merger or amalgamation of the Company
with or into another Person, other than the Purchaser or an Affiliate
of the Purchaser, (other than a merger (x) which does not result in any
reclassification, conversion, exchange or cancellation of
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<PAGE> 4
outstanding shares of Common Stock or in which the Company is the
surviving entity, (y) which is effected solely to change the
jurisdiction of incorporation of the Company and results in a
reclassification, conversion or exchange of outstanding shares of
Common Stock solely into shares of Common Stock or (z) consummated in
compliance with Section 8.5 hereof); or
(iv) individuals constituting the Board of Directors of the
Company on the date hereof (together with any new Directors whose
election by such Board of Directors or whose nomination for election by
the stockholders of the Company (x) was approved by a vote of at least
50.1% of the Directors then still in office who were either Directors
as of the date hereof or whose election or nomination for election was
previously so approved or (y) supported by the Purchaser or its
Affiliates, cease for any reason to constitute at least a majority of
the Board of Directors of the Company then in office; or
"Closing" has the meaning set forth in Section 2.3.
"Closing Date" means March 27, 2000.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means AHT Corporation, a Delaware corporation, and its
successors.
"Company Corporate Documents" means the certificate of incorporation
and by-laws of the Company.
"Consolidated Subsidiary" means at any date with respect to any Person,
any Subsidiary or other entity, the accounts of which would be consolidated with
those of such Person in its consolidated financial statements if such statements
were prepared as of such date.
"Control" (including, with correlative meanings, the terms
"Controlling," "Controlled by" and under "common Control with"), as used with
respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of that
Person, whether through the ownership of voting securities, by contract or
otherwise .
"Conversion Date" shall mean the date of delivery (including delivery
via telecopy) of a Notice of Conversion for all or a portion of the Convertible
Note by the holder thereof to the Company if such day is a Business Day, or the
next succeeding Business Day if the date of delivery is not a Business Day.
"Conversion Price" means the lower of (i) 80% of the Average Market
Price per share of Common Stock on the Conversion Date; or (ii) $4.34.
"Conversion Shares" has the meaning set forth in Section 4.5.
"Convertible Note" means the Company's 10% Senior Secured Convertible
Note substantially in the form set forth as EXHIBIT A hereto.
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<PAGE> 5
"Deadline" has the meaning set forth in Section 10.1.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes, or other similar instruments
issued by such Person, (iii) all obligations of such Person as lessee which (y)
are capitalized in accordance with GAAP or (z) arise pursuant to sale-leaseback
transactions, (iv) all reimbursement obligations of such Person in respect of
letters of credit or other similar instruments, (v) all Debt of others secured
by a Lien on any asset of such Person, whether or not such Debt is otherwise an
obligation of such Person and (vi) all Debt of others Guaranteed by such Person.
"Default" means any event or condition which constitutes an Event of
Default or which, with the giving of notice or lapse of time or both would,
unless cured or waived, will constitute an Event of Default.
"Default Interest Rate" has the meaning set forth in the Convertible
Note.
"Derivative Securities" has the meaning set forth in Section 10.6.
"Directors" means the individuals then serving on the Board of
Directors or similar such management council of the Company.
"Environmental Laws" means any and all federal, state, municipal, local
and foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges or releases of pollutants, contaminants, petroleum or petroleum
products, chemicals or industrial, toxic or hazardous substances or wastes into
the environment, including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes or the cleanup or other
remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA Group" means the Company and each Subsidiary and all members of
a controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Company or any
Subsidiary, are treated as a single employer under the Code.
"Event of Default" has the meaning set forth in Section 12 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fixed Price(s)" has the meaning set forth in Section 11.1.
"GAAP" has the meaning set forth in Section 1.2.
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<PAGE> 6
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing (whether by virtue
of partnership arrangements, by agreement to keep well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain a minimum net
worth, financial ratio or similar requirements, or otherwise) any Debt of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt or (ii) entered into for the purpose of assuring in any other manner the
holder of such Debt of the payment thereof or to protect such holder against
loss in respect thereof (in whole or in part); PROVIDED that the term Guarantee
shall not include endorsements for collection or deposit in the ordinary course
of business. The term Guarantee used as a verb has a corresponding meaning.
"Guaranty Agreement" means the Guaranty Agreement of even date herewith
between Advanced Health Technologies Corporation, Advanced Health Management
Corporation, and Advanced Health Bukstel and Halfpenny Corporation, each a
Delaware corporation and wholly owned subsidiary of the Company, in the form
attached hereto as EXHIBIT H.
"Hazardous Materials" means any hazardous materials, hazardous wastes,
hazardous constituents, hazardous or toxic substances or petroleum products
(including crude oil or any derivative or fraction thereof), defined or
regulated as such in or under any Environmental Laws.
"Intellectual Property" has the meaning set forth in Section 4.20.
"Issuer Registration Statement" means a registration statement filed by
the Company which seeks to register the sale of securities by the Company for
cash.
"License Agreement" means the Co-Marketing and License Agreement of
even date herewith between the Purchaser and Advanced Health Technologies
Corporation, a wholly owned subsidiary of the Company, in the form attached
hereto as EXHIBIT G.
"Lien" means, any lien, mechanic's lien, materialmen's lien, lease,
easement, charge, encumbrance, mortgage, conditional sale agreement, title
retention agreement, agreement to sell or convey, option, claim, title
imperfection, encroachment or other survey defect, pledge, restriction, security
interest or other adverse claim, whether arising by contract or under law or
otherwise (including, without limitation, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of any financing statement under the Uniform Commercial Code or comparable law
of any jurisdiction in respect of any of the foregoing).
"Liquidated Damages Amount" has the meaning set forth in Section 8.2.
"Listing Applications" shall have the meaning set forth in Section 4.4.
"Material Adverse Effect" means for a specified party, a material
adverse effect on (a) the business, operations, property or condition of the
specified party taken as a whole, (b) the ability of the specified party to
perform its material obligations under this Agreement, or (c) the validity or
enforceability against the specified party of this Agreement or the rights or
remedies of any other party
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<PAGE> 7
hereunder to such an extent that such Agreement or the rights or remedies of any
other party hereunder to such an extent that such other party would be deprived
of the practical realization of the benefits contemplated by this Agreement to
be derived by such other party from this Agreement, including the exhibits to
this Agreement, and on the transactions contemplated hereby or by the agreements
or instruments to be entered into in connection herewith, and; provided,
however, that the existence of a Material Adverse Effect shall be deemed not to
include (x) the adverse impact, if any, of changes in laws, rules, regulations,
interpretations or other promulgations of any governmental authority, or changes
in GAAP, regulatory accounting requirements and market conditions applicable to
companies in the same line of business as the specified party, or (y) the impact
of the fees and expenses of all counsel, accountants and financial advisors, and
the other costs and expenses reasonably incurred by the specified party, in
connection with this Agreement and the transactions contemplated by this
Agreement.
"Material Plan" means at any time a Plan or Plans having aggregate
Unfunded Liabilities in excess of $500,000.
"Maturity Date" shall mean the date of maturity of the Convertible
Note; specifically, March 31, 2001.
"Maximum Number of Shares" shall mean 2,213,550 shares of Common Stock,
which amount is equal to 19.9% of the outstanding Common Stock on the Closing
Date, less 300,000 for Warrants.
"Multiemployer Plan" means at any time an employee pension benefit plan
within the meaning of Section 4001(a)(3) of ERISA to which any member of the
ERISA Group is then making or accruing an obligation to make contributions or
has within the preceding five plan years made contributions, including for these
purposes any Person which ceased to be a member of the ERISA Group during such
five year period.
"Nasdaq Market" means the Nasdaq Stock Market's National Market.
"Net Cash Proceeds" means, with respect to any transaction, the total
amount of cash proceeds received by the Company or any Subsidiary less (i)
underwriters' fees, brokerage commissions, professional fees and other customary
out-of-pocket expenses payable in connection with such transaction, and (ii) in
the case of dispositions of assets, (A) actual transfer taxes and income taxes
payable with respect to such dispositions, and (B) the amount of Debt, if any,
secured by a Lien on the asset or assets disposed of and required to be, and
actually repaid by the Company or any Subsidiary in connection therewith, and
any trade payables specifically relating to such asset or assets sold by the
Company or any Subsidiary that are not assumed by the purchaser of such asset or
assets.
"Notice of Conversion" means the form to be delivered by the holder of
the Convertible Note upon conversion of all or a portion thereof to the Company
substantially in the form of EXHIBIT D attached hereto.
"Notice of Exercise" means the form to be delivered by a holder of a
Warrant upon exercise of all or a portion thereof to the Company.
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<PAGE> 8
"Offering" has the meaning set forth in the Recitals.
"Other Taxes" has the meaning set forth in Section 3.6(d).
"Par Value Redemption Price" has the meaning set forth in Section
3.3(a).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permits" means all domestic and foreign licenses, franchises, grants,
authorizations, permits, easements, variances, exemptions, consents,
certificates, orders and approvals necessary to own, lease and operate the
properties of, and to carry on the business of the Company and the Subsidiaries.
"Permitted Debt" has the meaning set forth in Section 8.1.
"Person" means an individual, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
government (or any agency or political subdivision thereof) or other entity of
any kind.
"Plan" means at any time an employee pension benefit plan (other than a
Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under the Code and either (i) is maintained, or
contributed to, by any member of the ERISA Group for employees of any member of
the ERISA Group or (ii) has at any time within the preceding five years been
maintained, or contributed to, by any Person which was at such time a member of
the ERISA Group for employees of any Person which was at such time a member of
the ERISA Group.
"Premium Price" shall mean a dollar amount equal to: (i) one hundred
twenty percent (120%) of the principal amount of the Convertible Note then
outstanding, plus (ii) all accrued and unpaid interest (including Default
Interest, if any) thereon.
"Purchase Price" means the purchase price for the Securities set forth
in Section 2.2 hereof.
"Purchaser" means Cybear, Inc., a Delaware corporation, and its
successors and assigns.
"Registrable Securities" has the meaning set forth in Section 10.4(a).
"Registration Default" has the meaning set forth in Section 10.4(e).
"Registration Default Notice" has the meaning set forth in Section
10.4(f).
"Registration Maintenance Period" has the meaning set forth in Section
10.4(d).
"Registration Rights Agreement" means the agreement between the Company
and the Purchaser dated the Closing Date substantially in the form set forth in
EXHIBIT C attached hereto.
"Required Effectiveness Date" has the meaning set forth in Section
10.4(d).
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<PAGE> 9
"Required Registration Statement" means a registration statement on
which the Registrable Securities are listed pursuant to the Registration Rights
Agreement.
"Rights Offering" has the meaning set forth in Section 11.3.
"SEC" means the Securities and Exchange Commission or any entity
succeeding to all of its material functions.
"SEC Reports" shall have the meaning set forth in Section 4.7.
"Securities" means the Convertible Note, the Warrants and, as
applicable, the Conversion Shares and the Warrant Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Agreement" means the agreement between the Purchaser, the
Company and Advanced Health Technologies Corporation, Advanced Health Management
Corporation, and Advanced Health Bukstel and Halfpenny Corporation (each a
Delaware corporation and wholly owned subsidiary of the Company) dated the
Closing Date substantially in the form set forth in EXHIBIT E attached hereto.
"Share Reorganization" has the meaning set forth in Section 11.2.
"Significant Subsidiary" has the meaning ascribed to it under the
regulations promulgated under the Securities Act.
"Solvency Certificate" shall mean a certificate executed by the chief
financial officer of the Company as to the solvency of the Company, the adequacy
of its capital and its ability to pay its debts, all after giving effect to the
issuance and sale of the Convertible Note and the completion of the offering
(including without limitation the payment of any fees or expenses in connection
therewith).
"Special Distribution" has the meaning set forth in Section 11.4.
"Subordination Terms" means with respect to any Debt the terms of
subordination set forth in EXHIBIT F hereto and which terms shall be set forth
in the instrument evidencing or governing such Debt.
"Subsidiary" means, with respect to any Person, any corporation or
other entity of which a majority of the capital stock or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are at the time directly
or indirectly owned by such Person. Unless specified to the contrary,
"Subsidiary" means a Subsidiary of the Company.
"Subsidiary Corporate Documents" means the certificates of
incorporation and by-laws of each Subsidiary.
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<PAGE> 10
"Taxes" has the meaning set forth in Section 3.5(a).
"Trading Day" shall mean any Business Day in which the Nasdaq Market or
other automated quotation system or exchange on which the Common Stock is then
traded is open for trading for at least four (4) hours.
"Transaction Agreements" means this Agreement, the Convertible Note,
the Warrants, the Registration Rights Agreement, the License Agreement, the
Security Agreement and the Guaranty Agreement.
"Transfer" means any disposition of Securities that would constitute a
sale thereof under the Securities Act.
"Unfunded Liabilities" means, with respect to any Plan at any time, the
amount (if any) by which (i) the present value of all benefits under such Plan
exceeds (ii) the fair market value of all Plan assets allocable to such benefits
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
"Warrants" means the Common Stock Purchase Warrants to purchase 300,000
shares of Common Stock issued to the Purchaser on the Closing Date in the form
of EXHIBIT B hereto
"Warrant Shares" has the meaning set forth in Section 4.5.
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1.2 Accounting Terms And Determinations. Unless otherwise specified herein,
all accounting terms used herein shall be interpreted, all accounting
determinations hereunder shall be made, and all financial statements required to
be delivered hereunder shall be prepared, in accordance with generally accepted
accounting principles as in effect from time to time, applied on a consistent
basis (except for changes concurred in by the Company's independent public
accountants) ("GAAP"). All references to "dollars," "Dollars" or "$" are to
United States dollars unless otherwise indicated.
2. PURCHASE AND SALE OF SECURITIES
2.1 Purchase and Sale of Convertible Note. Subject to the terms and
conditions set forth herein, the Company agrees to issue and sell to the
Purchaser, and the Purchaser agrees to purchase from the Company, on the Closing
Date, the Convertible Note in the principal amount of $4,000,000. In connection
with the purchase and sale of the Convertible Note, the Company will issue to
the Purchaser the Warrants to purchase 300,000 shares of Common Stock in the
form of EXHIBIT B hereto.
2.2 Purchase Price. The purchase price for the Convertible Note shall be
100% of the principal amount thereof. One Dollar ($1.00) of the purchase price
of the Convertible Note shall be allocated to the Warrants. The aggregate
consideration payable by the Purchaser to the Company for the Convertible Note
and the Warrants shall be $4,000,000 (the "Purchase Price").
2.3 Closing and Form of Payment.
(a) On the Closing Date, payment of the Purchase Price by the
Purchaser, subject to the satisfaction of all terms and conditions set forth
herein, shall be made by wire transfer to the Company of immediately available
funds.
(b) The closing of the transactions contemplated by this Agreement
shall occur on the Closing Date at the offices of the Company (the "Closing").
At the Closing, the Company shall deliver to the Purchaser (A) the Convertible
Note issued to the Purchaser as of the Closing Date, and (B) the Warrants issued
to the Purchaser as of the Closing Date, against payment of the Purchase Price.
3. PAYMENT TERMS OF CONVERTIBLE NOTE
3.1 Payment Mechanics. The Company will pay all sums becoming due on the
Convertible Note by the method and at the address specified for such purpose as
the Purchaser shall specify to the Company in writing for such purpose, without
the presentation or surrender of the Convertible Note or the making of any
notation thereon, except that upon written request of the Company made
concurrently with or reasonably promptly after payment or prepayment in full of
this Convertible Note, the Purchaser shall surrender the Convertible Note for
cancellation, reasonably promptly after any such request, to the Company at its
principal executive office. All payments to the Purchaser shall be made for the
Purchaser's benefit to the Purchaser. Prior to any sale or other disposition of
the Convertible Note, the Purchaser will, at its election, either endorse
thereon the amount of principal paid thereon and the last date to which interest
has been paid thereon or surrender the Convertible Note to the Company in
exchange for a new Convertible Note. The Company will afford
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the benefits of this Section 3.1 to any transferee of the Convertible Note
purchased under this Agreement and that has made the same agreement relating to
this Convertible Note as the Purchaser has in this Section 3.1; PROVIDED that
such transferee is an "accredited investor" under Rule 501 of the Securities
Act.
3.2 Voluntary Prepayment. Following the Closing Date, the Company, at any
time and from time to time, upon not less than thirty (30) days prior written
notice ("Prepayment Notice") to the Purchaser, shall have the right to redeem
all, but not less than all, of the outstanding principal amount of the
Convertible Note then outstanding at the Premium Price. The Purchaser will have
Conversion Rights until the close of business on the date immediately preceding
the date fixed for redemption.
3.3 Mandatory Payments.
(a) Interest Payments: Par Value Redemption. Commencing on the
Closing Date and continuing thereafter until the Maturity Date, the Company
shall pay to Purchaser on a quarterly basis interest computed at a rate equal to
ten percent (10%) per annum on the outstanding principal balance of the
Convertible Note outstanding from time to time during such quarterly period. The
first quarterly interest payment shall be due on June 30, 2000. Two subsequent
quarterly interest payments shall be made, one on September 30, 2000 and the
other on December 31, 2000. On March 31, 2001 the remaining outstanding
principal balance of the Convertible Note plus all accrued and unpaid interest
thereon shall be due and payable in full (including, without limitation, Default
Interest, if any) (the unpaid principal balance of the Convertible Note, plus
all accrued and unpaid interest thereon, including Default Interest, if any, is
herein referred to as the "Par Value Redemption Price").
(b) Change of Control Premium Price Redemption. Upon the occurrence
of a Change of Control of the Company and for a period of six months thereafter,
the Purchaser shall have the right to cause the Company to redeem the principal
amount of the Convertible Note then outstanding, together with all accrued and
unpaid interest (including Default Interest, if any) thereon at the Premium
Price, upon ten (10) days prior written notice.
3.4 Prepayment Procedures.
(a) Any prepayment or redemption of the Convertible Note pursuant
to Sections 3.2 or 3.3 above shall be deemed to be effective and consummated
(for purposes of determining the Premium Price, the amount of accrued and unpaid
interest and the time at which the Holder shall thereafter not be entitled to
deliver a Notice of Conversion for the Convertible Note) on the date the
redemption is consummated.
(b) Within five (5) Business Days after (i) the Maturity Date or
(ii) the effective date of a prepayment or redemption of the Convertible Note as
specified in Section 3.4(a) above, the Company shall deliver by wire transfer in
immediately available funds the applicable prepayment/redemption price to the
Purchaser. If the Purchaser does not receive payment of any amounts due for
prepayment or on redemption of the Convertible Note by reason of the Company's
failure to make payment at the times prescribed above for any reason, the
Company shall pay to the
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Purchaser on demand (i) interest on the sums not paid when due at an annual rate
equal to the Default Interest Rate; and (ii) all costs of collection, including,
but not limited to, reasonable attorneys' fees and costs, whether or not any
suit or other formal proceedings are instituted.
(c) Any Notice of Conversion delivered by the Purchaser (including
delivery via telecopy) to the Company prior to the (i) Maturity Date or (ii)
effective date of a redemption specified in Section 3.4(a) above, shall be
honored by the Company and the conversion of the Convertible Note shall be
deemed effected on the Conversion Date. In addition, between the effective date
of redemption specified in Section 3.4(a) above and the date the Company is
required to deliver the redemption proceeds to the Purchaser, the Purchaser may
deliver a Notice of Conversion to the Company, PROVIDED that such notice will be
(i) of no force or effect if the Company timely pays the redemption proceeds to
the Purchaser when due or (ii) honored on or as of the date the Notice of
Conversion if the Company fails to timely pay the redemption proceeds to the
Purchaser when due.
3.5 Payment of Additional Amounts. Any and all payments by the Company
hereunder or under the Convertible Note to the Purchaser shall be made without
deduction or withholding for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with respect
thereto (all such taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes") unless such Taxes are
required by law or the administration thereof to be deducted or withheld. If the
Company shall be required by law or the administration thereof to deduct or
withhold any Taxes from or in respect of any sum payable under the Convertible
Note (i) the Company shall make such deductions or withholdings; and (ii) the
Company shall forthwith pay the full amount deducted or withheld to the relevant
taxation or other authority in accordance with applicable law.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser as of the Closing
Date the following:
4.1 Organization and Qualification. The Company and each Significant
Subsidiary is a corporation (or other legal entity) duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, with full power and authority to own, lease, use and operate its
properties and to carry on its business as and where now owned, leased, used,
operated and conducted. The SEC Reports sets forth a list of all Significant
Subsidiaries and the jurisdiction in which each is incorporated. The Company and
each of its Significant Subsidiaries is duly qualified to conduct business as a
foreign corporation and is in good standing in every jurisdiction in which the
nature of the business conducted by it makes such qualification necessary,
except where such failure would not have a Material Adverse Effect.
4.2 Authorization and Execution.
(a) Except as contemplated by Section 7.9, the Company has all
requisite corporate power and authority to enter into and perform the
Transaction Agreements and to consummate the transactions contemplated hereby
and thereby and to issue the Securities in accordance with the terms hereof and
thereof.
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(b) Except as contemplated by Section 7.9, the execution, delivery
and performance by the Company of each Transaction Agreement and the issuance by
the Company of the Securities have been duly and validly authorized and no
further consent or authorization of the Company, its Board of Directors or its
shareholders is required.
(c) The Transaction Agreements have been duly executed and
delivered by the Company.
(d) The Transaction Agreements constitute, and upon execution and
delivery thereof by the Purchaser , will constitute, a valid and binding
agreement of the Company, in each case enforceable against the Company in
accordance with its respective terms, subject to (i) applicable bankruptcy,
insolvency or similar laws affecting the enforceability of creditors rights
generally and (ii) equitable principles of general applicability.
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4.3 Capitalization. As of December 31, 1999, the authorized, issued and
outstanding capital stock of the Company is as set forth on Schedule 4.3 hereto.
All of such outstanding shares of capital stock are, or upon issuance will be,
duly authorized, validly issued, fully paid and non-assessable. No shares of
capital stock of the Company are subject to preemptive rights of the
stockholders of the Company or any liens or encumbrances imposed through the
actions or failure to act of the Company. Other than as set forth in the SEC
Reports or as disclosed in Schedule 4.3, as of the date hereof, (i) there are no
outstanding options, warrants, scrip, rights to subscribe for, puts, calls,
rights of first refusal, agreements, understandings, claims or other commitments
or rights of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for any shares of capital stock of the Company
or any of its Subsidiaries, or other arrangements, in each case under which the
Company or any of its Subsidiaries is or may become bound to issue additional
shares of capital stock of the Company or any of its Subsidiaries, and (ii)
there are no agreements or arrangements under which the Company or any of its
Subsidiaries are obligated to register the sale of any of its or their
securities under the Securities Act (except pursuant to the Registration Rights
Agreement) and (iii) there are no anti-dilution or price adjustment provisions
contained in any security issued by the Company (or in any agreement providing
rights to security holders) that will be triggered by the issuance of the
Convertible Note, Conversion Shares, Warrants or Warrant Shares. The Company has
made available to the Purchaser true and correct copies of the Company's SEC
Reports, and the terms of all securities convertible into or exercisable for
Common Stock and the material rights of the holders thereof in respect thereto.
4.4 Governmental Authorization. The execution and delivery by the Company
of the Transaction Agreements will not, the issuance and sale by the Company of
the Securities will not, and the consummation of the transactions contemplated
hereby and by the other Transaction Agreements will not, require any action by
or in respect of, or filing with, any governmental body, agency or governmental
official except (a) such actions or filings that have been undertaken or made
prior to the date hereof and that will be in full force and effect (or as to
which all applicable waiting periods have expired) on and as of the date hereof
or which are not required to be filed on or prior to the Closing Date, (b) such
actions or filings that, if not obtained, would not result in a Material Adverse
Effect, (c) the additional share notice ("Listing Applications") to be filed
with the Nasdaq Market relating to the shares of Common Stock issuable upon
conversion of the Convertible Note and exercise of the Warrants and (d) the
filing of a "Form D" as described in Section 7.13 below.
4.5 Issuance of Shares. Subject to the matters contemplated by Section 7.9,
upon conversion in accordance with the terms of the Convertible Note, or upon
exercise in accordance with the terms of the Warrants (assuming the payment of
the exercise price set forth in the Warrants), the shares of Common Stock issued
upon conversion of the Convertible Note (the "Conversion Shares") or exercise of
the Warrants (the "Warrant Shares") shall be duly and validly issued and
outstanding, fully paid and nonassessable, free and clear of any taxes, Liens
and charges with respect to issuance and shall not be subject to preemptive
rights or similar rights of any other stockholders of the Company. Assuming the
representations and warranties of the Purchaser herein are true and correct in
all material respects, each of the Securities will have been issued in material
compliance with all applicable United States federal securities laws. The
Company understands and acknowledges that, in certain circumstances, the
issuance of the Conversion Shares could dilute the ownership interests of other
stockholders of the Company. The Company further acknowledges that its
obligation to issue the Conversion Shares upon conversion of the Convertible
Note in accordance with this
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Agreement and the Convertible Note is absolute and unconditional regardless of
the dilutive effect that such issuance may have on the ownership interests of
other stockholders of the Company.
4.6 No Conflicts. The execution and delivery by the Company of the
Transaction Agreements to which it is a party will not, the issuance and sale by
the Company of the Securities will not and the consummation of the transactions
contemplated hereby and by the other Transaction Agreements will not, as of the
date hereof, contravene or constitute a default under or violation of (i) any
provision of applicable law or regulation, (ii) the Company Corporate Documents,
(iii) any agreement, judgment, injunction, order, decree or other material
instrument binding upon the Company or any Subsidiary or any of their respective
assets, or result in the creation or imposition of any Lien on any asset of the
Company or any Subsidiary, except in the case of (i) or (ii) hereof where such
contravention or default would not have a Material Adverse Effect. The Company
and each Subsidiary is in compliance with and conforms to all statutes, laws,
ordinances, rules, regulations, orders, restrictions and all other legal
requirements of any domestic or foreign government or any instrumentality
thereof having jurisdiction over the conduct of its businesses or the ownership
of its properties, except in each case where such failure would not have a
Material Adverse Effect.
4.7 Financial Information and Sec Reports. Since December 31, 1998, the
Company has timely filed all forms, reports and documents with the SEC required
to be filed by it under the Exchange Act through the date hereof (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents (other than exhibits)
incorporated by reference therein, being referred to herein collectively as the
"SEC Reports"). The Company has made available to the Purchaser true and
complete copies of the SEC Reports, except for such exhibits and incorporated
documents, as well as the Company's unaudited financial statements for the year
ended December 31, 1999 which the Company intends to file after the completion
of its audit as part of its Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 (the "1999 Statement"). Such SEC Reports, at the time filed
complied in all material respects in light of the circumstances when made with
the requirements of the Exchange Act and the rules and regulations of the SEC
thereunder applicable to such SEC Reports. The SEC Reports (including without
limitation, the financial statements or schedules included therein) do not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The audited and
unaudited consolidated balance sheets of the Company and its Subsidiaries
contained in the SEC Reports and the 1999 Statement, and the related
consolidated statements of income, changes in stockholders' equity and changes
in cash flows for the periods then ended, including the footnotes thereto,
except as indicated therein, (i) complied in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, (ii) have been prepared in accordance with GAAP
consistently applied throughout the periods indicated, except that the unaudited
financial statements do not contain notes and may be subject to normal audit
adjustments and normal annual adjustments and (iii) fairly present the financial
condition of the Company and its Subsidiaries at the dates indicated and the
consolidated results of their operations and cash flows for the periods then
ended. Since December 31, 1999 (the "Balance Sheet Date"), except as disclosed
in the SEC Reports, the 1999 Statement or otherwise disclosed to the Purchaser
in writing, there has been (i) no material adverse change in the assets or
liabilities, or in the business or financial condition, or in the results of
operations, of the Company
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and its Subsidiaries, whether as a result of any legislative or regulatory
change, revocation of any license or rights to do business, fire, explosion,
accident, casualty, labor trouble, flood, drought, riot, storm, condemnation,
act of God, public force or otherwise and (ii) no material adverse change in the
assets or liabilities, or in the business or financial condition, or in the
results of operations of the Company and its Subsidiaries except in the ordinary
course of business.
4.8 Litigation. Except as disclosed in the SEC Reports or in Schedule 4.8,
there is no action, suit or proceeding pending or, to the knowledge of the
Company, threatened against the Company or any Subsidiary, before any court or
arbitrator or any governmental body, agency or official which is reasonably
likely to have a Material Adverse Effect.
4.9 Compliance with ERISA and Other Benefit Plans.
(a) Each member of the ERISA Group has fulfilled its obligations
under the minimum funding standards of ERISA and the Code with respect to each
Plan and is in compliance in all material respects with the presently applicable
provisions of ERISA and the Code with respect to each Plan. No member of the
ERISA Group has (i) sought a waiver of the minimum funding standard under
Section 412 of the Code in respect of any Plan, (ii) failed to make any required
contribution or payment to any Plan or Multiemployer Plan or in respect of any
Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement,
which has resulted or could result in the imposition of a Lien or the posting of
a bond or other security under ERISA or the Code or (iii) incurred any liability
under Title IV of ERISA other than a liability to the PBGC for premiums under
Section 4007 of ERISA.
(b) The benefit plans not covered under clause (a) above (including
profit sharing, deferred compensation, stock option, employee stock purchase,
bonus, retirement, health or insurance plans, collectively the "Benefit Plans")
relating to the employees of the Company are duly registered where required by,
and are in good standing in all material respects under, all applicable laws.
All required employer and employee contributions and premiums under the Benefit
Plans to the date hereof have been made, the respective fund or funds
established under the Benefit Plans are funded in accordance with applicable
laws, and no past service funding liabilities exist thereunder.
(c) No Benefit Plans have any unfunded liabilities, either on a
"going concern" or "winding up" basis and determined in accordance with all
applicable laws and actuarial practices and using actuarial assumptions and
methods that are reasonable in the circumstances. No event has occurred and no
condition exists with respect to any Benefit Plans that has resulted or could
reasonably be expected to result in any pension plan having its registration
revoked or wound up (in whole or in part) or refused for the purposes of any
applicable laws or being placed under the administration of any relevant pension
benefits regulatory authority or being required to pay any taxes or penalties
(in any material amounts) under any applicable laws.
4.10 Environmental Matters. The costs and liabilities associated with
Environmental Laws (including the cost of compliance therewith) are unlikely to
have a Material Adverse Effect. Each of the Company and the Subsidiaries
conducts its businesses in compliance in all material respects with all
applicable Environmental Laws.
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4.11 Taxes. All United States federal, state, county, municipal, local or
foreign income tax returns and all other material tax returns (including foreign
tax returns) which are required to be filed by or on behalf of the Company and
each Subsidiary have been filed and all material taxes due pursuant to such
returns or pursuant to any assessment received by the Company and each
Subsidiary have been paid except those being disputed in good faith and for
which adequate reserves have been established. The charges, accruals and
reserves on the books of the Company and each Subsidiary in respect of taxes or
other governmental charges have been established in accordance with GAAP.
4.12 Investments, Joint Ventures. Except set forth on Schedule 4.12, the
Company has no Significant Subsidiaries or other direct or indirect Investment
in any Person, and the Company is not a party to any partnership, management,
shareholders' or joint venture or similar agreement, other than as set forth in
the SEC Reports.
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4.13 Not an Investment Company. Neither the Company nor any Subsidiary is an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
4.14 No Solicitation; No Integration with Other Offerings. No form of
general solicitation or general advertising was used by the Company or, to the
best of its actual knowledge, any other Person acting on behalf of the Company,
in connection with the offer and sale of the Securities. Neither the Company,
nor, to its knowledge, any Person acting on behalf of the Company, has, either
directly or indirectly, sold or offered for sale to any Person (other than the
Purchaser) any of the Securities or, within the six months prior to the date
hereof, any other similar security of the Company except as contemplated by this
Agreement, and the Company represents that neither itself nor any Person
authorized to act on its behalf (except that the Company makes no representation
as to the Purchaser and its Affiliates) will sell or offer for sale any such
security to, or solicit any offers to buy any such security from, or otherwise
approach or negotiate in respect thereof with, any Person or Persons so as
thereby to cause the issuance or sale of any of the Securities to be in
violation of any of the provisions of Section 5 of the Securities Act. The
issuance of the Securities to the Purchaser will not be integrated with any
other issuance of the Company's securities (past, current or future) which
requires stockholder approval under the rules of the Nasdaq Market.
4.15 Permits. Each of the Company and its Subsidiaries has all material
Permits; (b) all such Permits are in full force and effect, and each of the
Company and its Subsidiaries has fulfilled and performed all material
obligations with respect to such Permits; and (c) no event has occurred which
allows, or after notice or lapse of time would allow, revocation or termination
by the issuer thereof or which results in any other material impairment of the
rights of the holder of any such Permit.
4.16 Leases. Except as disclosed in the SEC Reports, neither the Company nor
any Subsidiary is a party to any capital lease obligation with a value greater
than $100,000 or to any operating lease with an aggregate annual rental greater
than $100,000 during the life of such lease.
4.17 Public Utility Holding Company. Neither the Company nor any Subsidiary
is, or will be upon the issuance and sale of the Securities and the use of the
proceeds described herein, subject to regulation under the Public Utility
Holding Company Act of 1935, as amended, the Federal Power Act, the Interstate
Commerce Act or to any federal or state statute or regulation limiting its
ability to issue and perform its obligations under any Transaction Agreement.
4.18 Intellectual Property Rights.
(a) Except as set forth on Schedule 4.18 attached hereto, each of
the Company and its Subsidiaries owns, or is licensed under, and has the rights
to use, as applicable, all of the patents, trademarks, tradenames, service
marks, service names, trade secrets, protected computer software (including,
without limitation, any source or object codes therefor or documentation
relating thereto) and copyright registrations, and applications therefor,
including all Internet domain names registered with any third party, technology
rights and licenses, franchises, know-how, processes, inventions and
intellectual property rights necessary for and material to the conduct of its
business (collectively, "Material Intellectual Property").
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(b) Schedule 4.18 contains a true and complete list of all Material
Intellectual Property, therefor owned by or licensed to the Company or its
Subsidiaries on the date hereof, including all Internet domain names registered
with any third party. Except as set forth in Schedule 4.18, the Company or its
Subsidiaries owns, or is a valid licensee of all Material Intellectual Property
used in its business as currently conducted. Neither the Company, its
Subsidiaries or, to the Company's and its Subsidiaries' knowledge, its
predecessors has materially interfered with or misappropriated the intellectual
property of others, and none of the Material Intellectual Property as used in
the business conducted by such entity infringes in any material manner upon or
otherwise violates the intellectual property of others, nor to the Company's and
its Subsidiaries' knowledge with respect to predecessors, has any person
asserted a claim of such material infringement or violation of intellectual
property against any such entity. Except as set forth on Schedule 4.18, neither
the Company nor its Subsidiaries has licensed or sublicensed its rights in any
Material Intellectual Property, except non-exclusive licenses in the ordinary
course of business, forms of which license agreements and a list of which
licensees, the Company has delivered or made available to the Purchaser.
(c) To the Company's and its Subsidiaries' knowledge, except as
described on Schedule 4.18 or disclosed in the SEC Reports, no officer, director
or employee of the Company or its Subsidiaries has entered into any contract
other than on behalf of the Company or such Subsidiary and with the Company's
authorization, which requires such officer, director or employee to assign any
interest in any Material Intellectual Property.
(d) The Material Intellectual Property owned or licensed by the
Company or its Subsidiaries is sufficient to continue to operate the business as
conducted on the date hereof.
(e) Except as set forth on Schedule 4.18, there are no settlements,
forbearances to sue, consents, judgments, or orders of which the Company or a
Subsidiary is a party or of which it is aware and which (i) restrict the
Company's or a Subsidiary's rights to use any Material Intellectual Property
owned by or licensed to the Company or such Subsidiary or (ii) permit third
parties to use any Material Intellectual Property.
(f) Except as set forth in Section 12 hereof or on Schedule 4.18,
the consummation of the transactions contemplated hereby will not result in the
material loss or impairment of Company's or a Subsidiary's right to own or use
any of the Material Intellectual Property, nor will require the consent of any
government authority or third party in respect of such Material Intellectual
Property.
4.19 Insurance. The Company and its Subsidiaries maintain insurance in at
least such amounts and cover such risks such that any uninsured loss would not
have a Material Adverse Effect. All insurance coverages of the Company and its
Subsidiaries are in full force and effect and there are no past due premiums in
respect of any such insurance.
4.20 Title to Properties. The Company and its Subsidiaries have good and
marketable title to all their respective properties reflected on the financial
statements referred to in Section 4.7 as being owned by the Company.
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4.21 Internal Accounting Controls. The Company and each of its Subsidiaries
maintain a system of internal accounting controls sufficient, in the judgment of
the Company's Board of Directors, to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences, where non-compliance therewith could not reasonably
be expected, in the aggregate, to have a Material Adverse Effect.
4.22 Standstill. The Company shall comply with the terms and provisions of
Section 8.3 and has no intention of violating the terms and provisions of such
Section.
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Purchaser hereby represents and warrants to the Company that:
5.1 Authorization and Execution.
(a) The execution, delivery and performance of the Transaction
Agreements, to the extent the Purchaser has executed such agreements and the
purchase of the Securities pursuant hereto are within the Purchaser's corporate
powers, and have been duly and validly authorized by all requisite corporate
action;
(b) The Transaction Agreements have been duly executed and
delivered by the Purchaser.
(c) The execution and delivery by the Purchaser of the Transaction
Agreements to which it is a party does not, and the consummation of the
transactions contemplated hereby and thereby will not, contravene or constitute
a default under or violation of (i) any provision of applicable law or
regulation, or (ii) any agreement, judgment, injunction, order, decree or other
instrument binding upon Purchaser.
5.2 Acquisition for Investment. The Purchaser is acquiring the Convertible
Note and the Warrants, and will acquire the Conversion Shares and the Warrant
Shares, for its own account for investment and not with a view towards the
public sale or distribution thereof within the meaning of the Securities Act;
and the Purchaser has no intention of making any distribution, within the
meaning of the Securities Act, of the Securities except in compliance with the
registration requirements of the Securities Act or pursuant to an exemption
therefrom; PROVIDED, however, that by making this representation the Purchaser
does not agree to hold the securities for any minimum or specified period of
time (unless any such holding period is required by the terms of any such
exemption being relied on by the Purchaser); and PROVIDED that the disposition
of the Purchaser's property shall at all times be and remain within its control.
5.3 Accredited Investor. The Purchaser is an "accredited investor" as that
term is defined in Rule 501 of Regulation D under the Securities Act by reason
of Rule 501(a)(3) thereof;
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5.4 Reoffers and Resales. The Purchaser will not, directly or indirectly,
offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers to
buy, purchase or otherwise acquire or take a pledge of) any of the Securities
unless registered under the Securities Act, pursuant to an exemption from
registration under the Securities Act or in a transaction not requiring
registration under the Securities Act;
5.5 Company Reliance. The Purchaser understands that (a) the Convertible
Note is being offered and sold and the Warrants are being issued to the
Purchaser, (b) upon conversion of the Convertible Note, the Conversion Shares
will be issued to the Purchaser, (c) upon exercise of the Warrants, the Warrant
Shares will be issued to the Purchaser, in each such case in reliance on one or
more exemptions from the registration requirements of the Securities Act,
including, without limitation, Regulation D, and exemptions from state
securities laws and that the Company is relying upon the truth and accuracy of,
and the Purchaser's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of the Purchaser set forth herein
in order to determine the availability of such exemptions and the eligibility of
the Purchaser to acquire or receive an offer to acquire the Securities; and the
information with respect to the Purchaser provided to the Company by the
Purchaser is accurate and complete in all material respects;
5.6 Information Provided. The Purchaser and its advisors, if any, have
requested, received and considered all information relating to the business,
properties, operations, condition (financial or other), results of operations or
prospects of the Company and information relating to the offer and sale of the
Convertible Note and issuance of the Warrants, and the offer of the Conversion
Shares and the Warrant Shares deemed relevant by them (assuming the accuracy and
completeness of the SEC Reports and of the Company's responses to the
Purchaser's requests); the Purchaser and its advisors, if any, have been
afforded the opportunity to ask questions of the Company concerning the terms of
the offering of the Securities and the business, properties, operations,
condition (financial or other), results of operations and prospects of the
Company and have received satisfactory answers to any such inquiries (assuming
the accuracy and completeness of the SEC Reports and the Company's responses to
the Purchaser's requests); without limiting the generality of the foregoing, the
Purchaser has had the opportunity to obtain and to review the SEC Reports and
the Schedules hereto in connection with its decision to purchase the Convertible
Note and to acquire the Warrants, the Purchaser has relied solely upon the SEC
Reports, the Schedules hereto, the representations, warranties, covenants and
agreements of the Company set forth in this Agreement and to be contained in the
other Transaction Documents, as well as any independent investigation of the
Company completed by the Purchaser or its advisors, if any, and is not relying
on any oral representation, statement or promise of any employee or agent of the
Company; the Purchaser understands that its investment in the Securities
involves a high degree of risk.
5.7 Absence of Approvals. The Purchaser understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Securities;
5.8 Purchaser Status. The Purchaser is not a "broker" or "dealer" as those
terms are defined in the Exchange Act which is required to be registered with
the SEC pursuant to Section 15 of the Exchange Act.
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5.9 Standstill. The Purchaser shall comply with the terms and provisions of
Section 8.3 and has no intention of violating the terms and provisions of such
Section.
6. CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES
6.1 Conditions Precedent to the Purchaser's Obligation to Purchase. The
obligation of the Purchaser to purchase the Convertible Note and Warrants at the
Closing is subject to the satisfaction, on or before the Closing Date of each of
the following conditions, PROVIDED that these conditions are for Purchaser's
sole benefit and may be waived by Purchaser at any time in its sole discretion:
(a) The Company shall have executed and delivered to the Purchaser
the Transaction Agreements;
(b) The Company shall have delivered to the Purchaser duly executed
certificates representing the Convertible Note and the Warrants in accordance
with Section 2.3 hereof;
(c) The Company shall have delivered the Solvency Certificate;
(d) The representations and warranties of the Company contained in
each Transaction Agreement shall be true and correct in all material respects as
of the date when made and as of the Closing Date as though made at such time
(except for representations and warranties that speak as of a specified date)
and the Company shall have performed, satisfied and complied in all material
respects with all covenants, agreements and conditions required by such
Transaction Agreements to be performed, satisfied or complied with by it at or
prior to the Closing Date. The Purchaser shall have received an Officer's
Certificate, executed by the chief executive officer of the Company, dated as of
the Closing Date, to the foregoing effect and as to such other matters as may be
reasonably requested by the Purchaser;
(e) The Company shall have received all governmental, board of
directors, shareholders and third party consents and approvals necessary in
connection with the issuance and sale of the Securities;
(f) All applicable waiting periods in respect to the issuance and
sale of the Securities shall have expired without any action having been taken
by any competent authority that could restrain, prevent or impose any materially
adverse conditions thereon or that could seek or threaten any of the foregoing;
(g) The Purchaser shall have received an opinion, dated the Closing
Date, of O'Sullivan Graev & Karabell LLP, counsel to the Company, in a form
acceptable to the Purchaser, as to certain matters relating to the Company and
the transactions contemplated by this Agreement;
(h) All fees and expenses due and payable by the Company on or
prior to the Closing Date shall have been paid;
(i) The Company Corporate Documents and the Subsidiary Corporate
Documents, if any, shall be in full force and effect and no term or condition
thereof shall have been amended, waived or otherwise modified without the prior
written consent of the Purchaser;
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(j) There shall exist no action, suit, investigation, litigation or
proceeding pending or threatened in any court or before any arbitrator or
governmental instrumentality that challenges the validity of or purports to
affect this Agreement or any other Transaction Agreement, or other transaction
contemplated hereby or thereby or that could reasonably be expected to have a
Material Adverse Effect, or any material adverse effect on the enforceability of
the Transaction Agreements or the Securities or the rights of the Purchaser;
(k) The Purchaser shall have confirmed receipt of the Convertible
Note and the Warrants to be issued, duly executed by the Company;
(l) Immediately before and after the Closing Date, no Default or
Event of Default shall have occurred and be continuing; and
(m) The Purchaser shall have received all other opinions,
resolutions, certificates, instruments, agreements or other documents as it
shall reasonably request.
6.2 Conditions to the Company's Obligations. The obligations of the Company
to issue and sell the Securities to the Purchaser pursuant to this Agreement are
subject to the satisfaction, at or prior to the Closing Date, of the following
conditions:
(a) The representations and warranties of the Purchaser contained
herein shall be true and correct in all material respects on the Closing Date
and the Purchaser shall have performed and complied in all material respects
with all agreements required by this Agreement to be performed or complied with
by the Purchaser at or prior to the Closing Date;
(b) The issue and sale of the Securities by the Company shall not
be prohibited by any applicable law, court order or governmental regulation;
(c) Receipt by the Company of duly executed counterparts of the
Transaction Agreements signed by the Purchaser; and
(d) The Company shall have received payment of the Purchase Price
of the Convertible Note.
7. AFFIRMATIVE COVENANTS
The Company hereby agrees that, from and after the date hereof for so
long as the Convertible Note remains outstanding (except for Sections 7.1(a),
7.8, 7.9, 7.10 and 7.11, which shall apply for so long as the Convertible Note
or Warrants remain outstanding) and for the benefit of the Purchaser:
7.1 Information. The Company will deliver to each holder of the Convertible
Note:
(a) promptly upon the filing thereof, copies of (i) all
registration statements (other than the exhibits thereto and any registration
statements on Form S-8 or its equivalent), (ii) all reports on Forms 10-K, 10-Q
and 8-K (or their equivalents) which the Company or any Subsidiary has filed
with the SEC and (iii) any material press releases issued by the Company or any
Subsidiary;
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(b) within five Business Days after the Company's Chief Executive
Officer or Chief Financial Officer obtains knowledge of a Default or Event of
Default , a certificate of the chief financial officer of the Company setting
forth the details thereof and the action which the Company is taking or proposes
to take with respect thereto;
(c) promptly upon the mailing thereof to the shareholders of the
Company generally, copies of all financial statements, reports and proxy
statements so mailed and any other document generally distributed to
shareholders;
(d) if and when any member of the ERISA Group (i) gives or is
required to give notice to the PBGC of any "reportable event" (as defined in
Section 4043 of ERISA) with respect to any Plan which might constitute grounds
for a termination of such Plan under Title IV of ERISA, or knows that the plan
administrator of any Plan has given or is required to give notice of any such
reportable event, a copy of the notice of such reportable event given or
required to be given to the PBGC; (ii) receives notice of complete or partial
withdrawal liability under Title IV of ERISA or notice that any Multiemployer
Plan is in reorganization, is insolvent or has been terminated, a copy of such
notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent
to terminate, impose liability (other than for premiums under Section 4007 of
ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of
such notice; (iv) applies for a waiver of the minimum funding standard under
Section 412 of the Code, a copy of such application; (v) gives notice of intent
to terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and
other information filed with the PBGC; (vi) gives notice of withdrawal from any
Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails to
make any required payment or contribution to any Plan or Multiemployer Plan or
in respect of any Benefit Arrangement or makes any amendment to any Plan or
Benefit Arrangement which has resulted or could result in the imposition of a
Lien or the posting of a bond or other security, a certificate of the chief
financial officer or the chief accounting officer of the Company setting forth
details as to such occurrence and action, if any, which the Company or
applicable member of the ERISA Group is required or proposes to take; and
(e) promptly following the commencement thereof, notice and a
description in reasonable detail of any material litigation or proceeding to
which the Company or any Subsidiary is a party which the Company is required to
disclose in its SEC Reports.
7.2 Payment of Obligations. The Company and its Subsidiaries will pay and
discharge, at or before maturity, all their respective material obligations,
including, without limitation, tax liabilities, except where the same may be
contested in good faith by appropriate proceedings and will maintain, in
accordance with GAAP, appropriate reserves for the accrual of any of the same.
7.3 Maintenance of Property; Insurance. The Company and each Subsidiary
will keep, all property useful and reasonably necessary in its business in good
working order and condition, ordinary wear and tear excepted. In addition, the
Company and each Subsidiary will maintain insurance in at least such amounts and
against such risks as it has insured against as of the Closing Date.
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7.4 Maintenance of Existence. The Company will continue to engage in
business of the same general type as now conducted by the Company, and will
preserve, renew and keep in full force and effect its respective corporate
existence and their respective material rights, privileges and franchises
necessary or desirable in the normal conduct of business except as permitted
pursuant to Section 8.5.
7.5 Compliance with Laws. The Company and each Subsidiary will comply, in
all material respects, with all federal, state, municipal, local or foreign
applicable laws, ordinances, rules, regulations, municipal by-laws, codes and
requirements of governmental authorities (including, without limitation,
Environmental Laws and ERISA and the rules and regulations thereunder) except
(i) where compliance therewith is contested in good faith by appropriate
proceedings or (ii) where non-compliance therewith could not reasonably be
expected, in the aggregate, to have a Material Adverse Effect.
7.6 Inspection of Property, Books and Records. The Company and each
Subsidiary will keep proper books of record and account in accordance with GAAP;
and will permit, during normal business hours upon reasonable notice, the
Purchaser or an Affiliate thereof, as representatives of the Purchaser, to visit
and inspect any of their respective properties, upon reasonable prior notice, to
examine and make abstracts from any of their respective books and records and to
discuss their respective affairs, finances and accounts with their respective
executive officers and independent public accountants, all at such reasonable
times at Purchaser's expense. The Purchaser and any such Affiliate shall
maintain the confidentiality of any information of the Company disclosed to it.
7.7 Investment Company Act. The Company will not be or become an open-end
investment trust, unit investment trust or face-amount certificate company that
is or is required to be registered under Section 8 of the Investment Company Act
of 1940, as amended.
7.8 Supplemental Information. If at any time the Company is not subject to
the requirements of Section 13 or 15(d) of the Exchange Act, the Company will
promptly furnish at its expense, upon request, for the benefit of the holders
from time to time of Securities, and prospective purchasers of Securities,
information satisfying the information requirements of Rule 144 under the
Securities Act.
7.9 Reserved Shares and Listings.
(a) The Purchaser acknowledges that the Company does not presently
have sufficient authorized but unissued shares of Common Stock to deliver to the
Purchaser upon exercise of the Warrants and conversion of the Convertible Notes.
No later than July 14, 2000, the Company shall have taken all action necessary,
including, without limitation, calling a meeting of shareholders to amend its
certificate of incorporation to authorize a sufficient number of shares to
enable the Company to issue the Maximum Number of Shares plus the shares
issuable upon exercise of the Warrant;
(b) Subject to Section 7.9(a), the Company shall at all times have
authorized, and reserved for the purpose of issuance, a sufficient number of
shares of Common Stock to provide for the full conversion of the outstanding
Convertible Note and issuance of the Conversion Shares (based on the Maximum
Number of Shares under the Convertible Note), and the exercise in full of the
Warrants and the issuance of the Warrant Shares (based on the exercise price of
the Warrants in
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effect from time to time). The Company shall not reduce the number of shares of
Common Stock reserved for issuance upon conversion of the Convertible Note and
exercise of the Warrants without the prior written consent of the Purchaser.
(c) The Company shall promptly secure the listing of the Conversion
Shares and Warrant Shares upon each national securities exchange or automated
quotation system, if any, upon which the shares of Common Stock are then listed
(subject to official notice of issuance) and shall maintain, so long as any
other shares of Common Stock shall be so listed, such listing of all Conversion
Shares and Warrant Shares from time to time issuable upon conversion or exercise
of the Convertible Note and Warrants. The Company will obtain and maintain the
listing and trading of its Common Stock on the Nasdaq Market, the Nasdaq
SmallCap Market, the New York Stock Exchange, Inc., or the American Stock
Exchange Inc., and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the National
Association of Securities Dealers, Inc. (the "NASD") and such exchanges, as
applicable. The Company shall promptly provide to the Purchaser copies of any
notices it receives from Nasdaq regarding the continued eligibility of the
Common Stock for listing on the Nasdaq Market.
(d) On or prior to the date that the SEC declares effective the
Required Registration Statement, the Company shall properly file all Listing
Applications with the Nasdaq Market associated with the shares of Common Stock
covered by such registration statement.
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7.10 Issuance of Shares of Common Stock. Upon receipt of a Notice of
Conversion or Notice of Exercise, as applicable, the Company shall immediately
issue irrevocable instructions to its transfer agent to issue certificates,
registered in the name of the Purchaser or its nominee, for the Conversion
Shares or Warrant Shares, as applicable, in such amounts as specified from time
to time by the Purchaser to the Company upon proper conversion of the
Convertible Note or exercise of the Warrants. Upon conversion of the Convertible
Note in accordance with its terms, and/or exercise of the Warrants in accordance
with their terms, the Company will, and will use its best lawful efforts to
cause its transfer agent to, issue one or more certificates representing shares
of Common Stock in such name or names and in such denominations specified by
Purchaser in a Notice of Conversion or Notice of Exercise, as the case may be.
As long as a Required Registration Statement contemplated by the Registration
Rights Agreement shall remain effective, the shares of Common Stock issuable
upon conversion of Convertible Note or exercise of the Warrants, if transferred
pursuant to such Required Registration Statement, shall be issued to any
transferee of such shares from Purchaser without any restrictive legend. Nothing
in this Section 7.12 shall affect in any way Purchaser's obligations to comply
with all securities laws applicable to Purchaser upon resale of such shares of
Common Stock, including any prospectus delivery requirements.
7.11 Form D; Blue Sky Laws. The Company agrees to file a "Form D" with
respect to the Securities as required under Regulation D of the Securities Act
and to provide a copy thereof to the Purchaser promptly after such filing. The
Company shall, on or before the Closing Date, take such action as the Company
shall reasonable determine is necessary to qualify the Securities for sale to
the Purchaser at the Closing pursuant to this Agreement under applicable
securities or "blue sky" laws of the states of the United States (or to obtain
an exemption from such qualification), and shall provide evidence of any such
action so taken to the Purchaser on or prior to the Closing Date.
8. NEGATIVE COVENANTS
The Company or the Purchaser, as the case may be, hereby agrees that,
from and after the date hereof for so long as the Convertible Note remains
outstanding and for the benefit of the other party:
8.1 Limitation on Debt or Other Liabilities. The Company will not itself,
and will not permit any Subsidiary to, create, assume, incur or in any manner
become liable in respect of, including, without limitation, by reason of any
business combination transaction (all of which are referred to herein as
"incurring"), any Debt; PROVIDED that the following items of Debt shall be
excluded from such calculation (such Debt being referred to as "Permitted
Debt"):
(a) Debt not in excess of $1,000,000 aggregate principal amount
which is outstanding on the date hereof and which would be reflected on a
consolidated balance sheet of the Company as of the date hereof prepared in
accordance with GAAP;
(b) Non-recourse Debt not in excess of $1,000,000 aggregate
principal amount which Debt, by its terms, bars the lender thereof from action
against the Company or any Subsidiary, as borrower, if the security value falls
below the amount required to repay such Debt;
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(c) Debt not in excess of $2,000,000 aggregate principal amount
incurred in connection with equipment leases to which the Company or its
Subsidiaries are a party incurred in the ordinary course of business; and
(d) Debt not in excess of $5,000,000 aggregate principal amount
incurred in connection with trade accounts payable, imbalances and refunds
arising in the ordinary course of business.
(e) Debt which is subordinated to this Convertible Note as to
payment on the Subordination Terms set forth in EXHIBIT E or on such other terms
as shall have been approved in advance of the incurrence of such Debt by the
Purchaser as evidenced by the written approval of the Purchaser given prior to
the incurrence of such Debt and for which no payment of principal of such Debt
is scheduled to be due prior to the date that is six months after the Maturity
Date; so long as in the case of Debt permitted by the preceding clauses (b)
through (e), at the time of incurrence of such Debt no Event of Default has
occurred and is continuing or would result from such incurrence and no event
which, with notice or passage of time, or both, would become an Event of Default
has occurred and is continuing or would result from such incurrence.
8.2 Exclusivity. For a period of thirty (30) days from March 17, 2000 (the
"Exclusivity Period"), the Company will not, and will not permit its officers,
directors, employees, agents or representatives to enter into or participate in
material discussions with any third party other than the Purchaser and its
Affiliates concerning (i) the possible acquisition or sale of the Company or of
substantially all of its stock or assets, including its technology; or (ii) an
agreement to loan One Million Dollars ($1,000,000) or more to the Company or
similar financing arrangement. If the Company breaches this provision, the
Company shall pay Purchaser, as liquidated damages, the sum of Two Million
Dollars ($2,000,000) without the necessity of proof by the Company of actual
damages (the "Liquidated Damages Amount"). The parties acknowledge that the
Liquidated Damages Amount is a fair and reasonable measure of the damages that
the Purchaser would sustain as a result of the breach of this provision, and
that the amount of actual damages in the event of such breach would be
impossible to ascertain. The parties acknowledge and agree that, in addition to
all other remedies available (at law or otherwise) to Purchaser, Purchaser shall
be entitled to equitable relief (including injunction and specific performance)
as a remedy for any breach or threatened breach of this provision.
8.3 Standstill. For a period of two years after the Closing, the Company
and the Purchaser shall not and shall cause their Affiliates to refrain from,
directly or indirectly, alone or in concert with others, acquiring, offering to
acquire (by purchase, gift or otherwise) or selling short the securities of the
other party hereto, or otherwise in any manner seeking to depress the price of
the securities of the other party hereto through trading in the securities of
such party or derivatives of such securities.
8.4 Transactions with Affiliates. The Company and each Subsidiary will not,
directly or indirectly, pay any funds to or for the account of, make any
investment in (whether by acquisition of stock or indebtedness, by loan,
advance, transfer of property, guarantee or other agreement to pay, purchase or
service, directly or indirectly, any Debt, or otherwise), lease, sell, transfer
or otherwise dispose of any assets, tangible or intangible, to, or participate
in, or effect any transaction in
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connection with any joint enterprise or other joint arrangement with, any
Affiliate, except, (i) pursuant to those agreements specifically identified on
Schedule 8.4 attached hereto (with a copy of such agreements annexed to such
Schedule 8.4) (ii) on terms to the Company or such Subsidiary no less favorable
than terms that could be obtained by the Company or such Subsidiary from a
Person that is not an Affiliate of the Company upon negotiation at arms' length,
as determined in good faith by the Board of Directors of the Company or (iii)
with and among the Company and its Subsidiaries; PROVIDED that no determination
of the Board of Directors shall be required with respect to any such
transactions entered into in the ordinary course of business.
8.5 Merger or Consolidation. The Company will not, in a single transaction
or a series of related transactions, (i) consolidate with or merge with or into
any other Person, or (ii) permit any other Person to consolidate with or merge
into it, unless (w) either (A) the Company shall be the survivor of such merger
or consolidation or (B) the surviving Person shall expressly assume by
supplemental agreement all of the obligations of the Company under the
Securities and this Agreement; (x) immediately before and immediately after
giving effect to such transaction (including any indebtedness incurred or
anticipated to be incurred in connection with the transaction), no Default or
Event of Default shall have occurred and be continuing; (y) if the Company is
not the surviving entity, such surviving entity's common shares shall be listed
on either The New York Stock Exchange, American Stock Exchange, or the Nasdaq
Stock Market's National Market or the Nasdaq Small Cap Market and (z) the
Company has delivered to the Purchaser an officers' certificate stating that
such consolidation, merger or transfer complies with this Agreement, that the
surviving Person agrees to be bound by all of the agreements and covenants set
forth in the Transaction Agreements as if such surviving Person is the Company,
and that all conditions precedent in this Agreement relating to such transaction
have been satisfied.
8.6 Restrictions on Certain Amendments. Neither the Company nor any
Subsidiary will waive any provision of, amend, or suffer to be amended, any
provision of such entity's existing indebtedness, any Company Corporate Document
or Subsidiary Corporate Document if such amendment, in the Company's reasonable
judgment, would materially adversely affect the Purchaser without the prior
written consent of the Purchaser, which such consent shall not be unreasonably
withheld.
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8.7 Limitation on Asset Sales. Neither the Company nor any Subsidiary will
consummate an Asset Sale unless (a) it receives consideration in cash at the
time of such Asset Sale at least equal to the fair market value of the assets
sold or otherwise disposed of (as determined in good faith by the Company's
Board of Directors) and (b) the Net Cash Proceeds of such sale are used either
(i) to purchase similar assets in the same line of business of equivalent value
within twelve (12) months of the date of the Asset Sale or (ii) to immediately
redeem or prepay the Convertible Note or (iii) for a combination of purchases
and prepayment permitted by the foregoing clauses (i) and (ii). As used herein,
"Asset Sale" means any sale, lease, transfer or other disposition (or series of
related sales, leases, transfers or dispositions) of shares of capital stock of
a Subsidiary (other than directors' qualifying shares), property or other assets
(each referred to for the purposes of this definition as a "disposition"),
including any disposition by means of a merger, consolidation or similar
transaction (other than as permitted under Section 8.5), other than a
disposition of property or assets in the ordinary course of business.
8.8 Limitation on Subsidiaries. Neither the Company nor any Subsidiary
shall permit the creation of any Subsidiaries in which the Company, directly or
indirectly, does not own at least a majority of the outstanding equity
interests, unless approved by the Purchaser, which such consent shall not be
unreasonably withheld.
8.9 Limitation on Stock Repurchases. So long as the Convertible Note is
outstanding, the Company shall not, without the prior written consent of the
Purchaser, redeem, repurchase or otherwise acquire (whether for cash or in
exchange for property or other securities or otherwise) in any rolling twelve
(12) month period more than five percent (5%) of the shares of capital stock of
the Company or any warrants, rights or options to purchase or acquire any such
shares held by persons others than the Purchaser.
9. LIMITATION ON TRANSFERS
9.1 Restrictions on Transfer. From and after their respective dates of
issuance, none of the Securities shall be transferable except upon the
conditions specified in this Section 9, which conditions are intended to ensure
compliance with the provisions of the Securities Act in respect of the Transfer
of any of such Securities or any interest therein. Purchaser will use its best
efforts to cause any proposed transferee of any Securities held by it to agree
to take and hold such Securities subject to the provisions and upon the
conditions specified in this Section 9.
9.2 Restrictive Legends.
(a) Each certificate for Securities issued to Purchaser or to a
subsequent transferee shall (except as contemplated by Section 7.12 and Section
9.1 hereof) include a legend in substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING SUCH
SECURITIES, AGREES FOR THE BENEFIT OF THE CORPORATION THAT
SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
ONLY (A) TO THE CORPORATION, (B) PURSUANT TO THE EXEMPTION
FROM REGISTRATION UNDER
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THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER, IF
AVAILABLE, OR (C) IF REGISTERED UNDER THE SECURITIES ACT.
9.3 Notice of Proposed Transfers. Prior to any proposed Transfer of the
Securities other than a transfer (i) registered under the Securities Act, (ii)
to an affiliate of Purchaser which is an "accredited investor" within the
meaning of Rule 501(a) under the Securities Act, PROVIDED that any such
transferee shall agree to be bound by the terms of this Agreement, and (iii) to
be made in reliance on Rule 144 under the Securities Act, the holder thereof
shall give written notice to the Company of such holder's intention to effect
such Transfer, setting forth the manner and circumstances of the proposed
Transfer, which shall be accompanied by (A) an opinion of counsel to the
Company, confirming that such transfer does not give rise to a violation of the
Securities Act, (B) representation letters in form and substance reasonably
satisfactory to the Company to ensure compliance with the provisions of the
Securities Act and (C) letters in form and substance reasonably satisfactory to
the Company from each such transferee stating such transferee's agreement to be
bound by the terms of this Agreement and the Registration Rights Agreement. Such
proposed Transfer may be effected only if the Company shall have received such
notice of transfer, opinion of counsel, representation letters and other letters
referred to in the immediately preceding sentence, whereupon the holder of such
Securities shall be entitled to Transfer such Securities in accordance with the
terms of the notice delivered by the holder to the Company.
10. ADDITIONAL AGREEMENTS AMONG THE PARTIES
10.1 Liquidated Damages.
(a) The Company shall, and shall use its best efforts to cause its
transfer agent to, issue and deliver shares of Common Stock within five (5)
trading days of delivery of a properly completed Notice of Conversion or Notice
of Exercise, as applicable (the "Deadline") to the Purchaser (or any party
receiving Securities by Transfer from Purchaser) at the address of the Purchaser
set forth in the Notice of Conversion or Notice of Exercise, as the case may be.
Consistent with Section 7.12 hereof, if such Notice of Conversion or Notice of
Exercise, as applicable, is delivered while a Required Registration Statement is
effective, such certificates shall be delivered without restrictive legend if
such shares are being transferred pursuant to such Required Registration
Statement. The Company understands that a delay in the issuance of such
certificates after the Deadline could result in economic loss to the Purchaser.
(b) Without in any way limiting the Purchaser's right to pursue
other remedies, including actual damages and/or equitable relief, the Company
agrees that if delivery of the Conversion Shares or Warrant Shares following
delivery of a properly completed Notice of Conversion or Notice of Exercise is
more than one (1) Business Day after the Deadline, the Company shall pay to the
Purchaser as liquidated damages and not a penalty $1,000 per day in cash, for
each of the first two (2) days beyond the Deadline and $2,500 per day in cash
for each day thereafter that the Company fails to deliver such Common Stock.
Such cash amount shall be paid to the Purchaser by the fifth day of the month
following the month in which it has accrued or, at the option of the Purchaser
(by written notice to the Company by the first day of the month following the
month in which it has accrued).
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10.2 Conversion Notice. The Company agrees that, in addition to any other
remedies which may be available to the Purchaser, including, but not limited to,
the remedies available under Section 10.1, in the event the Company fails for
any reason (other than as a result of actions taken by Purchaser in breach of
this Agreement) to effect delivery to Purchaser of certificates as contemplated
by Section 10.1 representing the shares of Common Stock on or prior to the
Deadline after conversion of the Convertible Note, or certificates contemplated
by Section 10.1 after exercise of any Warrant, Purchaser will be entitled, if
prior to the delivery of such certificates, to revoke the Notice of Conversion
or Notice of Exercise, as applicable, by delivering a notice to such effect to
the Company whereupon the Company and the Purchaser shall each be restored to
their respective positions immediately prior to delivery of such Notice of
Conversion or Notice of Exercise.
10.3 Delivery of Source Code. Within five (5) days of the Closing Date, the
Company shall deliver to the Purchaser in escrow, the Source Code and the
Commentary (each as defined in the License Agreement) for the software programs
entitled "Dr. Chart" and "@Rx," together will all necessary codes, keys and all
similar types of access information in order to access all such Source Code and
to customize, modify, and manipulate the related software programs. The
Purchaser shall deposit materials in a secure, environmentally safe, locked
facility which is accessible only to authorized representatives of the
Purchaser. The Purchaser shall have the obligation to use its best efforts to
protect and maintain the confidentiality of the deposit materials. The Purchaser
shall not disclose, transfer, make available, or use the deposit materials and
shall not disclose the contents of the deposit material to any third party or to
any unauthorized personnel. Upon the occurrence of an Event of Default which
remains uncured for a period of thirty (30) days, the Company shall grant to the
Purchaser a perpetual, non-exclusive, non-transferable, limited license to use
and copy "Dr. Chart" and "@Rx", in source code form, and to create derivative
works therefrom, thirty (30) days from such Event of Default if such Event of
Default remains uncured. The Purchaser will acknowledge and agree that such
license shall not commence unless and until such Event of Default occurs and
remains uncured for a period of thirty (30) days, and the Purchaser shall have
no right to use any source code unless and until the occurrence and continuance
of such Event of Default.
10.4 Registration Rights; Additional Registration Statements.
(a) The Company shall grant the Purchaser registration rights
covering the Conversion Shares and Warrant Shares (the "Registrable Securities")
on the terms set forth in the Registration Rights Agreement.
(b) At any time during the period ending on the first date that
follows a total of 90 days following the effectiveness of a Required
Registration Statement during which there has been no (i) Registration Default
relating to such Required Registration Statement or (ii) any other delay in the
ability of the Purchaser to sell the Common Stock pursuant to such Required
Registration Statement, the Company agrees that it will not cause any
registration statement (other than a Required Registration Statement or an
Issuer Registration Statement) to be declared effective by the SEC.
(c) At any time during the period beginning on the date Purchaser
demands registration pursuant to the Registration Rights Agreement and ending on
the date of the effectiveness of a Required Registration Statement filed
pursuant to such demand, the Company
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agrees that it will not file any registration statement (other a Required
Registration Statement or an Issuer Registration Statement) without the written
consent of the Purchaser.
(d) A "Registration Default" shall have occurred if
(i) a registration statement on which the Registrable
Securities are listed pursuant to the Registration Rights Agreement (a "Required
Registration Statement") is not declared effective by the SEC within 120 days of
the filing thereof (the "Required Effectiveness Date"); or
(ii) such effectiveness is not maintained for a continuous
period of at least 90 days (the "Registration Maintenance Period"), and provided
the Purchaser has not unreasonably delayed providing any information concerning
the Purchaser as selling shareholder as may be reasonably requested by the
Company for inclusion in such Required Registration Statement; or
(iii) the Company has filed or caused to be declared effective
a registration statement (other than a Required Registration Statement or an
Issuer Registration Statement) in breach of Sections 10.4(b) or (c).
11. ADJUSTMENT OF FIXED PRICE
11.1 Reorganization. The Conversion Price, and the Maximum Number of Shares
(collectively, the "Fixed Prices") shall be adjusted as hereafter provided.
11.2 Share Reorganization. If and whenever the Company shall subdivide the
outstanding shares of Common Stock into a greater number of shares, consolidate
the outstanding shares of Common Stock into a smaller number of shares, issue
Common Stock or securities convertible into or exchangeable for shares of Common
Stock as a stock dividend to all or substantially all the holders of Common
Stock, or make a distribution on the outstanding Common Stock to all or
substantially all the holders of Common Stock payable in Common Stock or
securities convertible into or exchangeable for Common Stock, any of such events
being herein called a "Share Reorganization," then in each such case the
applicable Fixed Price shall be adjusted, effective immediately after the record
date at which the holders of Common Stock are determined for the purposes of the
Share Reorganization or, if no record date is fixed, the effective date of the
Share Reorganization, by multiplying the applicable Fixed Price in effect on
such record or effective date, as the case may be, by a fraction of which:
(a) the numerator shall be the number of shares of Common Stock
outstanding on such record or effective date (without giving effect to the
transaction); and
(b) the denominator shall be the number of shares of Common Stock
outstanding after giving effect to such Share Reorganization, including, in the
case of a distribution of securities convertible into or exchangeable for shares
of Common Stock, the number of shares of Common Stock that would have been
outstanding if such securities had been converted into or exchanged for Common
Stock on such record or effective date.
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11.3 Rights Offering. If and whenever the Company shall issue to all or
substantially all the holders of Common Stock, rights, options or warrants under
which such holders are entitled, during a period expiring not more than
forty-five (45) days after the record date of such issue, to subscribe for or
purchase Common Stock (or Derivative Securities), at a price per share (or, in
the case of Derivative Securities, at an exchange or conversion price per share
at the date of issue of such securities) of less than 95% of the Market Price of
the Common Stock on such record date (any such event being herein called a
"Rights Offering"), then in each such case the applicable Fixed Price shall be
adjusted, effective immediately after the record date at which holders of Common
Stock are determined for the purposes of the Rights Offering, by multiplying the
applicable Fixed Price in effect on such record date by a fraction of which:
(a) the numerator shall be the sum of the number of shares of Common
Stock outstanding on such record date, and a number obtained by dividing:
(i) either, (x) the product of the total number of shares of
Common Stock so offered for subscription or purchase and the price at which such
shares are so offered, or (y) the product of the maximum number of shares of
Common Stock into or for which the convertible or exchangeable securities so
offered for subscription or purchase may be converted or exchanged and the
conversion or exchange price of such securities, or, as the case may be, by
(ii) the Market Price of the Common Stock on such record date;
and
(b) the denominator shall be the sum of the number of shares of
Common Stock outstanding on such record date, and the number of shares of Common
Stock so offered for subscription or purchase (or, in the case of Derivative
Securities), the maximum number of shares of Common Stock for or into which the
securities so offered for subscription or purchase may be converted or
exchanged).
To the extent that such rights, options or warrants are not exercised prior to
the expiry time thereof, the applicable Fixed Price shall be readjusted
effective immediately after such expiry time to the applicable Fixed Price which
would then have been in effect upon the number of shares of Common Stock (or
Derivative Securities) actually delivered upon the exercise of such rights,
options or warrants.
11.4 Special Distribution. If and whenever the Company shall issue or
distribute to all or substantially all the holders of Common Stock shares of the
Company of any class, other than Common Stock, rights, options or warrants, or
any other assets (excluding cash dividends and equivalent dividends in shares
paid in lieu of cash dividends in the ordinary course); and if such issuance or
distribution does not constitute a Share Reorganization or a Rights Offering
(any such event being herein called a "Special Distribution"), then in each such
case the applicable Fixed Price shall be adjusted, effective immediately after
the record date at which the holders of Common Stock are determined for purposes
of the Special Distribution, by multiplying the applicable Fixed Price in effect
on such record date by a fraction of which:
(a) the numerator shall be the difference between (i) the product of
the number of shares of Common Stock outstanding on such record date and the
Market Price of the Common
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Stock on such date; and (ii) the fair market value, as determined by the
Directors (whose determination shall be conclusive), to the holders of Common
Stock of the shares, rights, options, warrants, evidences of indebtedness or
other assets issued or distributed in the Special Distribution (net of any
consideration paid therefor by the holders of Common Stock), and
(b) the denominator shall be the product of the number of shares of
Common Stock outstanding on such record date and the Market Price of the Common
Stock on such date.
11.5 Capital Reorganization. If and whenever there shall occur a
reclassification or redesignation of the shares of Common Stock or any change of
the shares of Common Stock into other shares, other than in a Share
Reorganization, a consolidation, merger or amalgamation of the Company with, or
into another body corporate, or the transfer of all or substantially all of the
assets of the Company to another body corporate, (any such event being herein
called a "Capital Reorganization"), then in each such case the holder who
exercises the right to convert Convertible Note or exercise the Warrants after
the effective date of such Capital Reorganization shall be entitled to receive
and shall accept, upon the exercise of such right, in lieu of the number of
shares of Common Stock to which such holder was theretofore entitled upon the
exercise of the conversion privilege, the aggregate number of shares or other
securities or property of the Company or of the body corporate resulting from
such Capital Reorganization that such holder would have been entitled to receive
as a result of such Capital Reorganization if, on the effective date thereof,
such holders had been the holder of the number of shares of Common Stock to
which such holder was theretofore entitled upon conversion of the Convertible
Note; PROVIDED, however, that no such Capital Reorganization shall be
consummated in effect unless all necessary steps shall have been taken so that
the holder of the Convertible Note shall thereafter be entitled to receive such
number of shares or other securities of the Company or of the body corporate
resulting from such Capital Reorganization, subject to adjustment thereafter in
accordance with provisions the same, as nearly as may be possible, as those
contained above.
11.6 Adjustment Rules. The following rules and procedures shall be
applicable to adjustments made in this Section 11:
(a) no adjustment in the applicable Fixed Price shall be required
unless such adjustment would result in a change of at least 1% in the applicable
Fixed Price then in effect; PROVIDED, however, that any adjustments which, but
for the provisions of this clause would otherwise have been required to be made,
shall be carried forward and taken into account in any subsequent adjustment;
(b) no adjustment in the applicable Fixed Price shall be made
pursuant to this Article 11 in respect of the issue from time to time of Common
Stock to holders of Common Stock who exercise an option to receive substantially
equivalent dividends in Common Stock in lieu of receiving cash dividends in the
ordinary course; and
(c) if a dispute shall at any time arise with respect to any
adjustment of the applicable Fixed Price, such dispute shall be conclusively
determined by the auditors of the Company or, if they are unable or unwilling to
act, by a firm of independent chartered accountants selected by the
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<PAGE> 37
Directors of the Company and any such determination shall be binding upon the
Company and Purchaser.
11.7 Certificate as to Adjustment. The Company shall from time to time
promptly after the occurrence of any event which requires an adjustment in the
applicable Fixed Price deliver to the Purchaser a certificate specifying the
nature of the event requiring the adjustment, the amount of the adjustment
necessitated thereby, the applicable Fixed Price after giving effect to such
adjustment and setting forth, in reasonable detail, the method of calculation
and the facts upon which such calculation is based.
11.8 Notice to Purchaser. If the Company shall fix a record date for: any
Share Reorganization (other than the subdivision of outstanding Common Stock
into a greater number of shares or the consolidation of outstanding Common Stock
into a smaller number of shares), any Rights Offering, any Special Distribution,
any Capital Reorganization (other than a reclassification or redesignation of
the Common Stock into other shares), or any cash dividend, the Company shall,
not less than 10 days prior to such record date or, if no record date is fixed,
prior to the effective date of such event, give to the Purchaser notice of the
particulars of the proposed event or the extent that such particulars have been
determined at the time of giving the notice.
12. EVENTS OF DEFAULT
12.1 Events of Default. Each of the following events is an "Event of
Default" under this Agreement and the Transaction Agreements:
(a) failure by the Company to pay or prepay when due, all or any
part of the principal on the Convertible Note (whether by virtue of the
agreements specified in this Agreement or the Convertible Note) and the
continuance of such failure for thirty (30) days);
(b) failure by the Company or any of its Subsidiaries to pay or
prepay when due, all or any part of the principal on the Permitted Debt and the
continuance of such failure for thirty (30) days);
(c) failure by the Company to pay (i) within thirty (30) days of the
due date thereof any interest on the Convertible Note or (ii) within thirty (30)
days following the delivery of notice to the Company of any fees or any other
amount payable (not otherwise referred to in (a) above or this clause (b)) by
the Company under this Agreement;
(d) failure by the Company to timely comply with the requirements of
Section 10.1(a) or (b) hereof, which failure is not cured within thirty (30)
days of such failure;
(e) an event of default or breach shall have occurred and continued
for thirty (30) days after notice from the Purchaser under any Transaction
Agreement;
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<PAGE> 38
(f) failure on the part of the Company or any of its Subsidiaries to
observe or perform any covenant contained in any part of Sections 7 or 8 of this
Agreement and continuation of such default for thirty (30) days after notice;
(g) the Company shall have its Common Stock delisted or suspended
from the Nasdaq Market for at least fifteen (15) consecutive Trading Days and is
unable to obtain a listing on either the New York Stock Exchange, the American
Stock Exchange, the Nasdaq Stock Market's SmallCap Market or the Nasdaq Market
within such fifteen (15) Trading Days;
(h) the Company or any of its Subsidiaries has commenced a voluntary
case or other proceeding seeking liquidation, winding-up, reorganization or
other relief with respect to itself or its debts under any bankruptcy,
insolvency, moratorium or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, or has consented
to any such relief or to the appointment of or taking possession by any such
official in an involuntary case or other proceeding commenced against it, or has
made a general assignment for the benefit of creditors;
(i) an involuntary case or other proceeding has been commenced
against the Company or any of its Subsidiaries seeking liquidation, winding-up,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency, moratorium or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator, custodian
or other similar official of it or any substantial part of its property, and
such involuntary case or other proceeding shall remain undismissed and unstayed
for a period of sixty (60) days, or an order for relief has been entered against
the Company under the federal bankruptcy laws as now or hereafter in effect;
(j) any representation, warranty, certification or statement made by
the Company or any of its Subsidiaries in any Transaction Agreement or which is
contained in any certificate, document or financial or other statement furnished
at any time under or in connection with any Transaction Agreement shall prove to
have been untrue in any material respect when made and such breach shall
continue for thirty (30) days after notice; or
(k) any member of the ERISA Group has failed to pay when due an
amount or amounts aggregating in excess of $100,000 which it shall have become
liable to pay under Title IV of ERISA; or notice of intent to terminate a
Material Plan has been filed under Title IV of ERISA by any member of the ERISA
Group, any plan administrator or any combination of the foregoing; or the PBGC
has instituted proceedings under Title IV of ERISA to terminate, to impose
liability (other than for premiums under Section 4007 of ERISA) in respect of,
or to cause a trustee to be appointed to administer any Material Plan; or a
condition has existed by reason of which the PBGC is entitled to obtain a decree
adjudicating that any Material Plan must be terminated; or there has occurred a
complete or partial withdrawal from, or a default, within the meaning of Section
4219(c) (5) of ERISA, with respect to, one or more Multiemployer Plans which
could cause one or more members of the ERISA Group to incur a current payment
obligation in excess of $100,000;
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<PAGE> 39
12.2 Default Remedies. If one or more of the above Events of Default shall
have occurred and be continuing, then, and in every such occurrence, the
Purchaser shall have the right to, by notice to the Company:
(a) declare the Convertible Note to be, and the Convertible Note
shall thereon become immediately due and payable, PROVIDED that in the case of
any of the Events of Default specified in paragraph (h) or (i) above with
respect the Company or any Subsidiary, then, without any notice to the Company
or any other act by any Purchaser, the entire amount of the Convertible Note
shall become immediately due and payable;
(b) convert the Convertible Note at fifty percent (50%) of the
Conversion Price;
(c) exercise its rights under the Security Agreement; and
(d) exercise its rights under the License Agreement, including the
extension of the term of the License Agreement to a perpetual license and the
release of the Purchaser of its obligation to make any payments to the Company
pursuant thereto;
PROVIDED further, if any Event of Default has occurred and is continuing, and
irrespective of whether the Convertible Note has been declared immediately due
and payable hereunder, any Purchaser may proceed to protect and enforce the
rights of Purchaser by an action at law, suit in equity or other appropriate
proceeding, whether for the specific performance of any agreement contained
herein or in the Convertible Note, or for an injunction against a violation of
any of the terms hereof or thereof, or in aid of the exercise of any power
granted hereby or thereby or by law or otherwise.
12.3 Powers and Remedies Cumulative. No right or remedy herein conferred
upon or reserved to the Purchaser is intended to be exclusive of any other right
or remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
Every power and remedy given by the Convertible Note or by law may be exercised
from time to time, and as often as shall be deemed expedient, by the Purchaser.
13. MISCELLANEOUS
13.1 Notices. All notices, demands and other communications to any party
hereunder shall be in writing (including telecopier or similar writing) and
shall be given to such party at the address set forth below, or such other
address as such party may hereafter specify for the purpose to the other
parties. Each such notice, demand or other communication shall be effective (i)
if given by telecopy, when such telecopy is transmitted to the telecopy number
specified below, (ii) if given by mail, four (4) days after such communication
is deposited in the mail with first class postage prepaid, addressed as
aforesaid or (iii) if given by any other means, when delivered at the address
specified in or pursuant to this Section.
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<PAGE> 40
If to Company: AHT Corporation
555 White Plains Road
Tarrytown, NY 10591
Telecopy: (914) 332-1741
Attn: Jonathan Edelson, Chairman and
Chief Executive Officer
Eddy Friedfeld, General Counsel
with a copy to: John Suydam
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, NY 10112
Telecopy: (212) 728-5950
If to Purchaser: Cybear, Inc.
5000 Blue Lake Drive, Suite 200
Boca Raton, FL 33431
Telecopy: (561) 994-2828
Attn: Timothy E. Nolan, President and
Chief Operating Officer
with a copy to: Charles J. Rennert
Berman Wolfe Rennert Vogel & Mandler, P.A.
Bank of America Tower
100 Southeast 2nd Street, Suite 3500
Miami, FL 33131
Telecopy: 305-373-6036
13.2 No Waivers; Amendments. No failure or delay on the part of any party in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. No provision of this Agreement may be amended,
supplemented or waived unless such amendment, supplement or waiver is in writing
and is signed by the Company and the Purchaser.
13.3 Indemnification.
(a) The Company agrees to indemnify and hold harmless the Purchaser,
its Affiliates, and each Person, if any, who controls Purchaser, or any of its
Affiliates, within the meaning of the Securities Act or the Exchange Act (each a
"Controlling Person"), and the respective partners, agents, employees, officers
and directors of Purchaser, its Affiliates and any such Controlling Person (each
an "Indemnified Party" and collectively, the "Indemnified Parties"), from and
against any and all losses, claims, damages, liabilities and expenses
(including, without limitation, and as incurred, reasonable costs of
investigating, preparing or defending any such claim or action, whether or not
such Indemnified Party is a party thereto, PROVIDED that the Company shall not
be obligated to advance such costs to any Indemnified Party other than the
Purchaser unless it has received from such Indemnified Party an undertaking to
repay to the Company the costs so advanced if it should be determined by final
judgment of a court of competent jurisdiction that such Indemnified Party was
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<PAGE> 41
not entitled to indemnification hereunder with respect to such costs) which may
be incurred by such Indemnified Party in connection with any investigative,
administrative or judicial proceeding brought or threatened that relates to or
arises out of, or is in connection with any activities contemplated by any
Transaction Agreement or any other services rendered in connection herewith;
PROVIDED that the Company will not be responsible for any claims, liabilities
losses, damages or expenses that are determined by final judgment of a court of
competent jurisdiction to result from such Indemnified Party's gross negligence,
willful misconduct or bad faith.
(b) If any action shall be brought against an Indemnified Party with
respect to which indemnity may be sought against the Company under this
Agreement, such Indemnified Party shall promptly notify the Company in writing
and the Company, at its option, may, assume the defense thereof, including the
employment of counsel reasonably satisfactory to such Indemnified Party and
payment of all reasonable fees and expenses. The failure to so notify the
Company shall not affect any obligations the Company may have to such
Indemnified Party under this Agreement or otherwise unless the Company is
materially adversely affected by such failure. Such Indemnified Party shall have
the right to employ separate counsel in such action and participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Party, unless: (i) the Company has failed to assume
the defense and employ counsel or (ii) the named parties to any such action
(including any impleaded parties) include such Indemnified Party and the
Company, and such Indemnified Party shall have been advised by counsel that
there may be one or more legal defenses available to it which are different from
or additional to those available to the Company, in which case, if such
Indemnified Party notifies the Company in writing that it elects to employ
separate counsel at the expense of the Company, the Company shall not have the
right to assume the defense of such action or proceeding on behalf of such
Indemnified Party, PROVIDED, however, that the Company shall not, in connection
with any one such action or proceeding or separate but substantially similar or
related actions or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be responsible hereunder for the
reasonable fees and expenses of more than one such firm of separate counsel, in
addition to any local counsel, which counsel shall be designated by the
Purchaser. The Company shall not be liable for any settlement of any such action
effected without the written consent of the Company (which shall not be
unreasonably withheld) and the Company agrees to indemnify and hold harmless
each Indemnified Party from and against any loss or liability by reason of
settlement of any action effected with the consent of the Company. In addition,
the Company will not, without the prior written consent of the Purchaser, settle
or compromise or consent to the entry of any judgment in or otherwise seek to
terminate any pending or threatened action, claim, suit or proceeding in respect
to which indemnification or contribution may be sought hereunder (whether or not
any Indemnified Party is a party thereto) unless such settlement, compromise,
consent or termination includes an express unconditional release of the
Purchaser and the other Indemnified Parties, satisfactory in form and substance
to the Purchaser, from all liability arising out of such action, claim, suit or
proceeding.
(c) If for any reason the foregoing indemnity is unavailable
(otherwise than pursuant to the express terms of such indemnity) to an
Indemnified Party or insufficient to hold an Indemnified Party harmless, then in
lieu of indemnifying such Indemnified Party, the Company shall contribute to the
amount paid or payable by such Indemnified Party as a result of such claims,
liabilities, losses, damages, or expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and by the Purchaser on the other from the
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<PAGE> 42
transactions contemplated by this Agreement or (ii) if the allocation provided
by clause (i) is not permitted under applicable law, in such proportion as is
appropriate to reflect not only the relative benefits received by the Company on
the one hand and the Purchaser on the other, but also the relative fault of the
Company and the Purchaser as well as any other relevant equitable
considerations. Notwithstanding the provisions of this Section 13.3, the
aggregate contribution of all Indemnified Parties shall not exceed the amount of
interest and fees actually received by the Purchaser pursuant to this Agreement.
It is hereby further agreed that the relative benefits to the Company on the one
hand and the Purchaser on the other with respect to the transactions
contemplated hereby shall be determined by reference to, among other things,
whether any untrue or alleged untrue statement of material fact or the omission
or alleged omission to state a material fact related to information supplied by
the Company or by the Purchaser and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation
(d) The indemnification, contribution and expense reimbursement
obligations set forth in this Section 13.3: (i) shall be in addition to any
liability the Company may have to any Indemnified Party at common law or
otherwise, (ii) shall survive the termination of this Agreement and the other
Transaction Agreements and the payment in full of the Convertible Note and (iii)
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Purchaser or any other Indemnified
Party.
13.4 Expenses: Documentary Taxes. The Company agrees to pay (i) all
reasonable out-of-pocket expenses of the Purchaser, including fees and
disbursements of counsel, in connection with any waiver or consent hereunder or
under any other Transaction Document or any amendment hereof or thereof and (ii)
all reasonable out-of-pocket expenses of the Purchaser and each holder of
Securities, including fees and disbursements of counsel, in connection with any
collection, bankruptcy, insolvency and other enforcement proceedings resulting
therefrom. In addition, the Company agrees to pay any and all stamp, transfer
and other similar taxes, assessments or charges payable in connection with the
execution and delivery of any Transaction Agreement or the issuance of the
Securities to the Purchaser, excluding its assigns.
13.5 Payment. The Company agrees that, so long as Purchaser shall own the
Convertible Note purchased by it from the Company hereunder, the Company will
make payments to Purchaser of all amounts due thereon by wire transfer by 1:00
P.M. (Eastern Standard Time) on the date of payment.
13.6 Usury. It is the intention of the parties to comply with all applicable
usury laws. Accordingly, it is agreed that notwithstanding any provision to the
contrary in the Transaction Agreements, in no event shall the Transaction
Agreements require the payment or permit the collection of interest in excess of
the maximum amount permitted by such laws. If any such excess of interest is
contracted for, charged or received under the Transaction Agreements, or in the
event the maturity of the indebtedness evidenced by such Transaction Agreements
is accelerated in whole or in part, so that under any such circumstance, the
amount of interest contracted for, charged or received shall exceed the maximum
amount of interest permitted by
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the applicable usury laws, then in any such event (a) the provisions of this
paragraph shall govern or control, (b) neither the Company nor any other person
or entity now or hereafter liable for repayment of the Convertible Note shall be
obligated to pay the amount of such interest not permitted by the applicable
usury laws, (c) any such excess which may have been collected shall be refunded
to the Company and (d) the effective rate of interest for the Convertible Note
shall be automatically reduced to the maximum lawful rate allowed under
applicable usury laws.
13.7 Successors and Assigns. This Agreement, the Schedules and Exhibits
hereto, and the documents and instruments and other agreements among the parties
hereto referenced herein: (a) constitute the entire agreement among the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof; (b) shall be binding upon the Company and upon the
Purchaser and its successors and assigns; (c) are not intended to confer upon
any other person any rights or remedies hereunder; and (d) shall not be assigned
by operation of law or otherwise except as otherwise specifically provided,
except that Purchaser may assign its rights and delegate its respective
obligations hereunder and thereunder to Andrx Corporation or another of its
Affiliates. All provisions hereunder purporting to give rights to Purchaser and
its affiliates or to holders of Securities are for the express benefit of such
Persons and their successors and assigns.
13.8 Brokers. The Company represents and warrants that it has not employed
any broker, finder, financial advisor or investment banker who would be entitled
to any brokerage, finder's or other fee or commission payable by the Company or
the Purchaser in connection with the sale of the Securities. Purchaser hereby
warrants that it has not employed any broker, finder, financial advisor or
investment banker who would be entitled to any brokerage, finder's or other fee
or commission payable by the Company in connection with the sale of the
Securities.
13.9 CHOICE OF LAW. THIS AGREEMENT AND ALL CLAIMS ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR ANY TRANSACTION AGREEMENT, WHETHER ASSERTED IN CONTRACT OR
TORT, SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF DELAWARE. EACH PARTY HERETO HEREBY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF THE UNITED STATES DISTRICT COURT IN THE SOUTHERN DISTRICT OF
FLORIDA AND OF ANY FLORIDA STATE COURT SITTING IN PALM BEACH COUNTY, FLORIDA FOR
PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH
A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM.
13.10 Waiver of Jury Trial. The parties hereto each knowingly, voluntarily
and intentionally waive their respective rights to a trial by jury in respect of
any litigation related to or arising from this Agreement, or any course of
conduct, course of dealing, statement or actions of any of the parties hereto.
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<PAGE> 44
13.11 Further Assurance. The Company and the Purchaser shall each take such
further actions as requested by any party hereto which are necessary, desirable
or proper to carry out the purposes of this Agreement and each Transaction
Agreement.
13.12 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated unless a failure of consideration
would result thereby.
13.13 Survival. All provisions contained in this Agreement (unless
specifically noted to the contrary) shall survive the payment in full of the
Convertible Note and shall remain operative and in full force and effect.
13.14 Counterparts. This Agreement may be executed by telecopy signature and
in any number of counterparts each of which shall be an original with the same
effect as if the signatures there to and hereto were upon the same instrument.
[signatures on following page]
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<PAGE> 45
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers, as of the date first
above written.
AHT CORPORATION CYBEAR, INC.
By: /s/ Jonathan Edelson By: /s/ Eric Moscow
--------------------------- ---------------------------
Name: Jonathan Edelson Name: Eric Moskow, M.D.
Title: Chairman and Chief Executive Officer Title: Executive Vice President
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<PAGE> 46
EXHIBIT A
FORM OF 10% SENIOR SECURED CONVERTIBLE NOTE
<PAGE> 47
EXHIBIT B
FORM OF WARRANT
<PAGE> 48
EXHIBIT C
FORM OF REGISTRATION RIGHTS AGREEMENT
<PAGE> 49
EXHIBIT D
FORM OF NOTICE OF CONVERSION
The undersigned hereby irrevocably elects to convert $__________ of the
Company's 10% Senior Secured Convertible Note (the Convertible Note") into
shares of Common Stock of AHT Corporation, par value $.01 per share, according
to the conditions set forth in such Convertible Note, as of the date written
below.
If Shares are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer and other taxes and charges
payable with respect thereto.
Date of Conversion: _________, 20__
Applicable
Conversion Price: $_________ per share
Signature of Holder: ___________________________
Name:_____________________
Title: _____________________
SSN or EIN of Holder: ____________________
Address of Holder: ____________________________
____________________________
SHARES ARE TO BE REGISTERED IN THE FOLLOWING NAME:
Name: ____________________
SSN or EIN: ____________________
Address: ____________________________
____________________________
Telephone Number: (___) ___-____
Fax Number: (___) ___-____
SHARES ARE TO BE SENT OR DELIVERED TO THE FOLLOWING ACCOUNT:
Account Name: ____________________
Address: ____________________________
____________________________
<PAGE> 50
EXHIBIT E
FORM OF SECURITY AGREEMENT
<PAGE> 51
EXHIBIT F
SUBORDINATION TERMS
Any Debt to be issued as permitted by clause (e) of the definition of
Permitted Debt in the Securities Purchase Agreement shall contain the following
provisions and no provision inconsistent with the following provisions:
ARTICLE __ -- SUBORDINATION
1. AGREEMENT OF SUBORDINATION. The Company covenants and agrees, and each
holder of the indebtedness created by this instrument (this "Debt") by its
acceptance hereof or thereof covenants and agrees, expressly for the benefit of
holders of Senior Debt, that this Debt shall be issued subject to the provisions
of this Article; and each person holding this Debt, whether upon original issue
or upon transfer, assignment or exchange thereof, accepts and agrees to be bound
by such provisions.
The payment of the principal of, premium, if any, and interest on this Debt
(including, without limitation, upon any redemption or repurchase of this Debt)
shall, to the extent and in the manner hereinafter set forth, be subordinated
and subject in right of payment to the prior payment in full of all Senior Debt
in cash or other payment satisfactory to the holders of such Senior Debt.
No provision of this Article shall prevent the occurrence of any default or
event of default with respect to this Debt.
2. PAYMENTS TO HOLDERS OF THIS DEBT.
(a)(1) No payment shall be made with respect to the principal of, premium, if
any, or interest on this Debt (including, without limitation, the redemption
price with respect to any of this Debt to be called for redemption in accordance
with its terms or any repurchase of this Debt) if:
(i) a default in the payment of principal, premium, if any, interest or other
obligations in respect of the Senior Debt occurs and is continuing (a "Payment
Default"), unless and until such Payment Default shall have been cured or waived
or shall have ceased to exist; or
(ii) a default, other than a Payment Default, on any Senior Debt occurs and is
continuing that then permits holders of such Senior Debt to accelerate its
maturity and the holder of this Debt (or indenture trustee or other
representative thereof) receives a notice of the default (a "Payment Blockage
Notice") from a holder of Senior Debt, a representative of the holder of such
Senior Debt or the Company (a "Non-Payment Default").
If the holder of this Debt (or indenture trustee or representative thereof)
receives any Payment Blockage Notice pursuant to the immediately preceding
clause (ii), no subsequent Payment Blockage Notice shall be effective for
purposes of this Section __ unless and until (A) at least 365 days shall have
elapsed since the initial effectiveness of the immediately prior Payment
Blockage Notice and (B) all scheduled payments of principal, premium, if any,
and interest on this Debt that have become due and are required by the terms of
this Debt to be paid in cash have been paid in full in cash. No
<PAGE> 52
Non-Payment Default that existed or was continuing on the date of delivery of
any Payment Blockage Notice to the holder of this Debt (or indenture trustee or
other representative thereof) shall be, or be made, the basis for a subsequent
Payment Blockage Notice, unless such Non-Payment Default is based upon facts or
events arising after the date of delivery of such Payment Blockage Notice.
(2) The Company may and shall resume payments on and distributions in respect of
this Debt upon: (A) in the case of a Payment Default, the date upon which any
such Payment Default is cured or waived or ceases to exist, or (B) in the case
of a Non-Payment Default, the earlier of (a) the date upon which such default is
cured or waived or ceases to exist or (b) 179 days after the applicable Payment
Blockage Notice is received by the holder of this Debt (or indenture trustee or
other representative thereof) if the maturity of such Senior Debt has not been
accelerated and no Payment Default with respect to any Senior Debt has occurred
which has not been cured or waived (in which case clause (A) shall be
applicable), unless this Section __ otherwise prohibits the payment or
distribution at the time of such payment or distribution.
(b) A "Reorganization" shall include and mean any dissolution, winding up, total
or partial liquidation or reorganization of the Company, or any similar
transaction resulting in any payment or distribution of cash, securities or
other property ("Distributions") to creditors, whether voluntary or involuntary
or in bankruptcy, insolvency, receivership or other proceedings.
(c) Upon any Reorganization, all amounts due or to become due upon all Senior
Debt shall first be paid in full in cash or other payment satisfactory to the
holders of such Senior Debt, or payment thereof provided for in cash or other
payment satisfactory to the holders of such Senior Debt, before any Distribution
is made to, for, or on account of this Debt or any portion thereof (including,
without limitation, any Distribution in connection with a payment of principal,
interest or premium or the redemption or repurchase of all or any portion of
this Debt) (other than Distributions in the form of junior securities as defined
in Section 7).
(d) Upon any Reorganization, all Distributions (other than Distributions in the
form of Junior Securities) on account of this Debt shall be made by the Company
or by any receiver, trustee in bankruptcy, liquidating trustee, agent, assignee
for the benefit of creditors or other person making such Distribution directly
to the holders of Senior Debt (pro rata to such holders on the basis of the
respective amounts of Senior Debt held by such holders, or as otherwise required
by law or a court order or the terms of any subordination as between or among
such Senior Debt) or their respective representative or representatives, as
their respective interests may appear, to the extent necessary to pay all Senior
Debt in full in cash or other payment satisfactory to the holders of such Senior
Debt, after giving effect to any concurrent payment or distribution to or for
the holders of Senior Debt, before any Distribution is made on account of this
Debt.
(e) In the event that, notwithstanding the foregoing, a Distribution (other than
a Distribution in the form of Junior Securities) on account of this Debt is
received by a holder thereof (or indenture trustee or other representative
thereof) from the Company (including, without limitation, by way of set-off) or
from the holder (or indenture trustee or other representative thereof) of any
indebtedness subordinated to this Debt, such Distribution shall be held by the
recipient or recipients thereof in trust for the benefit of, and shall be paid
over or delivered to, the holders of Senior Debt, or their
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<PAGE> 53
respective representative or representatives, in the same manner and fashion as
the Company is obligated to make the same under paragraphs (d) and (e) above.
(f) In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities (including, without limitation, by way of set-off or
otherwise), prohibited by the foregoing, shall be received by any holder of this
Debt (or indenture trustee or other representative thereof) before all Senior
Debt is paid in full in cash or other payment satisfactory to the holders of
such Senior Debt, or provision is made for such payment in accordance with its
terms in cash or other payment satisfactory to the holders of such Senior Debt,
such payment or distribution shall be held by the recipient or recipients in
trust for the benefit of, and shall be paid over or delivered to, the holders of
Senior Debt or their respective representative or representatives, as their
respective interests may appear, as calculated by the Company, for application
to the payment of all Senior Debt remaining unpaid to the extent necessary to
pay all Senior Debt in full in cash or other payment satisfactory to the holders
of such Senior Debt, after giving effect to any concurrent payment or
distribution (or provision therefor) to or for the holders of such Senior Debt.
(g) In the event of the acceleration of this Debt because of an event of default
or any amount of principal of or premium on this Debt becomes due prior to the
maturity date of this Debt, no payment or distribution (other than junior
securities) shall be made any holder of this Debt (or indenture trustee or other
representative thereof) in respect of the principal of, premium, if any, or
interest on this Debt (including, without limitation, any redemption or
repurchase price of any of this Debt called for redemption in accordance with
its terms or submitted for redemption or repurchase at the option of the holder
of this Debt in accordance with its terms, as the case may be), until all Senior
Debt has been paid in full in cash or other payment satisfactory to the holders
of such Senior Debt or such acceleration is rescinded in accordance with the
terms of this Debt. If payment of this Debt is accelerated because of an event
of default, the Company, the holder of this Debt (or indenture trustee or other
representative thereof) shall promptly notify holders of the Senior Debt of such
acceleration.
(h) Except as shall be specifically prohibited by this Section _, nothing
contained in this Article shall prevent the Company from making any scheduled
payment of principal or interest on this Debt.
3. SUBROGATION OF THIS DEBT. Subject to the payment in full of all Senior
Debt in cash or other payment satisfactory to the holders of such Senior Debt,
the rights of the holders of this Debt shall be subrogated to the extent of the
payments or distributions made to the holders of such Senior Debt pursuant to
the provisions of this Article (equally and ratably with the holders of all
indebtedness of the Company which by its express terms is subordinated to Senior
Debt to substantially the same extent as this Debt is subordinated and is
entitled to like rights of subrogation) to the rights of the holders of Senior
Debt to receive payments or distributions of cash, property or securities of the
Company applicable to the Senior Debt until the principal of (and premium, if
any) and interest on this Debt shall be paid in full; and, for the purposes of
such subrogation, no payments or distributions to the holders of the Senior Debt
of any cash, property or securities to which the holders of this Debt would be
entitled except for the provisions of this Article, and no payment over pursuant
to the provisions of this Article, to or for the benefit of the holders of
Senior Debt by holders of this Debt (or indenture trustee or other
representative thereof), shall, as among the Company, its creditors other
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<PAGE> 54
than holders of Senior Debt, and the holders of this Debt, be deemed to be a
payment by the Company to or on account of the Senior Debt; and no payments or
distributions of cash, property or securities to or for the benefit of the
holders of this Debt pursuant to the subrogation provisions of this Article,
which would otherwise have been paid to the holders of Senior Debt, shall be
deemed to be a payment by the Company to or for the account of this Debt.
4. PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS. It is understood that the
provisions of this Article are and are intended solely for the purposes of
defining the relative rights of the holders of this Debt, on the one hand, and
the holders of the Senior Debt, on the other hand. Nothing contained in this
Article or in the terms of this Debt is intended to or shall impair, as among
the Company, its creditors other than the holders of Senior Debt, and the
holders of this Debt, the obligation of the Company, which is absolute and
unconditional, to pay to the holders of this Debt the principal of (and premium,
if any) and interest on this Debt as and when the same shall become due and
payable in accordance with its terms, or is intended to or shall affect the
relative rights of the holders of this Debt and creditors of the Company other
than the holders of the Senior Debt, nor shall anything herein or therein
prevent any holder of this Debt from exercising all remedies otherwise permitted
by applicable law upon default under this Debt, subject to the rights, if any,
under this Article of the holders of Senior Debt in respect of cash, property or
securities of the Company received upon the exercise of any such remedy.
5. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT. Upon
any payment or distribution of assets of the Company referred to in this
Article, the holders of this Debt shall be entitled to rely upon any order or
decree made by any court of competent jurisdiction in which such insolvency,
bankruptcy, receivership, dissolution, winding-up, liquidation, reorganization
or similar case or proceeding is pending, or a certificate of the receiver,
trustee in bankruptcy, liquidating trustee, custodian, agent, assignee for the
benefit of creditors, or other person making such payment or distribution,
delivered to the holders of this Debt (or indenture trustee or other
representative thereof), for the purpose of ascertaining the persons entitled to
participate in such distribution, the holders of the Senior Debt and other
indebtedness of the Company, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to this Article.
6. NO IMPAIRMENT OF SUBORDINATION. No right of any present or future
holder of any Senior Debt to enforce subordination as herein provided shall at
any time in any way be prejudiced or impaired by any act or failure to act on
the part of the Company or by any act or failure to act, in good faith, by any
such holder, or by any noncompliance by the Company with the terms, provisions
and covenants of the Convertible Note or the documents, agreements and
instruments relating thereto or to this Debt, regardless of any knowledge
thereof which any such holder may have or otherwise be charged with.
7. CERTAIN CONVERSIONS DEEMED PAYMENT. If this Debt is convertible into
securities of the Company, for the purposes of this Article only, (1) the
issuance and delivery of junior securities upon conversion of this Debt in
accordance with such conversion rights shall not be deemed to constitute a
payment or distribution on account of the principal of (or premium, if any) or
interest on this Debt or on account of the purchase or other acquisition of this
Debt, and (2) the payment, issuance or delivery of cash, property or securities
(other than junior securities) upon conversion of this Debt
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<PAGE> 55
shall be deemed to constitute payment on account of the principal of (and
premium, if any) and interest on this Debt. For the purposes of this Section,
the term "junior securities" means (a) shares of any stock of any class of the
Company, (b) securities of the Company that are subordinated in right of payment
to all Senior Debt to substantially the same extent as, or to a greater extent
than, this Debt is so subordinated as provided in this Article and (c)
securities, if any, into which this Debt becomes convertible in connection with
any business combination transaction if so provided in the terms of this Debt.
Nothing contained in this Article or elsewhere in the terms of this Debt is
intended to or shall impair, as among the Company, its creditors other than
holders of Senior Debt and the holders of this Debt, the right, if any, which is
absolute and unconditional, of the holder of this Debt, if by the terms of this
Debt this Debt is convertible into securities of the Company, to convert this
Debt in accordance with the terms of this Debt.
8. SENIOR DEBT ENTITLED TO RELY. The holders of Senior Debt shall have the
right to rely upon this Article, and no amendment or modification of the
provisions contained herein shall diminish the rights of such holders unless
such holders shall have agreed in writing thereto.
9. DEFINITIONS. As used in this Article, the following terms shall have
the following meanings:
"Company" means AHT Corporation, a Delaware corporation, and
shall include its successors and assigns.
"Convertible Note" means the 10% Senior Secured Convertible
Note due 2001 at any one time outstanding not in excess of the original
aggregate authorized amount of $4,000,000, issued by the Company pursuant to the
Securities Purchase Agreements, including any such note issued upon transfer
thereof or in lieu of any such note that is mutilated, destroyed, lost or
stolen.
"Securities Purchase Agreement" means the Securities Purchase
Agreement, dated March 27, 2000, by and between the Company and Cybear, Inc., as
amended from time to time.
"Senior Debt" means the principal of, premium, if any, and
interest on (including any interest accruing after the filing of a petition by
or against the Company under any bankruptcy law, whether or not allowed as a
claim after such filing in any proceeding under such bankruptcy law), and any
other payment, due pursuant to the Convertible Note and all renewals,
extensions, refundings, deferrals, amendments or modifications of the
Convertible Note, whether outstanding at the time of issuance of this Debt or
thereafter incurred or created; unless in the case of any such renewal,
extension, refunding, amendment, modification or supplement, the instrument or
other document creating or evidencing the same or the assumption or guarantee of
the same expressly provides that such renewal, extension, refunding, amendment,
modification or supplement is not superior in right of payment to, or is pari
passu with, this Debt.
F-5
<PAGE> 56
EXHIBIT G
FORM OF LICENSE AGREEMENT
<PAGE> 57
EXHIBIT H
FORM OF GUARANTY AGREEMENT
<PAGE> 1
Exhibit 10.23
10% SENIOR SECURED CONVERTIBLE NOTE
DATED MARCH 27, 2000
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"). THE HOLDER HEREOF,
BY PURCHASING SUCH SECURITIES AGREES FOR THE BENEFIT OF THE COMPANY THAT SUCH
SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE
COMPANY, (B) PURSUANT TO THE EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT
PROVIDED BY RULE 144 THEREUNDER, IF AVAILABLE, OR (C) IF REGISTERED UNDER THE
1933 ACT AND APPLICABLE STATE SECURITIES LAWS. IN ADDITION, A SECURITIES
PURCHASE AGREEMENT, REGISTRATION RIGHTS AGREEMENT, LICENSE AGREEMENT AND
SECURITY AGREEMENT, EACH DATED AS OF THE DATE HEREOF, COPIES OF WHICH MAY BE
OBTAINED FROM THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICE, CONTAIN CERTAIN
ADDITIONAL AGREEMENTS AMONG THE PARTIES, INCLUDING, WITHOUT LIMITATION,
PROVISIONS WHICH, AMONG OTHER THINGS, (A) SPECIFY VOLUNTARY AND MANDATORY
REPAYMENT, PREPAYMENT AND REDEMPTION RIGHTS AND OBLIGATIONS AND (B) SPECIFY
EVENTS OF DEFAULT FOLLOWING WHICH THE REMAINING BALANCE DUE AND OWING HEREUNDER
MAY BE ACCELERATED OR CONVERTED.
On or before March 31, 2001 (the "Maturity Date"), AHT CORPORATION, a
Delaware corporation (the "Company"), for value received, hereby promises to pay
to CYBEAR, INC., a Delaware corporation (the "Holder"), the principal sum of
Four Million Dollars ($4,000,000) and to pay interest thereon from the date
hereof at the rate of ten percent (10%) per annum (the "Interest Rate").
Interest shall be paid quarterly, in arrears, on (i) June 30, 2000,
September 30, 2000 and December 31, 2000 (unless such day is not a Business Day,
in which event on the next succeeding Business Day) (each an "Interest Payment
Date"), (ii) the Maturity Date, and (iii) the date the principal amount of the
Convertible Note shall be declared to be or shall automatically become due and
payable, on the principal sum hereof outstanding in like coin or currency, from
the most recent Interest Payment Date to which interest has been paid on this
Convertible Note, or if no interest has been paid on this Convertible Note, from
the date of this Convertible Note until payment in full of the principal sum
hereof has been made until the principal hereof is paid in full.
Past due amounts (including interest, to the extent permitted by law)
will also accrue interest at 13% per annum or, if less, the maximum rate
permitted by applicable law, and will be payable on demand (the "Default
Interest Rate"). Interest on this Convertible Note will be calculated on the
basis of a 365-day year. All payments of principal and interest hereunder shall
be made for the benefit of the Holder at the Holder's account at First Union
National Bank, 5355 Town Center Road, Suite 101, Boca Raton, Florida, pursuant
to the terms of the Purchase Agreement (hereafter defined).
<PAGE> 2
This Convertible Note is referred to in that Securities Purchase
Agreement (the "Purchase Agreement"), the Registration Rights Agreement, the
Letter Agreement and the Security Agreement, each dated as of the date hereof
between the Company and the Holder (collectively, the "Agreements"). The
Agreements contain certain additional agreements among the parties with respect
to the terms of this Convertible Note, including, without limitation, provisions
which (i)specify voluntary and mandatory repayment, prepayment and redemption
rights and obligations and (ii) specify Events of Default (as defined in the
Purchase Agreement) following which the remaining balance due and owing
hereunder may be accelerated or converted. All such provisions are an integral
part of this Convertible Note and are incorporated herein by reference.
Capitalized terms used but not defined herein shall have the meanings set forth
in the Agreements. This Convertible Note is transferable and assignable to one
or more purchasers, in accordance with the limitations set forth in the
Agreements.
The Company shall keep a register (the "Register") in which shall be
entered the name and address of the registered holder of this Convertible Note
and particulars of this Convertible Note held by such holder and of all
transfers of this Convertible Note. References to the Holder shall mean the
Person listed in the Register as the registered holder of such Convertible Note.
The ownership of this Convertible Note shall be proven by the Register.
1. Certain Terms Defined. All terms defined in the Purchase Agreement
and not otherwise defined herein shall have for purposes hereof the meanings
provided for therein.
2. Payment of Principal. The Company shall repay the remaining unpaid
balance on this Convertible Note on the Maturity Date. The Company may, and
shall be obligated to, prepay all or a portion of this Convertible Note on the
terms specified in the Agreements.
3. Conversion Terms.
3.1 Conversion of Convertible Note. The Holder shall have the right, at
its option, at any time and from time to time, after the date hereof to convert
the principal amount of this Convertible Note, or any portion of such principal
amount in the minimum amount of $1,000 or any integral multiple thereof, into
that number of fully paid and nonassessable shares of Common Stock (as such
shares shall then be constituted) determined pursuant to this Section 4.1. The
number of shares of Common Stock to be issued upon each conversion of this
Convertible Note shall be determined by dividing the Conversion Amount (as
defined below) by the Conversion Price in effect on the date (the "Conversion
Date") a Notice of Conversion is delivered to the Company by the Holder by
facsimile or other reasonable means of communication dispatched prior to 11:00
p.m., Eastern Standard Time PROVIDED, HOWEVER, the aggregate number of shares to
be issued pursuant to the conversion of this Convertible Note and all other of
the Convertible Notes shall never exceed the Maximum Number of Shares. The term
"Conversion Amount" means, with respect to any conversion of this Convertible
Note, the sum of (i) the principal amount of this Convertible Note to be
converted in such conversion (including any premium thereon pursuant to the
Purchase Agreement) plus (ii) accrued and unpaid interest, if any, on such
principal amount at the interest rates provided in this Convertible Note to the
Conversion Date plus (iii) Default Interest, if any, on the interest referred to
in the immediately preceding clause (ii).
2
<PAGE> 3
3.2 Conversion Price. The Conversion Price of this Convertible Note
(the "Conversion Price") per share shall be the lower of (i) 80% of the Average
Market Price per share of Common Stock on the Conversion Date; or (ii) $4.34
(the "Conversion Price"), subject to equitable adjustments for stock splits,
stock dividends or rights offerings by the Company relating to the Company's
securities or the securities of any Subsidiary of the Company, combinations,
recapitalization, reclassifications, extraordinary distributions and similar
events, as provided in the Purchase Agreement.
3.3 Authorized Shares.
(a) Consistent with Section 7.12 of the Purchase Agreement, the Company
(i) acknowledges that it shall irrevocably instruct its transfer agent to issue
certificates for the Common Stock issuable upon conversion of this Convertible
Note and (ii) agrees that its issuance of this Convertible Note shall constitute
full authority to its officers and agents who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates for
shares of Common Stock in accordance with the terms and conditions of this
Convertible Note.
(b) If at any time a Holder of this Convertible Note submits a Notice of
Conversion, (i) the Company does not have sufficient authorized but unissued
shares of Common Stock available to effect such conversion in full in accordance
with the provisions of this Section 4 (each, a "Conversion Default"), the
Company shall issue to the Holder all of the shares of Common Stock which are
then available to effect such conversion. The portion of this Convertible Note
which the Holder included in its Conversion Notice and which exceeds the amount
which is then convertible into available shares of Common Stock (the "Excess
Amount") shall, notwithstanding anything to the contrary contained herein, not
be convertible into Common Stock in accordance with the terms hereof until (and
at the Holder's option at any time after) the date additional shares of Common
Stock are authorized by the Company, or its stockholders, as applicable, at
which time the Conversion Price in respect thereof shall be the lower of (i) the
Conversion Price on the Conversion Default Date (as defined below) and (ii) the
Conversion Price on the Conversion Date thereafter elected by the Holder in
respect thereof.
3.4 Method of Conversion.
(a) Notwithstanding anything to the contrary set forth herein, upon
conversion of this Convertible Note in accordance with the terms hereof, the
Company shall not be required to physically surrender this Convertible Note to
the Holder unless the entire unpaid principal amount of this Convertible Note is
so converted. The Company and the Holder shall maintain records showing the
principal amount so converted and the date of such conversions or shall use such
other method, reasonably satisfactory to the Holder and the Company, so as not
to require physical surrender of this Convertible Note upon each such
conversion. In the event of any dispute or discrepancy, such records of the
Company shall be controlling and determinative in the absence of manifest error.
Notwithstanding the foregoing, if any portion of this Convertible Note is
converted as aforesaid, the Company may not transfer this Convertible Note
unless the Holder first physically surrenders this Convertible Note to the
Company, whereupon the Company will forthwith issue and deliver upon the order
of the Holder a new note of like tenor, registered as the Holder (upon payment
by the Holder of any applicable transfer taxes), may
3
<PAGE> 4
request, representing in the aggregate the remaining unpaid principal amount of
this Convertible Note. The Holder and any assignee, by acceptance of this
Convertible Note, acknowledge and agree that, by reason of the provisions of
this paragraph, following conversion of a portion of this Convertible Note, the
unpaid and unconverted principal amount of this Convertible Note represented by
this Convertible Note may be less than the amount stated on the face hereof.
(b) The Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of
shares of Common Stock or other securities or property on conversion of this
Convertible Note in a name other than that of the Holder (or in street name),
and the Company shall not be required to issue or deliver any such shares or
other securities or property unless and until the person or persons (other than
the Holder or the custodian in whose street name such shares are to be held for
the Holder's account) requesting the issuance thereof shall have paid to the
Company the amount of any such tax or shall have established to the satisfaction
of the Company that such tax has been paid.
(c) Upon receipt by the Company of a Notice of Conversion, the Holder
shall be deemed to be the holder of record of the Common Stock issuable upon
such conversion on the Conversion Date, the outstanding principal amount and the
amount of accrued and unpaid interest on this Convertible Note shall be reduced
to reflect such conversion, and, unless the Company defaults on its obligations
under this Article 4, all rights with respect to the portion of this Convertible
Note being so converted shall forthwith terminate except the right to receive
the Common Stock or other securities, cash or other assets, as herein provided,
on such conversion. If the Holder shall have given a Notice of Conversion as
provided herein, the Company's obligation to issue and deliver the certificates
for shares of Common Stock shall be absolute and unconditional, irrespective of
the absence of any action by the Holder to enforce the same, any waiver or
consent with respect to any provision thereof, the recovery of any judgment
against any person or any action by the Holder to enforce the same, any waiver
or consent with respect to any provision thereof, the recovery of any judgment
against any person or any action to enforce the same, any failure or delay in
the enforcement of any other obligation of the Company to the holder of record,
or any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the Holder of any obligation to the Company, and
irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with such conversion. The
date of receipt of such Notice of Conversion shall be the Conversion Date so
long as it is received before 11:00 p.m., Eastern Standard Time, on such date.
(d) Notwithstanding the foregoing, if the Holder has not received
certificates for all shares of Common Stock prior to the second (2nd) business
day after the expiration of the Deadline with respect to a conversion of any
portion of this Convertible Note following delivery of a properly completed
Notice of Conversion for any reason, then (unless the Holder otherwise elects to
retain its status as a holder of Common Stock by so notifying the Company), the
Holder shall regain the rights of a Holder of this Convertible Note with respect
to such unconverted portions of this Convertible Note and the Company shall, as
soon as practicable, return such unconverted Convertible Note to the holder or,
if the Convertible Note has not been surrendered, adjust its records to reflect
that such portion of this Convertible Note has not been converted. In all cases,
the Holder shall retain all of its rights and remedies for the Company's failure
to convert this Convertible Note.
4
<PAGE> 5
(e) In lieu of delivering physical certificates representing the shares
of Common Stock assessable upon conversion, provided the Company's transfer
agent is participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer program, upon request of the Holder and its compliance with
the provisions contained in Section 4.1 and in this Section 4.4, the Company
shall use its best efforts to cause its transfer agent to electronically
transmit the shares of Common Stock assessable upon conversion to the Holder by
crediting the account of Holder's Prime Broker with DTC through its Deposit
Withdrawal Agent Commission system.
4. Modification of Convertible Note. This Convertible Note may not be
modified without prior written consent of the Company and the Holder.
5. Usury. All agreements in this Convertible Note and in the other
Transaction Agreements are expressly limited so that in no contingency or event
whatsoever, whether by reason of advancement or acceleration of maturity of the
Obligations, or otherwise, shall the amount paid or agreed to be paid hereunder
or thereunder for the use, forbearance or detention of money exceed the highest
lawful rate permitted under applicable usury laws. If, from any circumstance
whatsoever, fulfillment of any provision of this Convertible Note or any of the
other Transaction Agreements, at the time performance of such provision shall be
due, shall involve transcending the limit of validity prescribed by law which a
court of competent jurisdiction may deem applicable hereto, then, ipso facto,
the obligation to be fulfilled shall be reduced to the limit of such validity
and if, from any circumstance whatsoever, the Holder shall ever receive as
interest an amount which would exceed the highest lawful rate, the receipt of
such excess shall be deemed a mistake and shall be canceled automatically or, if
theretofore paid, such excess shall be held in trust by the Holder for the
benefit of the Company and shall be credited against the principal amount of the
Convertible Note to which the same may lawfully be credited, and any portion of
such excess not capable of being so credited shall be rebated to the Company.
6. Miscellaneous. This Convertible Note shall be deemed to be a contract
made under the laws of the State of Delaware, and for all purposes shall be
governed by and construed in accordance with the laws of said State. The parties
hereto, including all guarantors or endorsers, hereby waive presentment, demand,
notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance and enforcement of this Convertible Note,
except as specifically provided herein, and assent to extensions of the time of
payment, or forbearance or other indulgence without notice. The Company hereby
submits to the exclusive jurisdiction of the United States District Court for
the Southern District of Florida and of any Florida state court sitting in Palm
Beach County for purposes of all legal proceedings arising out of or relating to
this Convertible Note. The Company irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of the venue of any such proceeding brought in such a court and any claim that
any such proceeding brought in such a court has been brought in an inconvenient
forum.
The Holder of this Convertible Note by acceptance of this
Convertible Note agrees to be bound by the provisions of this Convertible Note
which are expressly binding on such Holder.
This Convertible Note has been executed, delivered and shall
at all times be held outside the State of Florida.
5
<PAGE> 6
IN WITNESS WHEREOF, the Company has caused this Note to be
executed in its name, and its corporate seal to be hereunto affixed by its
proper officers thereunder duly authorized.
Date: March 27, 2000
AHT CORPORATION
(Corporate Seal)
By: /s/ Jonathan Edelson
--------------------------------------
Name: Jonathan Edelson
Title: Chairman and Chief Executive
Officer
6
<PAGE> 1
Exhibit 10.24
WARRANT
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"). THE HOLDER HEREOF,
BY PURCHASING SUCH SECURITIES AGREES FOR THE BENEFIT OF THE COMPANY THAT SUCH
SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE
COMPANY, (B) PURSUANT TO THE EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT
PROVIDED BY RULE 144 THEREUNDER, IF AVAILABLE, OR (C) IF REGISTERED UNDER THE
1933 ACT AND APPLICABLE STATE SECURITIES LAWS. IN ADDITION, A SECURITIES
PURCHASE AGREEMENT, REGISTRATION RIGHTS AGREEMENT, LETTER AGREEMENT AND SECURITY
AGREEMENT, EACH DATED AS OF THE DATE HEREOF, COPIES OF WHICH MAY BE OBTAINED
FROM THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICE, CONTAIN CERTAIN ADDITIONAL
AGREEMENTS AMONG THE PARTIES.
WARRANT TO PURCHASE
COMMON STOCK, PAR VALUE $.01 PER SHARE
OF AHT CORPORATION
This certifies that, for value received, Cybear, Inc. or registered
assigns (the "Warrantholder"), is entitled to purchase from AHT CORPORATION (the
"Company"), subject to the provisions of this Warrant, at any time and from time
to time until 5:00 p.m. Eastern Standard Time on March 31, 2005, three hundred
thousand (300,000) shares of the Company's Common Stock, par value $.01 per
share (the "Warrant Shares"). The purchase price payable upon the exercise of
this Warrant shall be $4.34 per Warrant Share. The Warrant Price and the number
of Warrant Shares which the Warrantholder is entitled to purchase is subject to
adjustment upon the occurrence of the contingencies set forth in Section 3 of
this Warrant; as adjusted from time to time, such purchase price is hereinafter
referred to as the "Warrant Price."
This Warrant, evidencing the right to purchase Common Stock of the
Company, is referred to in, among other agreements, that Securities Purchase
Agreement (the "Purchase Agreement") and the Registration Rights Agreement each
dated March 27, 2000, between the Company and the Warrantholder (collectively,
the "Agreements"). The Agreements contain certain additional agreements among
the parties with respect to the terms of this Warrant. All such provisions are
an integral part of this Warrant and are incorporated herein by reference.
Capitalized terms used but not defined herein shall have the meanings set forth
in the Agreements.
This Warrant is subject to the following terms and conditions:
<PAGE> 2
1. Exercise of Warrant.
(a) This Warrant may be exercised in whole or in part but not for a
fractional share. Upon delivery of this Warrant at the offices of the Company or
at such other address as the Company may designate by notice in writing to the
registered holder hereof with the Subscription Form annexed hereto duly
executed, accompanied by payment of the Warrant Price for the number of Warrant
Shares purchased (in cash, by certified, cashier's or other check acceptable to
the Company, by Common Stock of the Company having a Market Value (as
hereinafter defined) equal to the aggregate Warrant Price for the Warrant Shares
to be purchased, or any combination of the foregoing), the registered holder of
this Warrant shall be entitled to receive a certificate or certificates for the
Warrant Shares so purchased. Such certificate or certificates shall be promptly
delivered to the Warrantholder. Upon any partial exercise of this Warrant, the
Company shall promptly execute and deliver a new Warrant of like tenor for the
balance of the Warrant Shares purchasable hereunder.
(b) In lieu of exercising this Warrant pursuant to Section 1(a), the
holder may elect to receive shares of Common Stock equal to the value of this
Warrant determined in the manner described below (or any portion thereof
remaining unexercised) upon delivery of this Warrant at the offices of the
Company or at such other address as the Company may designate by notice in
writing to the registered holder hereof with the Notice of Cashless Exercise
Form annexed hereto duly executed. In such event the Company shall issue to the
holder a number of shares of the Company's Common Stock computed using the
following formula:
X = Y (A-B)
______________
A
Where X = the number of shares of Common Stock
to be issued to the holder.
Y = the number of shares of Common Stock
purchasable under this Warrant (at the date of
such calculation).
A = the Market Value of the Company's Common
Stock on the business day immediately preceding
the day on which the Notice of Cashless
Exercise is received by the Company.
B = Warrant Price (as adjusted to the date of
such calculation).
(c) Subject to Section 7.9 of the Purchase Agreement, the Warrant
Shares deliverable hereunder shall, upon issuance, be fully paid and
non-assessable and the Company agrees that at all times during the term of this
Warrant it shall cause to be reserved for issuance such number of shares of its
Common Stock as shall be required for issuance and delivery upon exercise of
this Warrant.
(d) For purposes of this Warrant, the Market Value of a share of Common
Stock on any date shall be determined as follows:
<PAGE> 3
(i) If the Common Stock is listed on Nasdaq, the closing price
on the date of valuation;
(ii) If the Common Stock is listed on the New York Stock
Exchange or the American Stock Exchange, the closing price on such
exchange on the date of valuation;
(iii) If neither (i) nor (ii) apply but the Common Stock is
quoted in the over-the-counter market, another recognized exchange, on
the pink sheets or the OTC Bulletin Board, the mean between the high
reported "bid" prices thereof on the date of valuation; and
(iv) if the Common Stock is not traded on a national
securities exchange or in the over-the-counter market, the fair market
value of a share of Common Stock on such date as determined in good
faith by the Board of Directors.
If the Warrantholder disagrees with the determination of the Market Value of any
securities of the Company determined by the Board of Directors under Section
1(d)(iv), the Market Value of such securities shall be determined by an
independent appraiser acceptable to the Company and the holder (or, if they
cannot agree on such an appraiser, by an independent appraiser selected by each
of them, and Market Value shall be the median of the appraisals made by such
appraisers). If there is one appraiser, the cost of the appraisal shall be
shared equally between the Company and the holder. If there are two appraisers,
each of the Company and the holder shall pay for its own appraisal.
The Company will, at the time of the exercise, exchange or transfer of this
Warrant, upon the request of the registered Warrantholder hereof, acknowledge in
writing its continuing obligation to afford to such Warrantholder or transferee
any rights (including, without limitation, any right to registration of the
Company's shares of Common Stock) to which such Warrantholder or transferee
shall continue to be entitled after such exercise, exchange or transfer in
accordance with the provisions of this Warrant, provided that if the registered
Warrantholder of this Warrant shall fail to make any such request, such failure
shall not affect the continuing obligation of the Company to afford to such
Warrantholder or transferee any such rights.
2. Transfer or Assignment of Warrant.
(a) Any assignment or transfer of this Warrant shall be made by
surrender of this Warrant at the offices of the Company or at such other address
as the Company may designate in writing to the registered holder hereof with the
Assignment Form annexed hereto duly executed and accompanied by payment of any
requisite transfer taxes, and the Company shall, without charge, execute and
deliver a new Warrant of like tenor in the name of the assignee for the portion
so assigned in case of only a partial assignment, with a new Warrant of like
tenor to the assignor for the balance of the Warrant Shares purchasable.
(b) Prior to any assignment or transfer of this Warrant, the holder
thereof shall deliver an opinion of counsel to the Company to the effect that
the proposed transfer may be effected without registration under the Act.
<PAGE> 4
3. Adjustment of Warrant Price and Warrant Shares -- Anti-Dilution Provisions.
(a) (1) Except as hereinafter provided, in case the Company shall at
any time after the date hereof issue any shares of Common Stock (including
shares held in the Company's treasury) without consideration, then, and
thereafter successively upon each issuance, the Warrant Price in effect
immediately prior to each such issuance shall forthwith be reduced to a price
determined by multiplying the Warrant Price in effect immediately prior to such
issuance by a fraction:
(A) the numerator of which shall be the total
number of shares of Common Stock outstanding
immediately prior to such issuance, and
(B) the denominator of which shall be the total
number of shares of Common Stock outstanding
immediately after such issuance.
For the purposes of any computation to be made in accordance with the provisions
of this clause (1), the following provisions shall be applicable: (i) Shares of
Common Stock issuable by way of dividend or other distribution on any stock of
the Company shall be deemed to have been issued and to be outstanding at the
close of business on the record date fixed for the determination of stockholders
entitled to receive such dividend or other distribution and shall be deemed to
have been issued without consideration. Shares of Common Stock issued otherwise
than as a dividend or other distribution, shall be deemed to have been issued
and to be outstanding at the close of business on the date of issue; and (ii)
the number of shares of Common Stock at any time outstanding shall not include
any shares then owned or held by or for the account of the Company.
(2) In case the Company shall at any time subdivide or
combine the outstanding shares of Common
Stock, the Warrant Price shall forthwith be proportionately decreased in the
case of the subdivision or proportionately increased in the case of combination
to the nearest one cent. Any such adjustment shall become effective at the close
of business on the date that such subdivision or combination shall become
effective.
(b) In the event that the number of outstanding shares of Common Stock
is increased by a stock dividend payable in shares of Common Stock or by a
subdivision of the outstanding shares of Common Stock, which may include a stock
split, then from and after the time at which the adjusted Warrant Price becomes
effective pursuant to the foregoing Subsection (a) of this Section by reason of
such dividend or subdivision, the number of shares issuable upon the exercise of
this Warrant shall be increased in proportion to such increase in outstanding
shares. In the event that the number of outstanding shares of Common Stock is
decreased by a combination of the outstanding shares of Common Stock, then, from
and after the time at which the adjusted Warrant Price becomes effective
pursuant to such Subsection A of this Section by reason of such combination, the
number of shares issuable upon the exercise of this Warrant shall be decreased
in proportion to such decrease in outstanding shares.
<PAGE> 5
(c) In the event of an adjustment of the Warrant Price, the number of
shares of Common Stock (or reclassified stock) issuable upon exercise of this
Warrant after such adjustment shall be equal to the number determined by
dividing:
(1) an amount equal to the product of (i) the number of
shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment, and (ii) the
Warrant Price immediately prior to such adjustment, by
(2) the Warrant Price immediately after such adjustment.
(d) In the case of (1) any reorganization or reclassification of the
outstanding shares of Common Stock (other than a change in par value, or from
par value to no par value, or from no par value to par value, or as a result of
a subdivision or combination) or (2) any consolidation of the Company with, or
merger of the Company with, another corporation, or in the case of any sale,
lease or conveyance of all, or substantially all, of the property, assets,
business and goodwill of the Company as an entity, the holder of this Warrant
shall thereafter have the right upon exercise to purchase the kind and amount of
shares of stock and other securities and property receivable upon such
reorganization, reclassification, consolidation, merger or sale by a holder of
the number of shares of Common Stock which the holder of this Warrant would have
received had all Warrant Shares issuable upon exercise of this Warrant been
issued immediately prior to such reorganization, reclassification,
consolidation, merger or sale, at a price equal to the Warrant Price then in
effect pertaining to this Warrant (the kind, amount and price of such stock and
other securities to be subject to adjustment as herein provided). The Company
shall not effect a transaction of the type described in clause (2) of this
sub-paragraph (D) unless upon or prior to the consummation thereof, the
Company's successor corporation, or if the Company shall be the surviving
company in any such transaction but is not the issuer of the shares of stock,
securities or other property to be delivered to the holders of the Company's
outstanding shares of Common Stock at the effective time thereof, then such
issuer, shall assume in writing the obligation hereunder to deliver to the
Warrantholder of this Warrant such shares of stock, securities, cash or other
property as such holder shall be entitled to purchase in accordance with the
provisions hereof.
(e) In case the Company shall, at any time prior to the expiration of
this Warrant and prior to the exercise thereof, dissolve, liquidate or wind up
its affairs, the Warrantholder shall be entitled, upon the exercise thereof, to
receive, in lieu of the Warrant Shares of the Company which it would have been
entitled to receive, the same kind and amount of assets as would have been
issued, distributed or paid to it upon such Warrant Shares of the Company, had
it been the holder of record of shares of Common Stock receivable upon the
exercise of this Warrant on the record date for the determination of those
entitled to receive any such liquidating distribution. After any such
dissolution, liquidation or winding up which shall result in any distribution in
excess of the Warrant Price provided for by this Warrant, the Warrantholder may
at its option exercise the same without making payment of the aggregate Warrant
Price and in such case the Company shall upon the distribution to said
Warrantholder consider that the aggregate Warrant Price has been paid in full to
it and in making settlement to said Warrantholder, shall deduct from the amount
payable to such Warrantholder an amount equal to the aggregate Warrant Price.
Except as otherwise expressly provided in the prior paragraph, in the event of
any dissolution of the Company following the transfer of all or substantially
all of its properties or assets, the Company, prior to such dissolution, shall
at its expense deliver or cause to be delivered the stock
<PAGE> 6
and other securities and property (including cash, where applicable) receivable
by the holders of the Warrants after the effective date of such dissolution
pursuant to this sub-paragraph (E) to a bank or trust company having its
principal office in New York City, as trustee for the holder or holders of the
Warrants.
(f) Except as otherwise expressly provided in this Section 2, upon any
reorganization, consolidation, merger or transfer (and any dissolution following
any transfer) referred to in this Section 2, this Warrant shall continue in full
force and effect and the terms hereof shall be applicable to the shares of stock
and other securities and property receivable on the exercise of this Warrant
after the consummation of such reorganization, consolidation or merger or the
effective date of dissolution following any such transfer, as the case may be,
and shall be binding upon the issuer of any such stock or other securities,
including, in the case of any such transfer, the person acquiring all or
substantially all of the properties or assets of the Company, whether or not
such person shall have expressly assumed the terms of this Warrant.
(g) In case the Company shall, at any time prior to the expiration of
this Warrant and prior to the exercise thereof make a distribution of assets
(other than cash) or securities of the Company to its stockholders (the
"Distribution") the Warrantholder shall be entitled, upon the exercise thereof,
to receive, in addition to the Warrant Shares it is entitled to receive, the
same kind and amount of assets or securities as would have been distributed to
it in the Distribution had it been the holder of record of shares of Common
Stock receivable upon exercise of this Warrant on the record date for
determination of those entitled to receive the Distribution.
(h) Irrespective of any adjustments in the number of Warrant Shares and
the Warrant Price or the number or kind of shares purchasable upon exercise of
this Warrant, this Warrant may continue to express the same price and number and
kind of shares as originally issued.
4. Officer's Certificate.
Whenever the number of Warrant Shares and the Warrant Price shall be
adjusted pursuant to the provisions hereof, the Company shall forthwith file at
its principal executive office an officers' certificate, signed by the Chairman
of the Board, President, or one of the Vice Presidents of the Company and by its
Chief Financial Officer or one of its Treasurers or Assistant Treasurers,
stating the adjusted number of Warrant Shares and the new Warrant Price
calculated to the nearest one hundredth and setting forth in reasonable detail
the method of calculation and the facts requiring such adjustment and upon which
such calculation is based. Each adjustment shall remain in effect until a
subsequent adjustment hereunder is required. A copy of such statement shall be
mailed to the Warrantholder at its address in the records of the Company in
accordance with the notice provision of the Securities Purchase Agreement. The
Company will forthwith mail a copy of each such certificate to each holder of a
Warrant, and will, on the written request at any time of any holder of a
Warrant, furnish to such holder a like certificate setting forth the Warrant
Price and the number and type of Shares at the time in effect and showing how it
was calculated.
<PAGE> 7
5. Charges, Taxes and Expenses.
The issuance of certificates for Warrant Shares upon any exercise of
this Warrant shall be made without charge to the Warrantholder for any tax or
other expense in respect to the issuance of such certificates, all of which
taxes and expenses shall be paid by the Company, and such certificates shall be
issued only in the name of the Warrantholder.
6. No Dilution or Impairment.
The Company will not, by amendment of its Articles of Incorporation or
By-laws, or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of the
Warrants, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holders of the Warrants, as
specified herein and in the Securities Purchase Agreement, against dilution (to
the extent specifically provided herein) or other impairment. Without limiting
the generality of the foregoing, the Company (a) will not increase the par value
of any shares of stock receivable on the exercise of the Warrants above the
amount payable therefor on such exercise, and (b) will not effect a subdivision
or split up of shares or similar transaction with respect to any class of the
Common Stock without effecting an equivalent transaction with respect to all
other classes of Common Stock.
7. Notice of Record Date. In case of
(a) any taking by the Company of a record of the holders of any class
of its securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any transfer of all or
substantially all the assets of the Company to or consolidation or merger of the
Company with or any voluntary or involuntary dissolution, liquidation or winding
up of the Company, or
(c) events shall have occurred resulting in the voluntary or
involuntary dissolution, liquidation or winding up of the Company then and in
each such event the Company will mail or cause to be mailed to each holder of a
Warrant a notice specifying (i) the date on which any record is to be taken for
the purpose of any such dividend, distribution or right, and stating the amount
and character of such dividend, distribution or right, (ii) the date on which
any such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up is to take place,
and the time, if any is to be fixed, as of which the holders of record of Common
Stock shall be entitled to exchange their Common Stock for securities or other
property deliverable on such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding up, and
(iii) the amount and character of any stock or other securities, or rights or
options with respect thereto, proposed to be issued or granted, the date of such
proposed issue or grant and the persons or class of persons to whom such
proposed issue or grant is to be offered or made. Such notice shall be mailed at
least thirty (30) days prior to the date specified in such notice on which any
such action is to be taken.
<PAGE> 8
8. Exchange of Warrants.
On surrender for exchange of any Warrant, properly endorsed, to the
Company, the Company, at its expense, will issue and deliver to or on the order
of the holder thereof a new Warrant or Warrants of like tenor, in the name of
such holder or as such holder (on payment by such holder or any applicable
transfer taxes) may direct, calling in the aggregate on the face or faces
thereof for the number of shares of Common Stock called for on the face or faces
of the Warrant or Warrants so surrendered.
9. Replacement of Warrants.
On receipt of evidence reasonably satisfactory to the Company of the
loss, theft, destruction or mutilation of any Warrant and, in the case of any
such loss, theft or destruction of any Warrant, on delivery of an indemnity
agreement or security reasonably satisfactory in form and amount to the Company
or, in the case of any such mutilation, on surrender and cancellation of such
Warrant, the Company, at its expense, will execute and deliver, in lieu thereof,
a new Warrant of like tenor.
10. Warrant Agent.
The Company may, by written notice to each holder of a Warrant, appoint
an agent having an office in New York, New York, for the purpose of issuing
shares of Common Stock on the exercise of the Warrants pursuant to Section 1,
exchanging Warrants pursuant to Section 7, and replacing Warrants pursuant to
Section 8, or any of the foregoing, and thereafter any such issuance, exchange
or replacement, as the case may be, shall be made at such office by such agent.
11. Remedies.
The Company stipulates that the remedies at law of the holder of this
Warrant in the event of any default or threatened default by the Company in the
performance of or compliance with any of the terms of this Warrant are not and
will not be adequate, and that such terms may be specifically enforced by a
decree for the specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or otherwise.
12. Negotiability, Etc.
This Warrant is issued upon the following terms, to all of which each
Warrantholder or owner hereof by the taking hereof consents and agrees:
(a) (a)subject to the terms of Section 2 of this Warrant, title to this
Warrant may be transferred by endorsement (by the Warrantholder hereof executing
the form of assignment at the end hereof) and delivery in the same manner as in
the case of a negotiable instrument transferable by endorsement and delivery;
(b) (b)any person in possession of this Warrant properly endorsed is
authorized to represent himself as absolute owner hereof and is empowered to
transfer absolute title hereto by endorsement and delivery hereof to a bona fide
purchaser hereof for value; each prior taker or owner waives and renounces all
of his equities or rights in this Warrant in favor of each such
<PAGE> 9
bona fide purchaser, and each such bona fide purchaser shall acquire absolute
title hereto and to all rights represented hereby; and
(c) (c)until this Warrant is transferred on the books of the Company,
the Company may treat the register Warrantholder hereof as the absolute owner
hereof for all purposes, notwithstanding any notice to the contrary.
13. Notices.
All notices and other communications from the Company to the registered
Warrantholder of this Warrant shall be given in writing (unless otherwise
specified herein) and shall be effective upon personal delivery, via facsimile
(upon receipt of confirmation of error-free transmission) or two business days
following deposit of such notice with an internationally recognized courier
service, with postage prepaid and addressed, to such address as may have been
furnished to the Company in writing by such registered Warrantholder or, until
any such registered Warrantholder furnishes to the Company an address, then to,
and at the address of, the last registered Warrantholder of this Warrant who has
so furnished an address to the Company.
14. Miscellaneous.
(a) (a)The terms of this Warrant shall be binding upon and shall inure
to the benefit of any successors or assigns of the Company and of the holder or
holders hereof and of the shares of Common Stock issued or issuable upon the
exercise hereof.
(b) Except as otherwise set forth herein, no holder of this Warrant, as
such, shall be entitled to vote or receive dividends or be deemed to be a
stockholder of the Company for any purpose, nor shall anything contained in this
Warrant be construed to confer upon the holder of this Warrant, as such, any
rights of a stockholder of the Company or any right to vote, give or withhold
consent to any corporate action, receive notice of meetings, receive dividends
or subscription rights, or otherwise.
(c) Receipt of this Warrant by the holder hereof shall constitute
acceptance of an agreement to the foregoing terms and conditions.
(d) The Warrant and the performance of the parties hereunder shall be
construed and interpreted in accordance with the laws of the State of Delaware
and the parties hereunder consent and agree that the State and Federal Courts
which sit in Palm Beach County, Florida shall have exclusive jurisdiction with
respect to all controversies and disputes arising hereunder.
(e) This Warrant and any term hereof may be changed, waived, discharged
or terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer and its corporate seal to be affixed hereto.
Dated: March 27, 2000
<PAGE> 10
AHT CORPORATION
BY: /s/ Jonathan Edelson
` ________________________
Name: Jonathan Edelson
Title: Chairman and Chief
Executive Officer
<PAGE> 11
SUBSCRIPTION FORM
(TO BE EXECUTED BY THE REGISTERED HOLDER
IF HE DESIRES TO EXERCISE THE WARRANT)
To:AHT CORPORATION
The undersigned hereby exercises the right to purchase
_________ shares of Common Stock, par value $.01 per share, covered by the
attached Warrant in accordance with the terms and conditions thereof, and
herewith makes payment of the Warrant Price for such shares in full. The
undersigned requests that a certificate for such shares of Common Stock be
registered in the name of _____________, whose address is
___________________________________________, and that such Certificate be
delivered to ____________ whose address is ____________________________.
_______________________________
NAME (please print)
_______________________________
SIGNATURE
(Signature must conform in all respects to the
name of the registered Warrantholder, as
specified on the face of the Warrant.)
_______________________________
SOCIAL SECURITY NUMBER (or Other
Identifying Number of Holder)
_______________________________
ADDRESS
DATED:
___________________
<PAGE> 12
NOTICE OF EXERCISE OF COMMON STOCK WARRANT
PURSUANT TO NET ISSUE ("CASHLESS") EXERCISE PROVISIONS
(TO BE EXECUTED BY THE REGISTERED WARRANTHOLDER IN
ADDITION TO THE SUBSCRIPTION FORM, IF HE DESIRES
TO EXERCISE THE WARRANT IN A CASHLESS EXERCISE)
<TABLE>
<CAPTION>
<S> <C> <C>
AHT Corporation Aggregate Price of Warrant $_______
555 White Plains Rd
Tarrytown, NY 10591
Attn: John Edelson Aggregate Price Being Exercised: $_______
Warrant Price (per share): $_______
Number of Shares of Common Stock
to be Issued Under this Notice: _______
</TABLE>
<PAGE> 13
CASHLESS EXERCISE
Gentlemen:
The undersigned, registered holder of the Warrant to Purchase
Common Stock delivered herewith ("Warrant") hereby irrevocably exercises such
Warrant for, and purchases thereunder, shares of the Common Stock of AHT
CORPORATION, a Delaware corporation, as provided below. Capitalized terms used
herein, unless otherwise defined herein, shall have the meanings given in the
Warrant. The portion of the Aggregate Price (as hereinafter defined) to be
applied toward the purchase of Common Stock pursuant to this Notice of Exercise
is $________, thereby leaving a remainder Aggregate Price (if any) equal to
$________. Such exercise shall be pursuant to the net issue exercise provisions
of Section I. (b) of the Warrant; therefore, the holder makes no payment with
this Notice of Exercise. The number of shares to be issued pursuant to this
exercise shall be determined by reference to the formula in Section I.(b)of the
Warrant which requires the use of the Market Value (as defined in Section I.(d)
of the Warrant) of the Company's Common Stock in accordance with the provisions
thereof. To the extent the foregoing exercise is for less than the full
Aggregate Price of the Warrant, the remainder of the Warrant representing a
number of Shares equal to the quotient obtained by dividing the remainder of the
Aggregate Price by the Warrant Price (and otherwise of like form, tenor and
effect) may be exercised under Section I.(a) of the Warrant. For purposes of
this Notice the term "Aggregate Price" means the product obtained by multiplying
the number of shares of Common Stock for which the Warrant is exercisable times
the Warrant Price.
_______________________________
SIGNATURE
_______________________________
DATE:_______ ADDRESS
<PAGE> 14
ASSIGNMENT
(TO BE EXECUTED BY THE REGISTERED WARRANTHOLDER
IF HE DESIRES TO TRANSFER THE WARRANT)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _________________________________ (please print name and address of
transferee) the right to purchase shares of Common Stock of AHT CORPORATION,
evidenced by the within Warrant, and does hereby irrevocably constitute and
appoint __________________________ Attorney to transfer the said Warrant on the
books of the Company, with full power of substitution.
_______________________________
NAME (please print)
_______________________________
SIGNATURE
(Signature must conform in all respects to the
name of the registered Warrantholder, as
specified on the face of the Warrant.)
_______________________________
SOCIAL SECURITY NUMBER (or Other Identifying
Number of Holder)
IN THE PRESENCE OF:
__________________
<PAGE> 1
EXHIBIT 23.0
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed
Registration Statement File No. 333-83671.
ARTHUR ANDERSEN LLP
New York, New York
April 13, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,528
<SECURITIES> 0
<RECEIVABLES> 312
<ALLOWANCES> 50
<INVENTORY> 0
<CURRENT-ASSETS> 3,501
<PP&E> 4,367
<DEPRECIATION> 2,312
<TOTAL-ASSETS> 13,890
<CURRENT-LIABILITIES> 2,822
<BONDS> 0
0
0
<COMMON> 110
<OTHER-SE> 10,454
<TOTAL-LIABILITY-AND-EQUITY> 13,890
<SALES> 1,086
<TOTAL-REVENUES> 1,086
<CGS> 1,261
<TOTAL-COSTS> 1,261
<OTHER-EXPENSES> 13,621
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (793)
<INCOME-PRETAX> (23,342)
<INCOME-TAX> 36
<INCOME-CONTINUING> (23,378)
<DISCONTINUED> 2,574
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,804)
<EPS-BASIC> (1.95)
<EPS-DILUTED> (1.95)
</TABLE>
