UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 33-80987
Merit Behavioral Care Corporation
(Exact name of registrant as specified in its charter)
Delaware 22-3236927
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One Maynard Drive
Park Ridge, New Jersey 07656
(Address of principal executive offices)
(201) 391-8700
(Registrant's telephone number,
including area code)
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......
As of April 30, 1996, 28,298,800 shares of the registrant's common stock,
par value $.01 per share, which is the only class of common stock of the
registrant, were outstanding.
MERIT BEHAVIORAL CARE CORPORATION
Table of Contents
Form 10-Q for the Quarterly Period
Ended March 31, 1996
PART I FINANCIAL INFORMATION Page
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at
March 31, 1996 and September 30, 1995 3
Condensed Consolidated Statements of
Operations for the three months ended
March 31, 1996 and March 31, 1995, and
the six months ended March 31, 1996
and March 31, 1995 4
Condensed Consolidated Statements of
Cash Flows for the six months ended
March 31, 1996 and March 31, 1995 5
Notes to Condensed Consolidated
Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 10
PART II OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
MERIT BEHAVIORAL CARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(dollars in thousands)
March 31, September 30,
1996 1995
---------- ------------
ASSETS
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . $ 46,000 $ 20,611
Accounts receivable, net of allowance for
doubtful accounts of $1,172 and $525 . . . . . . . 27,497 27,648
Short-term marketable securities . . . . . . . . . --- 1,143
Other current assets . . . . . . . . . . . . . . . 4,552 4,569
Total current assets . . . . . . . . . . . . . 78,049 53,971
Property, plant and equipment, net . . . . . . . . 61,771 54,974
Other Assets:
Goodwill and other intangibles, net of accumulated
amortization of $48,343 and $37,017 . . . . . . 170,312 171,139
Restricted cash. . . . . . . . . . . . . . . . . . 4,495 12,405
Deferred financing costs, net of accumulated amortization
of $546. . . . . . . . . . . . . . . . . . . . . 11,453 ---
Other assets . . . . . . . . . . . . . . . . . . . 13,348 12,931
199,608 196,475
Total assets . . . . . . . . . . . . . . . . . . . $339,428 $305,420
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable . . . . . . . . . . . . . . . . . $ 4,953 $ 3,389
Claims payable . . . . . . . . . . . . . . . . . . 50,215 43,371
Deferred revenue . . . . . . . . . . . . . . . . . 8,961 9,582
Accrued interest . . . . . . . . . . . . . . . . . 4,854 ---
Current portion of long-term debt. . . . . . . . . 500 ---
Other current liabilities. . . . . . . . . . . . . 12,483 8,788
Total current liabilities. . . . . . . . . . 81,966 65,130
Due to parent (noninterest bearing). . . . . . . . --- 70,813
Long-term debt . . . . . . . . . . . . . . . . . . 246,000 ---
Deferred income taxes. . . . . . . . . . . . . . . 33,097 44,744
Other long-term liabilities. . . . . . . . . . . . 1,808 2,400
Stockholders' Equity:
Common stock (40,000,000 shares authorized,
$0.01 par value, 28,398,800 shares
outstanding at March 31, 1996) . . . . . . . . 284 10
Additional paid in capital . . . . . . . . . . . . (12,162) 118,877
Retained (deficit) earnings. . . . . . . . . . . . (6,115) 3,446
Notes receivable from officers . . . . . . . . . . (5,450) ---
Total stockholders' equity. . . . . . . . . . . (23,443) 122,333
Total liabilities and stockholders' equity . . . . $339,428 $305,420
See accompanying notes to condensed consolidated financial statements.
MERIT BEHAVIORAL CARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(dollars in thousands)
Three months ended Six months ended
March 31, March 31,
1996 1995 1996 1995
------ ------ ------ ------
Revenue. . . . . . . . . . . . . $111,721 $86,942 $222,641 $164,141
Expenses:
Direct service costs . . . . . 87,941 70,644 176,291 129,105
Selling, general
and administrative. . . . . . 15,707 11,398 30,015 23,379
Amortization of intangibles. . 6,522 5,263 12,837 10,289
------ ------ ------ -------
110,170 87,305 219,143 162,773
Operating income (loss). . . . . 1,551 (363) 3,498 1,368
Other income (expense):
Interest income and other. . . 797 374 1,338 665
Interest expense . . . . . . . (6,104) --- (11,549) ---
Merger costs . . . . . . . . . --- --- (3,972) ---
------ ------ ------ ------
(5,307) 374 (14,183) 665
------ ------ ------ ------
(Loss) income before income taxes
and cumulative effect
of accounting change . . . . . (3,756) 11 (10,685) 2,033
(Benefit) provision
for income taxes . . . . . . (1,151) 535 (2,136) 1,899
(Loss) income before cumulative
effect of accounting change. . (2,605) (524) (8,549) 134
Cumulative effect of
accounting change for deferred
contract start-up costs, net of tax
benefit of $757. . . . . . . . --- --- (1,012) ---
------ ------ ------ ------
Net (loss) income. . . . . . . . $ (2,605) $ (524) $ (9,561) $ 134
------ ------ ------ ------
Pro forma net income assuming the new
method of accounting for deferred
contract start-up costs is applied
retroactively. . . . . . . . . $ (2,605) $ (968) $ (8,549) $ (310)
See accompanying notes to condensed consolidated financial statements.
MERIT BEHAVIORAL CARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(dollars in thousands)
Six months ended
March 31,
1996 1995
------ ------
CASH FLOW FROM OPERATING ACTIVITIES:
Net (loss) income. . . . . . . . . . . . . . $ (9,561) $ 134
Adjustments to reconcile net (loss) income
to net cash provided by operating activities:
Cumulative effect of accounting change . . 1,012 ---
Depreciation and amortization. . . . . . . 18,098 13,206
Deferred taxes.. . . . . . . . . . . . . . (3,296) 189
Changes in operating assets and liabilities,
net of the effect of acquisitions:
Accounts receivable. . . . . . . . . . . . 2,152 (485)
Other current assets . . . . . . . . . . . 392 146
Deferred contract start-up costs . . . . . (2,390) (3,677)
Accounts payable and accrued liabilities . 9,834 4,448
Net cash provided by operating activities. . 16,241 13,961
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment . (11,448) (14,951)
Sales of marketable securities . . . . . . 1,143 860
Long-term restrictions removed
(placed) on cash. . . . . . . . . . . . . 7,910 (660)
Investments in and advances
to joint ventures. . . . . . . . . . (1,221) ---
Repayments of advances from joint ventures . 120 ---
Cash used for acquisitions, contingent
consideration, and related expenses,
net of cash acquired . . . . . . . . . . . (11,058) (380)
Other. . . . . . . . . . . . . . . . . . . . (1,072) 108
Net cash used for investing activities . . . (15,626) (15,023)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from capital contribution . . . . . 114,980 ---
Borrowings from parent . . . . . . . . . . . --- 641
Proceeds from bridge loan. . . . . . . . . . 75,000 ---
Proceeds from revolving credit facility. . . 84,000 ---
Proceeds from senior term loans. . . . . . . 120,000 ---
Proceeds from sale of notes. . . . . . . . . 100,000 ---
Repayment of notes receivable from officers. 250 ---
Redemption of common stock . . . . . . . . . (259,039) ---
Preliminary adjustment to
common stock redemption. . . . . . . . . . 4,895 ---
Repayment of due to parent . . . . . . . . . (70,813) ---
Repayment of bridge loan . . . . . . . . . . (75,000) ---
Repayment of revolving credit facility . . . (57,500) ---
Payment of financing costs . . . . . . . . . (11,999) ---
Net cash provided by financing activities. . 24,774 641
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS. . . . . . . . . . . . . . . . . 25,389 (421)
Cash and cash equivalents at beginning
of period . . . . . . . . . . . . . . . . 20,611 24,730
CASH AND CASH EQUIVALENTS AT END OF
PERIOD . . . . . . . . . . . . . . . . . . . $ 46,000 $24,309
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid for income taxes . . . . . . . . . $ 801 $ 1,570
Cash paid for interest . . . . . . . . . . . $ 6,100 $ ---
See accompanying notes to condensed consolidated financial statements.
MERIT BEHAVIORAL CARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in thousands)
1. BASIS OF PRESENTATION
The accompanying unaudited interim condensed consolidated financial
statements include the accounts of Merit Behavioral Care Corporation and its
wholly-owned subsidiaries (the "Company"), and have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X.
The condensed consolidated balance sheet at March 31, 1996 and the
consolidated statements of operations and cash flows for all periods
presented are unaudited and reflect all adjustments, consisting of normal
recurring items, which management considers necessary for a fair
presentation. Operating results for the fiscal 1996 and 1995 interim periods
are not necessarily indicative of results to be expected for the entire year.
The consolidated balance sheet at September 30, 1995 was derived from the
Company's September 30, 1995 audited financial statements. Certain prior
year amounts have been reclassified to conform with the current year's
presentation. For further information, refer to the Company's consolidated
financial statements and notes thereto for the year ended September 30, 1995
included in the Company's filing on Form S-4 dated March 20, 1996.
2. MERGER
On October 6, 1995, the Company completed a merger (the "Merger") with
MDC Acquisition Corp. ("MDC"), a company formed by Kohlberg Kravis
Roberts & Co., L.P. ("KKR"), whereby MDC was merged with and into the
Company. Prior to the Merger, the Company was a wholly-owned subsidiary
of Merck & Co., Inc. ("Merck"). In connection with the Merger, Merck
received $333,186 in cash and retained approximately 15.0% of the common
stock of the post-Merger Company. The Merger was accounted for as a
recapitalization which resulted in a charge to equity of $259,039 to
reflect the redemption of common stock. In conjunction with the Merger,
the Company paid a stock dividend of approximately 49.6 shares for each
share of the Company's common stock then outstanding.
The Merger was financed with $114,980 of new cash equity, consisting of
$105,000 from affiliates of KKR and $9,980 from Company management and
affiliated entities ("Management"). Management acquired an additional $5,800
of equity which was funded by loans from the Company. The balance of the
transaction was funded with a $75,000 bridge loan (the "Bridge Loan")
provided by an affiliate of KKR and $155,000 of initial borrowings under a
$205,000 senior credit facility among the Company, The Chase Manhattan
Bank, N.A. and Bankers Trust Company (the "Senior Credit Facility"). The
aforementioned proceeds were utilized to redeem common stock for $259,039,
repay amounts due Merck of $70,813, and pay certain fees and expenses related
to the Merger. Of the total fees and expenses, $5,500 was paid to KKR.
3. LONG-TERM DEBT
At March 31, 1996, long-term debt consisted of the following:
Revolving Loans $26,500
Senior Term Loan A 70,000
Senior Term Loan B 50,000
Notes 100,000
-------
246,500
-------
Less current portion (500)
$ 246,000
Senior Credit Agreement - In October 1995, the Company entered into a credit
agreement (the "Credit Agreement"), which provides for secured borrowings
from a syndicate of lenders. The Senior Credit Facility consists of (i)
a six and one-half year revolving credit facility providing for up to $85,000
in revolving loans, which includes borrowing capacity available for letters
of credit of up to $20,000, and (ii) a term loan facility providing for up
to $120,000 in term loans, consisting of a $70,000 senior term loan with a
maturity of six and one-half years ("Senior Term Loan A"), and a $50,000
senior term loan with a maturity of eight years ("Senior Term Loan B").
At March 31, 1996, $26,500 of revolving loans and three letters of credit
totaling $425 were outstanding under the Revolving Credit Facility, and
approximately $58,075 was available for future borrowings.
The annual amortization schedule of the Senior Term Loans is $500 in fiscal
1997, $3,000 in 1998, $10,500 in 1999, $13,000 in 2000, $20,500 in 2001 and
$72,500 thereafter. The Senior Term Loans are subject to mandatory
prepayment (i) with the proceeds of certain asset sales and (ii) on an annual
basis with 50% of the Company's Excess Cash Flow (as defined in the Credit
Agreement) for so long as the ratio of the Company's Total Debt (as defined
in the Credit Agreement) to annual Earnings Before Interest, Taxes,
Depreciation and Amortization ("EBITDA" as defined in the Credit
Agreement) is greater than 3.5 to 1.0.
The Company is charged a commitment fee calculated at an EBITDA-dependent
rate ranging from 0.250% to 0.500% per annum of the commitment
under the Revolving Credit Facility in effect on each day. The Company is
charged a letter of credit fee calculated at an EBITDA-dependent rate ranging
from 0.375% to 1.750% per annum of the face amount of each letter of credit
and a fronting fee calculated at a rate equal to 0.250% per annum of the face
amount of each letter of credit. Loans under the Credit Agreement bear
interest at EBITDA-dependent floating rates, which are, at the Company's
option, based upon (i) the higher of the Federal funds rate plus 0.5%, or
bank prime rates, or (ii) Eurodollar rates. Rates on borrowings outstanding
under the Senior Credit Facility averaged 8.4% for the six months ended
March 31, 1996.
Notes - On November 22, 1995, the Company issued $100,000 aggregate
principal amount of 11 1/2% senior subordinated notes due 2005 (the "Notes"),
the net proceeds of which were applied to repay the Bridge Loan (including
accrued interest) and a portion of the revolving loans under the Senior
Credit Facility. The Notes are senior subordinated, unsecured obligations
of the Company.
The Company may be obligated to purchase at the holders' option all or a
portion of the Notes upon a change of control or asset sale, as defined
in the indenture for the Notes (the "Notes Indenture"). The Notes
are not redeemable at the Company's option prior to November 15, 2000,
except that at any time on or prior to November 15, 1998, under certain
conditions the Company may redeem up to 35% of the initial principal amount
of the Notes originally issued with the net proceeds of a public offering
of the common stock of the Company. The redemption price is equal to
111.50% of the principal amount if the redemption is on or prior to
November 15, 1997, and 110.50% if the redemption is on or prior to November
15, 1998. From and after November 15, 2000, the Notes will be subject to
redemption at the option of the Company, in whole or in part, at various
redemption prices, declining from 105.75% of the principal amount to par
on and after November 15, 2004. The Notes mature on November 15, 2005.
4. NOTES RECEIVABLE FROM OFFICERS
In October 1995, the Company loaned several officers an aggregate of $5,800
for the purchase of common stock of the Company. Each loan is represented
by a promissory note which bears interest at a rate of 6.5% per annum. These
notes are full recourse obligation of the officers, are collateralized by the
pledge of shares of common stock of the Company and may be prepaid in part or
in full without notice or penalty. One note for $250 was repaid as of
December 31, 1995 and another note for $100 was canceled in January 1996.
The remaining outstanding notes are due as follows: $250 in 1997 and $5,200
in 2001. The notes are shown as a reduction of stockholders' equity in the
accompanying condensed consolidated balance sheet.
5. ACQUISITIONS
On October 5, 1995, the Company paid an initial $8,730 to acquire Choate
Health Management, Inc. and certain related entities ("Choate"), a
Massachusetts-based integrated behavioral healthcare organization. On
December 19, 1995, the Company paid an initial $50 with a subsequent
payment of $2,950 in January 1996 to acquire ProPsych, Inc. ("ProPsych"), a
Florida-based behavioral health managed care company. These acquisitions
were accounted for as purchase transactions in accordance with Accounting
Principles Board ("APB") Opinion No. 16. The condensed consolidated
financial statements include the operating results of Choate and ProPsych
from their respective dates of acquisition. Pro forma results of
operations have not been presented because the effect of the acquisitions
was not significant.
The Company is obligated to make contingent payments to the former
shareholders of Choate and ProPsych based on future financial performance.
Contingent consideration related to Choate is calculated as six times the
calendar year 1997 pre-tax income of Choate, less $8,000; the maximum
additional consideration is $22,000. Contingent consideration related to
ProPsych is calculated as three times the sum of calendar year 1996 and 1997
pre-tax income of ProPsych, less $3,000; the maximum additional
consideration is $15,000. Any additional payments related to Choate or
ProPsych will be recorded as goodwill.
The purchase price for each of the aforementioned transactions was allocated
to the net assets acquired based upon their estimated fair market values.
The excess of the purchase price over the estimated fair value of net assets
acquired amounted to approximately $7,400 for Choate and $3,100 for ProPsych.
Such amounts have been accounted for as goodwill and are being amortized
over 40 years using the straight line method. These allocations were based
on preliminary estimates and may be revised at a later date.
6. STOCK OPTIONS AND AWARDS
In October 1995, the Company adopted the 1995 Stock Purchase and Option
Plan for Employees of Merit Behavioral Care Corporation and Subsidiaries
(the "1995 Option Plan"). The 1995 Option Plan provides for the issuance
of up to 8,561,000 shares of common stock to key employees of the Company.
The 1995 Option Plan permits the issuance of common stock and the grant of
non-qualified stock options (the "1995 Options") to purchase shares of common
stock. The exercise price of the 1995 Options will not be less than 50% of
the fair market value per share of common stock on the date of such grant.
Such options vest at the rate of 20% per year over a period of five years.
As of March 31, 1996, 5,288,000 options with an exercise price of $5.00
per share were issued and outstanding under the 1995 Option Plan.
In January 1996, the Company adopted a second stock option plan, the Merit
Behavioral Care Corporation Employee Stock Option Plan ("1996 Employee
Option Plan"). The 1996 Employee Option Plan, which covers all employees
not included in the 1995 Option Plan, provides for the issuance of up to
1,000,000 shares of common stock of the Company. The 1996 Employee
Option Plan permits the issuance of common stock and the grant of
non-qualified stock options (the "1996 Employee Options" ) to purchase shares
of common stock. The 1996 Employee Options vest on the fourth anniversary
of the date of grant, provided that the employee remains employed with the
Company on such date. The 1996 Employee Options are exercisable only after
an initial public offering of common stock of the Company meeting certain
requirements. As of March 31, 1996, 818,925 options with an exercise price
of $7.50 per share were issued and outstanding under the 1996 Employee
Option Plan.
7. CONTINGENCIES
The Company is engaged in various legal proceedings that have arisen in the
ordinary course of its business. The Company believes that the ultimate
outcome of such proceedings will not have a material effect on the Company's
financial position, liquidity or results of operations.
8. RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of". SFAS 121 establishes accounting standards for the impairment
of long-lived assets and certain identified intangibles to be disposed of
or held and used by an entity. SFAS 121 is effective for fiscal years
beginning after December 15, 1995. The Company will adopt SFAS 121 in
fiscal 1997 and does not expect its implementation to have a material
effect on its results of operations or its financial condition.
In October 1995, the FASB issued SFAS 123, "Accounting for Stock-Based
Compensation". SFAS 123 establishes financial accounting and reporting
standards for stock-based employee compensation plans. SFAS 123 is
effective for fiscal years beginning after December 15, 1995. The Company
will adopt SFAS 123 in fiscal 1997 and does not expect its implementation
to have a material effect on its results of operations or its financial
condition.
9. ACCOUNTING CHANGE
Effective October 1, 1995, the Company changed its method of accounting for
deferred start-up costs related to new contracts or expansion of existing
contracts (i) to expense costs relating to start-up activities incurred after
commencement of services under the contract, and (ii) to limit the
amortization period for deferred start-up costs to the initial contract
period. Prior to October 1, 1995, the Company capitalized certain start-up
costs related to the completion of the provider networks and reporting
systems beyond commencement of contracts and, in limited instances,
amortized the start-up costs over a period that included the initial renewal
term associated with the contract. Under the new policy, the Company does
not defer contract start-up costs after contract commencement. The change
was made to increase the focus on controlling costs associated with contract
start-ups.
The Company recorded a pre-tax charge of $1,769 ($1,012 after taxes) in its
fiscal 1996 first quarter results of operations as a cumulative effect of a
change in accounting. The pro forma impact of this change on the prior year
periods presented would be to increase costs and expenses by $776 ($444
after taxes) for both the three months ended March 31, 1995 and the six
months ended March 31, 1995. The effect of the change on the current year
periods presented cannot be reasonably estimated.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Overview
The Company is one of the leading behavioral health managed care companies
in the United States, arranging for a full spectrum of behavioral healthcare
services on a nationwide basis. The Company provides managed behavioral
healthcare services through a systematic clinical approach with the
objective of diagnosing problems promptly and designing treatment plans to
ensure that patients receive the appropriate level of care in an effective
and cost-efficient manner. Behavioral healthcare involves the treatment of
a variety of behavioral health conditions such as emotional and mental
health problems, substance abuse and other personal concerns that require
counseling, outpatient therapy or more intensive treatment services. The
Company manages behavioral healthcare programs for approximately 1,000
payors accross all segments of the healthcare industry, including health
maintenance organizations ("HMOs"), Blue Cross Blue Shield organizations
and other insurance companies, corporations and labor unions, federal, state
and local governmental agencies, and various state Medicaid programs.
Three Months Ended March 31, 1996 Compared to
Three Months Ended March 31, 1995
Revenue. Revenue increased by $24.8 million, or 28.5%, to $111.7 million
for the three months ended March 31, 1996 from $86.9 million for the three
months ended March 31, 1995. Of this increase, $25.0 million was
attributable to additional revenue from existing customers generated by an
increase in both the number of programs managed by the Company on behalf of
such customers and an increase in the number of beneficiaries enrolled in
such customers' programs, as well as the inclusion of revenue for the
current three month period from certain programs that commenced during the
prior fiscal year; and $2.1 million was attributable to new customers
commencing service in the current quarter, the majority of which was
derived from the Company's contract with AT&T, services under which
commenced on January 1, 1996. This revenue increase was partially offset
by a $7.3 million decrease in revenue as a result of the termination of
certain contracts, two of which accounted for $3.4 million of such decrease.
The majority of these contracts had terminated in various periods of the
prior fiscal year. Contract price increases were not a material factor in
the increase in revenue.
The Company completed two acquisitions during the current fiscal year. On
October 5, 1995, the Company acquired Choate Health Management, Inc. and
certain related entities ("Choate"), and on December 19, 1995, the Company
acquired ProPsych, Inc. ("ProPsych"). These acquisitions, which were
accounted for under the purchase method of accounting, contributed an
additional $5.0 million in revenue for the three months ended March 31, 1996.
Direct Service Costs. Direct service costs increased by $17.3 million, or
24.5%, to $87.9 million for the three months ended March 31, 1996 from $70.6
million for the three months ended March 31, 1995. As a percentage of
revenue, direct service costs decreased from 81.3% in the prior year period to
78.7% in the current year period. This decrease was primarily due to
unusually high inpatient utilization in the prior year quarter experienced
under a significant contract with an HMO focused on the Medicaid beneficiary
population. Changes made by the Company in the management of such
program and in the clinical protocols utilized to deliver treatment services
had the effect of reducing such high inpatient utilization and redirecting
beneficiaries to more appropriate and cost-effective levels of care.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $4.3 million, or 37.7%, to $15.7 million
for the three months ended March 31, 1996 from $11.4 million for the three
months ended March 31, 1995. The increase in total selling, general and
administrative expenses was primarily attributable to (i) growth in marketing
and sales administrative staff, corporate and regional management and support
systems associated with the higher sales volume, (ii) expenses associated with
the expansion of the Company's national service center located in St. Louis,
Missouri (the "National Service Center") which will allow for growth beyond
its current needs, and (iii) expenses related to the planned deployment of
the Company's new information systems. As a percentage of revenue, selling,
general and administrative expenses increased to 14.1% for the current
quarter from 13.1% in the prior year quarter. The increase in the expense,
coupled with the delay in the planned start date of certain new contracts,
contributed to the increase in selling, general and administrative expenses
as a percentage of revenue.
Amortization of Intangibles. Amortization of intangibles increased by $1.3
million, or 24.5%, to $6.5 million for the three months ended March 31, 1996
from $5.3 million for the three months ended March 31, 1995. The increase
was primarily due to an increase in amortization of goodwill recognized in
connection with the acquisitions of Choate and ProPsych and the Company's
joint venture with Empire Blue Cross and Blue Shield, as well as to increases
in the amortization of deferred contract start-up costs related to new
contracts.
Other Income (Expense). For the three months ended March 31, 1996, other
income and expense consisted of (i) interest expense of $6.1 million incurred
as a result of the increase in long-term debt resulting from the Merger;
and (ii) interest and other income of $0.8 million relating primarily to
investment earnings on the Company's short-term investments and restricted
cash balances.
Income Taxes. The Company recorded a benefit for income taxes during the
three months ended March 31, 1996 based upon the Company's pre-tax loss in
such period.
Six Months Ended March 31, 1996 Compared to Six Months Ended March
31, 1995
Revenue. The Company's revenue increased by $58.5 million, or 35.6%, to
$222.6 million for the six months ended March 31, 1996 from $164.1 million
for the six months ended March 31, 1995. Of this increase, $60.4 million was
attributable to additional revenue from existing customers generated by an
increase in both the number of programs managed by the Company on behalf
of such customers and an increase in the number of beneficiaries enrolled in
such customers' programs, as well as the inclusion of revenue for the current
six month period from certain programs that commenced during the prior fiscal
year; and $2.4 million was attributable to new customers commencing service
in the current six month period, the majority of which was derived from the
AT&T contract. This revenue increase was partially offset by a $13.0 million
decrease in revenue as a result of the termination of certain contracts, two
of which accounted for $6.9 million of such decrease. The majority of these
contracts had terminated in various periods of the prior fiscal year.
Contract price increases were not a material factor in the increase in
revenue.
The Company's acquisitions of Choate and ProPsych contributed an additional
$8.7 million in revenue for the six months ended March 31, 1996.
Direct Service Costs. Direct service costs increased by $47.2 million, or
36.6%, to $176.3 million for the six months ended March 31, 1996 from $129.1
million for the six months ended March 31, 1995. As a percentage of revenue,
direct service costs increased from 78.7% in the prior year period to 79.2%
in the current year period. The increase was principally due to the loss
in the fourth quarter of fiscal 1995 of two contracts with higher than
average direct profit margins and a renewal of a significant contract on
lower pricing terms. Furthermore, the Company earned a lower than average
direct profit margin on a significant state Medicaid program which was not
in effect for the entire six month period in the prior year. These increases
were partially offset by lower inpatient utilization in the current six month
period as compared to the corresponding period in the prior year related to
a significant contract with an HMO focused on the Medicaid beneficiary
population. Such decrease resulted from the implementation of changes in
program management and modification of the clinical treatment protocols
applicable to such contract. The Company is continuing its effort to reduce
direct service costs to mitigate the effects of pricing pressure associated
with the competitive bid process for new contracts and negotiations to
extend existing contracts. In the second quarter of 1996, related to this
effort, the Company commenced a nationwide recontracting program with
its participating facilities and providers in an effort to obtain
more favorable rates.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $6.6 million, or 28.2%, to $30.0 million
for the six months ended March 31, 1996 from $23.4 million for the six months
ended March 31, 1995. As a percentage of revenue, selling, general and
administrative expenses decreased to 13.5% for the current year period from
14.2% in the prior year period. The increase in total selling, general and
administrative expenses was primarily attributable to growth in information
systems staff, marketing and sales administrative staff, corporate and regional
management and support systems associated with the higher sales volume.
Because a large portion of these expenses are fixed in nature and do not
increase directly with additional revenue, selling, general and administrative
expenses decreased as a percentage of revenue.
Amortization of Intangibles. Amortization of intangibles increased by $2.5
million, or 24.3%, to $12.8 million for the six months ended March 31, 1996
from $10.3 million for the six months ended March 31, 1995. The increase was
primarily due to an increase in amortization of goodwill recognized in
connection with the acquisitions of Choate and ProPsych and the Company's
joint venture with Empire Blue Cross and Blue Shield, as well as to increases
in the amortization of deferred contract start-up costs related to new
contracts.
Other Income (Expense). For the six months ended March 31, 1996, other
income and expense consisted of (i) interest expense of $11.5 million incurred
as a result of the increase in long-term debt resulting from the merger with
MDC Acquisition Corp. (the "Merger"); (ii) merger expenses of $4.0 million
consisting primarily of professional and advisory fees; and (iii) interest and
other income of $1.3 million relating primarily to investment earnings on the
Company's short-term investments and restricted cash balances.
Income Taxes. The Company recorded a benefit for income taxes during the
six months ended March 31, 1996 based upon the Company's pre-tax loss in
such period. The resulting income tax benefit has been partially offset by
the nondeductible nature of certain merger costs.
Cumulative Effect of Accounting Change. Effective October 1, 1995, the
Company changed its method of accounting for deferred start-up costs related
to new contracts or expansion of existing contracts (i) to expense costs
relating to start-up activities incurred after commencement of services
under the contract, and (ii) to limit the amortization period for deferred
start-up costs to the initial contract period. Prior to October 1, 1995,
the Company capitalized start-up costs related to the completion of the
provider networks and reporting systems beyond commencement of contracts
and, in limited instances, amortized the start-up costs over a period that
included the initial renewal term associated with the contract. Under the
new policy, the Company does not defer contract start-up costs after
contract commencement or include the initial renewal term in the
amortization period. The change was made to increase the focus on
controlling costs associated with contract start-ups.
The Company recorded a pre-tax charge of $1,769 ($1,012 after taxes) in its
fiscal 1996 first quarter results of operations as a cumulative effect of
a change in accounting. The pro forma impact of this change on the prior
years presented would be to increase costs and expenses by $776 ($444 after
taxes) for both the three months and six months ended March 31, 1995. The
effect of the change on the current year periods presented cannot be
reasonably estimated.
Liquidity and Capital Resources
For the six months ended March 31, 1996, operating activities provided cash
of approximately $16.2 million, investing activities used cash of approximately
$15.6 million and financing activities provided cash of $24.8 million,
resulting in a net increase in cash and cash equivalents of $25.4 million.
Investing activities in the current six month period consisted principally
of (i) capital expenditures of $11.4 million related to the continued
development of the Company's new information systems and expansion of the
Company's National Service Center; (ii) payments totaling $1.2 million for
funding under the joint ventures with Neighborhood Health Providers, LLC and
Community Health Network of Connecticut, Inc.; (iii) payments totaling $11.1
million for the acquisitions of Choate and ProPsych; and (iv) a net decrease
of $7.9 million in long-term restricted cash primarily due to the
reclassification of the Company's surplus cash balance with the State of
Iowa to cash and cash equivalents.
In October 1995, the Company completed a merger with MDC Acquisition
Corp., a company formed by Kohlberg Kravis Roberts & Co., L.P. ("KKR").
In connection with the Merger, Merck & Co., Inc. ("Merck") received $333.2
million in cash and retained approximately 15% of the common stock of the
post-Merger Company. The Merger was financed with $115.0 million of new cash
equity from affiliates of KKR and Company management. The balance of the
transaction was funded with a $75.0 million bridge loan (the "Bridge Loan")
provided by an affiliate of KKR and $155.0 million of initial borrowings
under a $205.0 million senior credit facility. The aforementioned proceeds
were utilized to redeem common stock for $259.0 million, repay amounts due
Merck of $70.8 million, and pay certain fees and expenses relate to the
Merger. In November 1995, the Company issued $100.0 million aggregate
principal amount of 11 1/2% senior subordinated notes due 2005, the net
proceeds of which were applied to repay the Bridge Loan and a portion of
the revolving loans under the senior credit facility. As of March 31, 1996,
$26.5 million of revolving loans and $0.4 million of letters of credit were
outstanding under the Company's revolving credit facility, and approximately
$58.1 million was available for future borrowing. Adjusted EBITDA (as
defined in the covenants contained in the indenture for the Notes) increased
by $4.6 million, or 67.6%, to $11.4 million for the three months ended March
31, 1996 from $6.8 million for the three months ended March 31, 1995. For
the six months ended March 31, 1996, Adjusted EBITDA increased by $7.2
million, or 47.4%, to $22.4 million from $15.2 million for the comparable
period in the prior year.
On October 5, 1995, the Company acquired Choate for $8.7 million; the
Company is obligated to make contingent payments relating to Choate based
on future financial performance. On December 19, 1995, the Company
acquired ProPsych for an initial payment of $0.1 million and a payment of
$2.9 million made in January 1996; the Company is obligated to make
contingent payments relating to ProPsych based on future financial
performance. From time to time, the Company has engaged in and continues
to engage in preliminary discussions with respect to potential acquisitions.
As of March 31, 1996, the Company had total cash balances (including cash
equivalents) of $50.5 million, of which $32.0 million was restricted under
certain contractual, fiduciary and regulatory requirements; moreover, of such
amount, $4.5 million was classified as a long-term asset on the Company's
balance sheet. Under certain contracts, the Company is required to establish
segregated claims funds into which a portion of its capitation fee is held
until a reconciliation date (which reconciliation typically occurs annually).
Until that time, cash funded under these arrangements is unavailable to
the Company for purposes other than the payment of claims. In addition,
California and Illinois state regulatory requirements restrict access to
cash held by the Company's subsidiaries in such states. As of March 31,
1996, the Company also held a surplus cash balance, classified as cash and
cash equivalents, as required by the contract with the State of Iowa to
provide managed mental health services to that state's Medicaid population
(the "Iowa Mental Health Contract") held by the Company.
Historically, the Company has funded its operations primarily with cash
generated from operations and through the funding of certain acquisitions,
investments and other transactions by its former parent, Merck. The Company
expects to finance its capital requirements in the future through existing
cash balances, cash generated from operations and borrowings under its
revolving credit facility. Based upon the current level of operations and
anticipated growth, the Company believes that available cash, together with
available borrowings under its revolving credit facility and other sources
of liquidity, will be adequate to meet the Company's anticipated future
requirements for working capital, capital expenditures, and scheduled
payments of principal and interest on its indebtedness through the
foreseeable future.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company currently is involved in legal proceedings relating to the Iowa
Mental Health Contract. The proceedings arose out of the initial decision
of the Iowa Department of Human Services (the "Iowa DHS") in May 1994 to
award the Iowa Mental Health Contract to Value Behavioral Health, Inc. (the
"Competitor"). The Company contested the decision to award the Iowa Mental
Health Contract to the Competitor on the basis that, among other things, the
Competitor should have been disqualified from competing for the Iowa
Mental Health Contract because of certain conflicts of interest in the
bidding process for the Iowa Mental Health Contract. After the Iowa DHS
denied the Company administrative relief, the Company filed suit in the
District Court of Iowa for Polk County (the "Iowa District Court"),
requesting that the entry into the Iowa Mental Health Contract by the Iowa
DHS and the Competitor be stayed pending the court's ruling. The Iowa
District Court granted the Company's stay motion. Subsequently, in a ruling
entered in October 1994, the Iowa District Court disqualified the Competitor
from performing services under the Iowa Mental Health Contract because of
various conflicts of interest. After the Iowa District Court decision,
the Iowa DHS withdrew the initial award of the Iowa Mental Health Contract
to the Competitor and, in November 1994, awarded the Iowa Mental Health
Contract to the Company. The Competitor appealed the Iowa District Court
decision to the Iowa Supreme Court and requested that the Iowa Supreme Court
stay the Iowa Mental Health Contract between the Iowa DHS and the Company.
The Competitor also commenced an administrative proceeding with the Iowa DHS
to contest the award of the Iowa Mental Health Contract to the Company. The
Iowa DHS denied the Competitor's protest and the Iowa Supreme Court denied
the stay motion in December 1994. In January 1995, the Company and the Iowa
DHS signed the definitive Iowa Mental Health Contract and, on March 1, 1995,
the Company commenced services thereunder.
The Competitor's appeal of the October 1994 Iowa District Court decision and
its challenge of the administrative decision by the Iowa DHS to award the
Iowa Mental Health Contract to the Company have been consolidated and are
pending before the Iowa Supreme Court. The Iowa Supreme Court is expected
to rule upon the Competitor's appeal sometime in 1996. There can be no
assurance that the Iowa Supreme Court will not overturn the Iowa District
Court's ruling disqualifying the Competitor or that, should the Iowa District
Court decision be overturned, the Iowa DHS will not terminate the Iowa Mental
Health Contract with the Company. The Iowa Mental Health Contract, which
is terminable for any reason by the Iowa DHS upon 60 days notice, generated
revenue of $20.8 million for the six months ended March 31, 1996. In
connection with entering into the Iowa Mental Health Contract, the Company
agreed to indemnify the Iowa DHS for 50% of certain damages and related
expenses (up to a maximum payment by the Company of $2.5 million) that the
Iowa DHS incurs, if any, as a result of awarding the Iowa Mental Health
Contract to the Company. Termination of the Iowa Mental Health Contract or
a material damage award relating thereto could have a material adverse effect
on the Company.
ITEM 5. OTHER INFORMATION
In March 1996, Richard S. Chung, M.D., the Company's Executive Vice
President and Chief Clinical Officer, informed the Company that he will be
leaving the Company on May 31, 1996. Further, in connection with the
departure of Shannon R. Kennedy, Ph.D. from the Company on April 1, 1996,
the Company purchased all shares of Common Stock acquired by Dr. Kennedy
on October 5, 1995 in connection with the Merger. Dr. Kennedy formerly held
the positions of Director, President and Chief Operating Officer of the
Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibits required in accordance with Item 601 of Regulation S-K are
incorporated by reference herein as filed with the Registrant's Registration
Statement in Form S-4 (no. 33-80987) dated March 20, 1996.
In addition, the Company has filed herewith the following exhibits:
10.31 Amisys Implementation and Systems Integration Services
Agreement between Perot Systems Corporation and Merit Behavioral
Care Corporation, dated effective as of January 12, 1996.
18 Letter regarding change in accounting principles of Deloitte
& Touche LLP.
27 Financial Data Schedule (electronic filing only).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which this
report is being filed.
SIGNATURES
Pursuant to the requirements 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.
The signatory hereby acknowledges and adopts the typed form of his name in
the electronic filing of this document with the Securities and Exchange
Commission.
Date: May 13, 1996 Merit Behavioral Care Corporation
By:/s/ Arthur H. Halper
Arthur H. Halper, Executive Vice President
and Chief Financial Officer (Principal
Financial Officer, Accounting Officer
and Duly Authorized Officer)
Portions of this document have been deleted
pursuant to an application for Confidential
Treatment filed with the Securities and Exchange
Commission.
AMISYS IMPLEMENTATION AND SYSTEMS INTEGRATION
SERVICES AGREEMENT
between
PEROT SYSTEMS CORPORATION
and
MERIT BEHAVIORAL CARE CORPORATION
dated effective as of January 12, 1996
AMISYS IMPLEMENTATION AND SYSTEMS INTEGRATION SERVICES AGREEMENT
THIS AGREEMENT made effective as of the 12th day of January,
1996 (the "Effective Date") by and between PEROT SYSTEMS
CORPORATION ("PSC") with its principal place of business at 12377
Merit Drive, Dallas, TX, 75251 and MERIT BEHAVIORAL CARE
CORPORATION ("MBC") with its principal place of business at One
Maynard Drive, Park Ridge, NJ, 07656.
W I T N E S S E T H :
WHEREAS, PSC proposes to provide implementation services for
the AMISYS Managed Care System and systems integration services in
support of MBC's managed care system needs; and
WHEREAS, MBC desires to obtain from PSC implementation
services for the AMISYS Managed Care System and systems integration
services in support of its managed care system needs; and
WHEREAS, PSC desires MBC's participation in the configuration
and testing of the AMISYS Managed Care System and the conversion of
MBC's current Information Systems known as Bionet, HP9000, and AS400
to the AMISYS Managed Care System; and
WHEREAS, PSC is capable and willing to provide certain systems
integration services in connection with the AMISYS System
implementation;
NOW, THEREFORE, in consideration of the premises and the
mutual promises contained herein and for other valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, MBC and PSC,
intending to be legally bound, agree as follows:
Article I. Definitions
The following terms shall have the meanings set forth below when
used in this Agreement and other agreements executed pursuant to this
Agreement unless the context otherwise requires:
"Acceptance" or "Acceptance of the AMISYS System" means the
recognition by MBC in writing that the AMISYS Managed Care System is
implemented, installed and operable at designated MBC sites according to
the Acceptance Criteria specified in Schedule C.
"Acceptance Criteria" means those standards and criteria for the
completion of the implementation and transition of MBC's legacy systems
to the AMISYS System to the extent described in Schedule C of this
Agreement; provided, that if MBC does not meet its obligations as specified
in Article IV or in an agreed upon project plan, then PSC shall be relieved
of the Acceptance Criteria only to the extent that MBC's failure to meet such
requirements affects PSC's ability to meet the Acceptance Criteria.
"Additional Services Fees" shall have the meaning stated in Section
5.3 of this Agreement.
"AMISYS Managed Care System" or "AMISYS System" means
the Software applications purchased and licensed by MBC from American
International Healthcare, Inc. (currently AMISYS Managed Care Systems
Incorporated) ("AMISYS Managed Care Systems, Inc.") and other third
party Software which is used with the AMISYS applications Software and
purchased and licensed by MBC from third party vendors.
"Base Implementation Services Fee" shall have the meaning stated in
Section 5.1.
"Base Index" shall mean the Consumer Price Index ("CPI") published
by the Bureau of Labor Statistics of the United States Department of Labor
in January one year prior to the Current Index.
"Contract Year" shall mean each 12-month period commencing on
January 12, 1996, or any anniversary of such date during the Term.
"Current Index" shall mean the CPI published in January of the
calendar year in which an increase in the Fees is sought.
"Deliverables" shall mean the items and services which PSC must
submit to MBC for review and approval as described in Schedule B.
"Documentation" shall mean any user manuals, training materials,
user specifications and other user material related to the AMISYS System.
"Enhancement", or conjugations thereof, shall mean any creation of,
addition to, or change in, the AMISYS System which improves or adds to
the functionality of a feature of the Software for the AMISYS System other
than relating to Third Party Software, and with respect to Enhancements
relating to Third Party Software, which can be readily performed by PSC
without incurring additional costs related to such Third Party Software or
the need for expanded access to, or rights to develop or use, such Third
Party Software.
"Fees" shall mean the Base Implementation Services Fees, Systems
Integration and Reporting Fees and Additional Services Fees.
"Hardware" means any computer hardware required to execute the
AMISYS System.
"Key Users" means MBC staff in Provider, Claims and other NSC
departments involved in supporting centralized functions on the AMISYS
System.
"Maintenance", or conjugations thereof, shall mean the following in
relation to PSC Software: Any creation or correction of, addition to, or
change in, the PSC Software occurring in the normal course of business that
does not improve or add to the functionality of the PSC Software or the
AMISYS System. In relation to Third Party Software, including AMISYS
Software, refer to Section 3.5 of this Agreement.
"MBC Affiliate" shall mean any person or entity that, directly or
indirectly through one or more intermediaries, controls, or is controlled by,
or is under common control or shares control with MBC.
"National Service Center" or "NSC" means MBC operational and
support departments where consolidated functions are performed to support
MBC corporate objectives.
"PSC Software" means any Software owned by (as opposed to
licensed to) PSC and used with the AMISYS System, including integration
software developed by PSC.
"Software" means the computer application programs that are
required to meet the Deliverables of PSC, including but not limited to, the
AMISYS System, Third Party Software, PSC Software, or software owned
by MBC.
"Source Code" shall mean the literal computer program(s) written in
a specified, standard programming language, from which the applications
version(s) of the program(s) are compiled.
"Systems Integration and Reporting Services Fees" shall have the
meaning stated in Section 5.2 of this Agreement.
"Third Party Software" means any Software which is licensed by and
not owned by PSC or MBC and is used with the AMISYS System,
including AMISYS application software.
Article II. Term of Agreement and Extensions
2.1 Initial Term. The initial term of this Agreement shall
continue for a period of two (2) years from the Effective Date, unless
terminated earlier pursuant to Article XII ("Initial Term"). In the event this
Agreement is not terminated prior to the expiration, or at the expiration, of
the Initial Term, the term of the Agreement shall continue indefinitely until
terminated pursuant to Article XII (the Initial Term and any continuation
collectively shall mean "Term"). After the Initial Term, this Agreement shall
continue pursuant to this Section 2.1 at the charges (as adjusted in
accordance with Section 5.10) and upon the terms and conditions in effect
during the preceding 12 months of the Term.
Article III. PSC's Obligations and Scope of Services
3.1 Base Implementation Services. PSC shall provide
implementation, conversion and transition services related to the AMISYS
System ("Base Implementation Services") according to the specifications,
time schedules, locations, and other parameters as established in Section II
of Schedule B and in accordance with the Acceptance Criteria established in
Schedule C, both of which are attached hereto and incorporated herein by
reference.
3.2 Systems Integration and Reporting Services. PSC shall
provide systems integration and report development services in support of
MBC's AMISYS System implementations according to specifications
established in Section III of Schedule B. Such services will be provided in
support of Base Implementation Services as described in Section II of
Schedule B as well as other AMISYS implementation projects as specified
in Section IV of Schedule B at the rate defined in Section 5.2. All services
provided by PSC pursuant to this Section 3.2 shall be specifically requested
and authorized by MBC in writing pursuant to the procedures described in
Section III of Schedule B. If Systems Integration and Reporting Services
recommended by PSC are required for PSC to perform its obligations under
this Agreement, including its obligations under Section II of Schedule B, or
for PSC to meet the Acceptance Criteria established in Schedule C, and
MBC elects not to authorize the performance of such services, PSC shall not
be obligated to perform under this Agreement to the extent that PSC's
performance is adversely affected by MBC's inactions or actions.
3.3 Additional Services. PSC may provide other project and
ad hoc services not included in Base Implementation Services or Systems
Integration and Reporting Services ("Additional Services"). These
Additional Services are described in Section IV of Schedule B. All
services provided by PSC pursuant to this Section 3.3 shall be specifically
requested and authorized by MBC in writing pursuant to the procedures
described in Section IV of Schedule B at the rates defined in Section 5.3
of this Agreement.
3.4 Staffing Requirements. PSC shall provide sufficient staff,
with the necessary experience levels, to fulfill its service obligations
applicable to the AMISYS System and any other obligations specified in
this Article III and Schedule B and will not charge for such employees,
except as specifically provided in this Agreement or in Schedule B. As long
as the PSC account manager, implementation manager, technical manager,
project managers and transition managers remain employed by PSC, PSC
will use its best commercial efforts to avoid changing the personnel fulfilling
these responsibilities for a period of two (2) years from the Effective Date.
For the above PSC employees that are replaced during the Term, MBC will
have the right to interview and recommend replacement candidates provided,
however, such recommendation(s) shall not be binding on PSC. For those
PSC employees that are replaced during the Term, PSC will substitute
employees with comparable levels of skill and experience.
3.5 Software Maintenance. As part of the services rendered for
the Base Services Implementation Fee, PSC shall use its best commercial
efforts to assist MBC in the management of any Third Party Software
vendors to facilitate the completion and delivery of Deliverables outlined in
Sections II and III of Schedule B. This may include any maintenance and/or
support agreements established by MBC. MBC shall be responsible for the
payment of all Third Party maintenance and/or support fees.
3.6 Subcontractors. To the extent necessary and practical,
PSC may utilize subcontractors to facilitate PSC's performance under this
Agreement provided, however, that (1) MBC shall have the right to require
all such subcontractors to be subject to the obligations of confidentiality as
set forth in Article IX hereof; and (2) PSC shall not utilize as subcontractors
any former MBC employees or third parties that have provided services to
MBC within the preceding twenty-four (24) months without MBC's prior
written consent. PSC does not have authority to bind MBC in any
subcontractor agreements or any other agreements entered into by PSC in
connection herewith, including any agreements relating to MBC's obligations
under Article IV.
Article IV. MBC Obligations
Testing and Acceptance. MBC agrees to provide adequate
staff to test the AMISYS System and to provide adequate user resources for
data entry during the transition of the legacy systems to the AMISYS
System as specified in each project implementation plan and agrees to
Acceptance of the AMISYS System after testing if the AMISYS System
meets the Acceptance Criteria as fully described in Schedule C.
Hardware and Software.MBC shall provide all the Hardware
and Software reasonably necessary for PSC to utilize the AMISYS System,
and shall be responsible for all costs related to procurement of Hardware,
Third Party Software license fees to Third Party Software vendors, and
Hardware and Software maintenance and/or support fees to third party
Hardware and Software maintenance and/or support providers, including but
not limited to the following:
(a) MBC will be responsible for any Hewlett Packard fees required for
on-site services related to performing system maintenance and system
upgrades required for PSC to perform services outlined in Schedule B
and to meet the Acceptance Criteria established in Schedule C.
(b) MBC will be responsible for any fees associated with software
maintenance or enhancements for (1) the transition of the legacy systems
to the AMISYS System, and (2) the AMISYS System itself related to
system releases or software upgrades provided by AMISYS Managed
Care Systems, Inc., Third Party Software providers or PSC, which are
reasonably necessary for PSC to perform the services outlined in
Schedule B and to meet the Acceptance Criteria established in Schedule
C.
(c) MBC will be responsible for purchasing all equipment, maintenance,
and supplies related to the operation of the AMISYS System. This
includes all Hewlett Packard software, hardware, or any other equipment
reasonably necessary for PSC to perform the services outlined in
Schedule B and to meet the Acceptance Criteria established in Schedule
C.
(d) MBC shall be responsible for all software license and
maintenance/support agreements, including its support agreement with
AMISYS Managed Care Systems, Inc., reasonably required for PSC to
perform the services outlined in Schedule B and to meet the Acceptance
Criteria established in Schedule C.
4.3 Telecommunications Equipment. MBC agrees to provide
reasonable equipment, cabling, circuits, line usage, and related items required
to access the AMISYS System ("Telecommunications Equipment"),
including reasonable communication systems, Local Area Networks (LANs),
modems, ports and other interface equipment to be used at any MBC site.
MBC will also be responsible for communications equipment and circuit
charges necessary for connecting MBC systems to PSC's managed care staff
in Dallas, Texas.
4.4 Manuals. To the extent procedures manuals already exist,
MBC will make such procedures manuals available for use by PSC
personnel. MBC will maintain and update all manuals as reasonably required
for use by PSC and MBC personnel.
4.5 Data Entry. MBC is responsible for providing users to
enter any and all required data into the AMISYS System and to operate
the AMISYS System. Such data to be entered includes provider,
membership, claims and authorization data. Such data entry will be
required for purposes of operating the AMISYS System on a daily basis
and any system testing that MBC may be required to complete as defined
in Sections II and III of Schedule B.
4.6 MBC Staffing and Project Support. MBC agrees to
designate an implementation manager at each MBC site for which the
AMISYS System is implemented. MBC, as part of meeting the
implementation requirements, will provide certain team members to assist
in the implementation roll-out. Specific staffing levels to be provided to
PSC by MBC include implementation resources of three (3) Business
Analysts, three (3) Technical Specialists for conversion and reporting, and
three (3) Project Leaders that report to the PSC Project Manager. MBC
will also provide the following transition team resources to be assigned to
PSC: one (1) Business Analyst, and one (1) Technical Support Specialist.
The MBC employees assigned to this effort will report to a PSC employee
and be assigned tasks and deliverables by the PSC Management team.
MBC will use its best commercial efforts to avoid changing the employees
assigned to the project. For those MBC employees that are replaced
during the Term, PSC will have the right to interview and recommend
replacement candidates provided, however, such recommendation(s) shall
not be binding on MBC. For those MBC employees that are replaced
during the Term, MBC will substitute employees with comparable levels
of skill and experience.
In the event an MBC employee fails to meet the deliverable date for
Deliverables for which he/she is responsible or does not have the skills
necessary to perform MBC's obligations under this Agreement, PSC and
MBC will agree to (1) remove such employee from the project; (2) replace
such employee with another MBC employee; or (3) authorize PSC to replace
the employee with a PSC employee at an additional costs to MBC.
MBC shall designate Key Users in all NSC departments responsible
for administering functions on the AMISYS System. Designated Key Users
will have responsibility for AMISYS configuration issues affecting their
respective departments and providing interdepartmental on-going training
and support for department staff. Designated Key Users will also be
responsible for enforcing AMISYS standard usage and coordinating
additional departmental staffing resources to support AMISYS System
implementations.
MBC shall provide PSC with reasonable access to personnel as well
as appoint a specific employee to act a project liaison as reasonably required
to fulfill PSC's obligations as defined in Schedule B. Subject to Article IX
herein, MBC agrees to cooperate with PSC by making available, as
reasonably requested by PSC, management decisions, personnel, information,
approvals and acceptances so that PSC may perform its obligations in a
timely and acceptable manner.
4.7 Availability for Meeting. As reasonably requested by PSC,
MBC personnel will be available for meetings, performance reviews and
approvals, and to establish goals and objectives associated with services
provided by PSC as specified in this Agreement.
4.8 Third Party Software and Hardware. MBC is responsible
for complying with PSC's reasonable requests to use Third Party Software
(including the AMISYS application software) and Hardware in accordance
with any reasonable restrictions provided by the vendors of such Software
and Hardware to the extent required for PSC to perform its obligations under
this Agreement.
4.9 Office Facilities and Supplies. MBC shall provide
reasonable office facilities and supplies to PSC to enable PSC to perform its
obligations under this Agreement. MBC shall provide equipment to PSC
necessary to access the AMISYS System.
4.10 Postage and Delivery Costs. MBC shall pay all reasonable
postage, freight, shipping and handling costs for the implementation of the
AMISYS System. MBC shall bear all expenses for the transportation,
delivery and transfer of all AMISYS Systems (for training purposes),
Documentation and AMISYS System output between PSC and MBC.
4.11 Data Center Operations and Support. MBC shall establish
and operate one Data Center, where data is processed as necessary to fulfill
the Acceptance Criteria for the transition of the legacy systems to the
AMISYS System.
4.12 Use of Third Party Services. With respect to services which
are required for PSC to meet the Acceptance Criteria established in Schedule
C, such services (as described in Sections II and III of Schedule B) must
either be completed by PSC, or MBC must obtain prior approval from PSC
for the use of third parties to complete this work, which consent shall not be
unreasonably withheld.
4.13 Non-Performance By MBC. Notwithstanding anything
contained herein to the contrary, with respect to MBC's responsibilities
pursuant to Sections 4.1, 4.2, 4.3, 4.4, 4.5, 4.6, 4.7, 4.8, 4.9, 4.10 and
4.11, MBC may, in its sole discretion, determine not to perform any of its
obligations pursuant to and described in such sections and no such failure
to perform will be deemed a breach of this Agreement, provided, however,
that if MBC determines not to perform any such obligations, including
opting not to pay any costs or expenses otherwise required herein, (1) PSC
shall not be obligated to perform under this Agreement to the extent that
PSC's performance is adversely affected by MBC's action or inaction, and
(2) neither MBC nor PSC shall be relieved of any of their respective
obligations otherwise owed under this Agreement. In the event MBC
determines not to perform one of its obligations pursuant to this Article
IV, MBC shall provide written notice to PSC thereof, and MBC shall not
be relieved of any payments otherwise due PSC as described in Article V.
4.14 Incurrence of Expenses. With respect to MBC's
obligations under Section 4.2, PSC must obtain MBC's prior written
approval before incurring any expenses for which it will seek
reimbursement from MBC pursuant to this Article IV.
Article V. Payment
5.1 Base Implementation Services Fee.
(a) MBC shall pay to PSC a base implementation fee (the "Base
Implementation Fee") of $_________ for January, 1996, and
$__________ for each subsequent month during the Term of this
Agreement for the Base Implementation Services specified in Section
II of Schedule B performed by PSC in accordance with the
procedures of such Schedule B.
(b) With respect to each Implementation Site, including but not
limited to those Implementation Sites described in Section II of
Schedule B, MBC and PSC shall mutually agree on a date that
implementation for each site will be completed (the "Live Date")
in accordance with the Acceptance Criteria as described in
Schedule C (the "Acceptance Criteria"). A list of the Live Dates
shall be incorporated herein and attached hereto as Exhibit A and
shall be amended from time as additional Live Dates are mutually
established by MBC and PSC.
(c) With respect to each Implementation Site, if PSC satisfies
all of the Acceptance Criteria on the scheduled Live Date, MBC's
obligation to pay the Base Implementation Fee shall remain
unchanged.
(d) With respect to each Implementation Site, if PSC fails to
satisfy any of the Acceptance Criterion on the scheduled Live Date
solely due to PSC's failure to perform its obligations hereunder,
and such failure continues for thirty (30) days after the scheduled
Live Date, the Base Implementation Fee for the subsequent month
shall be reduced by an amount equal to $________ per day until the
implementation for each site is completed consistent with the
Acceptance Criteria, provided that PSC's failure to complete one
or more sites by their respective Live Dates shall not affect MBC's
obligation to pay the adjusted Base Implementation Fee in a timely
manner, and provided further, that MBC shall make the appropriate
adjustments to the Base Implementation Fee on a monthly basis.
Such fee reduction shall cease upon the termination of this
Agreement.
(e) With respect to each Implementation Site, if PSC satisfies
all of the Acceptance Criteria by more than thirty (30) days before
the scheduled Live Date, the Base Implementation Fee for the
subsequent month shall be increased by an amount equal to
$________ per day until thirty (30) days before the scheduled Live
Date, provided that PSC's ability to complete one or more sites
before their respective Live Dates shall not affect MBC's
obligation to pay the adjusted Base Implementation Fee in a timely
manner and provided, further, that MBC shall make the appropriate
adjustments to the Base Implementation Fee on a monthly basis.
(f) Nothing contained in Sections 5.1 (b) - (e) shall affect any
of MBC's or PSC's obligations, rights or remedies under this
Agreement except with respect to payment of the Base
Implementation Fee.
5.2 Systems Integration and Reporting Services Fees. MBC
shall pay PSC, at an hourly rate of $_______, to provide the Systems
Integration and Reporting Services as described and identified in Section 3.2
of this Agreement
5.3 Additional Services Fees. PSC may provide services for
additional projects not covered by the Base Implementation Services Fee and
Systems Integration and Reporting Services Fees at the following hourly
rates:
Project Managers $___ per hour
Business, Financial, and Systems Analysts $___ per hour
Network and Systems Engineers $___ per hour
In substitute for hourly rates for Additional Services, MBC may request, and
PSC may propose, fixed price quotes for certain Additional Services projects.
Such fixed price fees will be due and payable to PSC in equal monthly
payments during the term of the project, or as otherwise agreed.
5.4 Hardware and Software Procurement Fees. At MBC's
request, PSC may provide quotes for third party Hardware and Software
required to support services provided under this Agreement. Upon MBC's
written acceptance of PSC's third party Hardware or Software quotes, and
upon PSC's delivery of requested Hardware or Software, MBC agrees to pay
PSC for such quoted fees.
5.5 Reimbursement of Travel Expenses. MBC shall reimburse
PSC at PSC's cost for such reasonable and necessary direct out-of-pocket
travel expenses incurred directly in connection with PSC's performance of its
services as contemplated by this Agreement, including reasonable air fare
(coach class), accommodations and reasonable meals, but excluding any
normal scheduled travel to the offices of AMISYS Managed Care Systems,
Inc., for training classes. Such travel must be approved in advance by an
authorized representative of MBC, which approval shall not be unreasonably
withheld or delayed (but which approval shall not be required in urgent
situations). MBC shall be invoiced monthly in arrears; provided, however,
that MBC shall have no obligation to reimburse PSC for any such expenses
which are either not properly approved in advance or which are not invoiced
within one year of the date incurred by PSC.
5.6 Invoice Adjustments and Additional Charges. MBC must
identify in writing to PSC any contested invoice items within one year after
receipt of the invoice or forego any future rights to contest such invoice,
except in the case of fraud or deceit. In addition, PSC must identify in
writing to MBC any additional charges not originally included on the invoice
delivered to MBC within one year after the later of the date the costs were
incurred by PSC, or PSC agrees to forego any future rights to invoice MBC
for such charges.
5.7 Invoices. PSC will invoice MBC on or about the fifth business
day of each month for: (1) the Base Implementation Services Fees for such
month; and (2) any Systems Integration and Reporting Services Fees and
Additional Services Fees relating to the performance of such services for the
previous month. All PSC invoiced amounts are due and payable thirty (30)
days after receipt by MBC. PSC shall supply supporting data for such
invoices as reasonably requested by MBC.
5.8 Proration. All periodic charges (other than hourly charges)
under this Agreement are to be computed on a calendar month basis, and will
be prorated for any partial month as follows: number of days that have
transpired in the month divided by the number of days in the month.
5.9 Pricing Adjustments. Except as otherwise agreed upon by
the parties and subject to this Section 5.9, during the Term of this
Agreement, PSC may not increase the Fees. Commencing as of January 12,
1997, and not more than once annually, PSC may increase the Fees according
to the following formula:
(1) If the Current Index is less than or equal to seven percentage
points higher than the Base Index, PSC may increase the Fees by 50
percent of the percentage point increase of the Current Index over the
Base Index (e.g., if the Base Index = 100 and the Current Index =
102, the Fees may be increased by (.5 x (102 - 100)/100) = 1%).
(2) If the Current Index is more than seven percentage points
higher than the Base Index, PSC may increase the Fees by 50 percent
of the percentage point increase of the Current Index over the Base
Index up to seven percentage points and 75 percent of the percentage
point increase of the Current Index over the Base Index over seven
percentage points (e.g., if the Base Index = 100 and the Current Index
= 108, the Fees may be increased by (108-100)/100 = 8%; (.5 x 7%)
+ (.75 x 1%) = 3.5% + .75% = 4.25%).
(3) In the event that the Bureau of Labor Statistics ceases to
publish the CPI or substantially changes its content or format, MBC
and PSC shall substitute therefor another comparable measure
published by an agreed-upon source; provided, however, that if such
change is to redefine the base year for the CPI from 1982-1984 to
some other year, the parties will continue to use the CPI but shall, if
necessary, convert either the Base Index or the Current Index to the
same basis as the other by multiplying such index by the appropriate
conversion factor.
Article VI. Books and Records; Audit Rights
6.1 Records. PSC shall make and keep complete copies of
the following written records relating to the services performed under this
Agreement: (1) in regard to any expenses charged to MBC under this
Agreement, including expense reports and receipts; (2) in regard to
services provided on a time and materials basis, copies of all timelogs
relating to such services; and (3) in regard to services provided for a fixed
price, copies of all records reflecting delivery and system acceptance of
Deliverables. PSC shall preserve all such records for no less than two (2)
years after the services related to the records are completed. During the
Term of this Agreement and for two (2) years thereafter, MBC shall have
the right, at its own expense, to inspect and copy such records during
PSC's regular working hours.
6.2 Annual Audit. PSC shall cooperate and participate in an
annual audit of PSC by MBC (or a third party consistent with the provisions
of this Section 6.2), conducted at MBC's option and expense, for the limited
purpose of ensuring compliance with this Agreement. PSC shall make
available to MBC all pertinent books and records, the AMISYS System and
any other necessary information such that MBC can properly evaluate the
performance of PSC with respect to this Agreement. PSC shall not be
obligated by this Agreement to disclose to MBC or any other person or entity
any information which is not reasonably necessary to conduct such an audit,
nor shall PSC be obligated to divulge any trade secrets or proprietary
information of PSC or any third party except to the extent reasonably
necessary to satisfy the purpose of the audit contemplated by this Section 6.2,
and in no event shall PSC be obligated to divulge any trade secrets or
proprietary information to any competitor, or affiliate of a competitor, of
PSC. MBC may utilize third parties, which are not competitors, or affiliates
of a competitor, of PSC, to conduct such audit subject to such third party or
parties entering into a confidentially agreement reasonably satisfactory to
MBC and PSC. PSC shall perform or start to perform its obligations under
this Section 6.2 within ten (10) days of dispatch of written notice from MBC
that MBC is availing itself of the rights afforded by this Section 6.2
6.3 Article Survives Agreement. This Article VI shall survive
the Term of this Agreement for four (4) years notwithstanding the reason for
the expiration or termination of the Agreement.
6.4 HHS Audit. If required by applicable law, PSC agrees that
until four (4) years after the termination or expiration of this Agreement, PSC
will make available to the Secretary of the United States Department of
Health and Human Services (the "Secretary") and the United States
Comptroller General, and their duly authorized representatives, this
Agreement and all pertinent books, documents and records necessary to
certify the nature and extent of the costs of the goods and services provided
to MBC under this Agreement, as their respective interests may appear. This
section does not obligate PSC to maintain records in any particular format.
No attorney-client, accountant-client or other legal or equitable privilege
shall be deemed to have been waived by the parties by virtue of this
provision.
6.5 Audit of PSC Subcontractors. If PSC carries out the duties
of this Agreement through a subcontract worth $10,000 or more over a
twelve (12) month period , the subcontract shall contain clauses substantially
identical to Sections 6.1 through 6.4, inclusive, of this Agreement to permit
access to the subcontractor's books and records by MBC , as their respective
interests may appear, and the Secretary, the United States Comptroller
General and their representatives.
Article VII. RIGHTS IN DATA; OWNERSHIP
7.1 Rights in Data. As between MBC and PSC, all data provided
to PSC, in connection with the AMISYS System, processing through use
of the Software or in connection with the performance by PSC of any of its
obligations pursuant to this Agreement shall be be the exclusive property of
MBC. In no event shall PSC claim any rights with respect to such data or
take any action with respect to such data that is inconsistent with the duties
of a bailee for hire without the prior written consent of MBC.
7.2 Additional Rights in Data. MBC fully reserves its rights to
retrieve, transport and deliver to third parties the data provided by MBC and
all manipulations of such data associated with the AMISYS System. PSC
shall not delay, hinder or impede MBC's exercise of such powers, not
withstanding the pendency of any dispute between MBC and PSC with
respect to MBC's justification to so act.
7.3 Ownership. For purposes of this Agreement, "Work
Product" shall mean the data, materials, documentation, computer
programs, inventions (whether or not patentable), and all works of
authorship, including all worldwide rights therein under patent, copyright,
trade secret, confidential information, or other property right, created or
developed in whole or in part by PSC, whether prior to the date of this
Agreement or in the future, while retained by MBC and that (i) are created
within the scope of this Agreement, as such Agreement is amended by the
parties or otherwise in connection or in the performance by PSC of its
obligations hereunder, and (ii) has been or will be paid for by MBC
pursuant to this Agreement. All Enhancements and Maintenance created
hereunder shall be deemed Work Product. All Work Product shall be the
sole and exclusive property of MBC and shall be deemed "works made for
hire" of which MBC shall be deemed the author. If any of the Work
Product may not, by operation of law, be considered work made for hire
by PSC for MBC, or if ownership of all right, title, and interest of the
intellectual property rights therein shall not otherwise vest exclusively in
MBC, PSC assigns to MBC, and upon the future creation thereof
automatically assigns to MBC, without further consideration, the
ownership of all Work Product. MBC shall have the right to obtain and
hold in its own name copyrights, registrations, and any other protection
available in the Work Product. PSC agrees to perform, during or after the
term of this Agreement, such further acts as may be necessary or desirable
to transfer, perfect and defend MBC's ownership of the Work Product that
are reasonably requested by MBC. MBC agrees that it may not transfer or
disclose such Work Product to third parties, except to MBC Affiliates to
the extent (a) such MBC Affiliate is not a competitor of PSC; and (b) such
MBC Affiliate agrees not to transfer or disclose such Work Product to a
third party. MBC's ownership of the Work Product is restricted in that
MBC and MBC Affiliates may only use the Work Product in support of
their respective businesses.
MBC hereby grants to PSC an irrevocable, exclusive, worldwide,
royalty-free license to use and distribute (internally and externally)
copies of, and prepare derivative works based upon, such Work Product and
derivative works thereof. Such license shall be transferable except PSC
may not transfer such license to any competitors of MBC or affiliates of
such competitors.
7.4 Pre-existing Materials. To the extent that any pre-existing
materials are contained in the materials PSC delivers to MBC, such materials
will not be deemed "Work Product" under Section 7.3, and PSC grants to
MBC an irrevocable, non-exclusive, worldwide, royalty-free license to use
copies of, and prepare derivative works based upon, such pre-existing
materials and derivative works thereof. Such license shall be non-
transferable except that MBC may transfer such license to MBC Affiliates,
as defined herein, to the extent such MBC Affiliate is not a competitor of
PSC. The license granted in this Section 7.4 is restricted in that MBC and
MBC Affiliates may (a) use the pre-existing materials only in the operation
of the AMISYS System and not to provide data processing services to third
parties and (b) not disclose the PSC Software or related Documentation to
third parties; provided, however, that MBC or MBC Affiliates may disclose
the PSC Software and related Documentation to third parties who have
executed PSC's standard non-disclosure agreement as necessary for the
operation or maintenance of the PSC Software to provide such services to
MBC or its Affiliates.
Article VIII. Representations, Warranties and
Covenants
8.1 PSC'S WARRANTIES. PSC warrants and represents to
MBC as follows:
(a) PSC warrants that its services shall be performed by qualified
personnel and consistent with good practice in the computer services
industry. If PSC breaches this warranty, MBC shall notify PSC in
writing within thirty (30) days after such services are performed,
setting forth the manner in which the services are defective. Within
thirty (30) days after receipt of such notice, PSC shall supply services
to correct or replace the work at no charge. DURING SUCH THIRTY (30)
DAY PERIOD, PSC'S OBLIGATION TO CORRECT THE DEFECTIVE SERVICES AT NO
CHARGE IS MBC'S EXCLUSIVE REMEDY FOR BREACH OF SUCH WARRANTY.
In the event PSC does not correct the defect by the end of the thirty
(30) day period, MBC may avail itself of other remedies. This
Section 8.1(a) shall not affect or delay MBC's ability to terminate for
cause pursuant to Section 12.1. The 30-day notice provisions in this
Section 8.1(a) and in Section 12.1 may run at the same time.
(b) PSC owns and/or possesses all rights and interests in the PSC
Software necessary to grant the rights set forth in this Agreement.
(c) The Deliverables shall be delivered to MBC in accordance with
the agreed upon specifications pursuant to the procedures established
in Schedule B. If PSC breaches this warranty, MBC shall notify PSC
in writing within thirty (30) days after such Deliverables are
delivered, setting forth the manner in which the Deliverables do not
meet the agreed upon specifications. Within thirty (30) days after
receipt of such notice, PSC shall supply services to correct such
defects at no charge. DURING SUCH THIRTY (30) DAY PERIOD, PSC'S
OBLIGATION TO CORRECT THE DEFECT AT NO CHARGE IS MBC'S EXCLUSIVE
REMEDY FOR BREACH OF SUCH WARRANTY. In the event PSC does not correct
the defect by the end of the thirty (30) day period, MBC may avail
itself of other remedies. This Section 8.1(c) shall not affect or delay
MBC's ability to terminate for cause pursuant to Section 12.1. The 30-
day notice provisions in this Section 8.1(c) and in Section 12.1 may
run at the same time.
(d) EXCEPT AS SPECIFIED IN THIS AGREEMENT, PSC DISCLAIMS ALL WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE. ANY THIRD PARTY SOFTWARE, HARDWARE
AND EQUIPMENT PROVIDED BY PSC UNDER THIS AGREEMENT IS PROVIDED "AS IS",
BUT PSC SHALL TRANSFER TO MBC ANY WARRANTIES IT RECEIVES FROM THIRD
PARTY MANUFACTURERS OR VENDORS FOR SUCH SOFTWARE, HARDWARE AND
EQUIPMENT, AND SHALL USE ITS BEST COMMERCIAL EFFORTS TO HELP MBC
ENFORCE SUCH THIRD PARTY WARRANTIES.
8.2 MBC'S WARRANTIES. MBC represents and warrants that it has procured
all rights and licenses which are necessary for PSC to implement and use the
AMISYS System and the Third Party Software in order to perform its
obligations under this Agreement.
Article IX. Confidentiality and Security
9.1 Definitions. For purposes of this Agreement:
9.1.1 "Trade Secrets" means information which: (a)
derives economic value, actual or potential, from not being
generally known to, and not being readily ascertainable by proper
means by, other persons who can obtain economic value from its
disclosure or use; and (b) is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy;
9.1.2 "Confidential Information" means information,
other than Trade Secrets, that is of value to its owner and is treated
as confidential;
9.1.3 "Proprietary Information" means, collectively,
Trade Secrets and Confidential Information. Proprietary
Information includes, but is not limited to, the identity of patients,
patient records, patient related materials (including, but not limited
to, records or documents relating to the management or
administration of patient care or to the processing or review of
claims), the content of any AMISYS records, financial and tax
information, information regarding AMISYS claims submission
and reimbursements, and the object codes and Source Codes and
Documentation for proprietary software;
9.1.4. "Owner" or "Owning Party" refers to the party
disclosing Proprietary Information hereunder, whether such
disclosure is directly from Owner or through Owner's employees or
agents; and
9.1.5 "Recipient" or "Receiving Party" refers to the
party receiving any Proprietary Information hereunder, whether
such disclosure is received directly or through Recipient's
employees or agents.
9.2 Obligation to Observe Confidentiality. Each party
hereunder may disclose to the other party certain Proprietary Information
of such party or of such party's associated companies, suppliers, customers
or patients. The Recipient of the Proprietary Information agrees to keep
the Proprietary Information confidential and not to, directly or indirectly,
distribute, reveal, publish, disclose, cause to be disclosed, or otherwise
transfer the Proprietary Information disclosed by Owner to any third party,
or utilize the Proprietary Information disclosed by Owner for any purpose
whatsoever other than as expressly contemplated by this Agreement. With
regard to the Trade Secrets, this obligation shall continue for so long as
such information constitutes a trade secret under applicable law. With
regard to the Proprietary Information, this obligation shall continue for the
Term of this Agreement and for a period of five (5) years thereafter.
9.3 Protection. The Receiving Party shall not disclose the
Proprietary Information except to those persons having a need to know for
purposes authorized in Section 9.2. Each party shall take appropriate action,
by instruction to or agreement with its employees, agents and subcontractors,
to maintain the confidentiality of the Proprietary Information. Either party
may disclose any Proprietary Information on an as-needed basis to its
employees and its nonemployee fiduciaries, including without limitation its
attorneys, accountants, auditors, controlling persons, officers, directors or
trustees, without the Owning Party's prior consent, provided that such
recipients enter into an agreement to keep such Proprietary Information
confidential with substantially the same protections as contained herein. The
Receiving Party shall promptly notify the Owning Party in the event that the
Receiving Party learns of an unauthorized release of Proprietary Information.
The Receiving Party shall be responsible for the breach of this provision by
such other parties.
9.4 Exceptions. The foregoing obligations of confidentiality shall
not apply, if and to the extent that:
(a) Recipient establishes that the information communicated
was already known to Recipient, without obligations to keep such
information confidential, at the time of Recipient's receipt from
Owner;
(b) Recipient establishes that the information communicated
was independently developed or discovered by Recipient, without
direct or indirect access to such Proprietary Information;
(c) Recipient establishes that the information communicated
was received by Recipient in good faith from a third party lawfully
in possession thereof and having no obligation to keep such
information confidential;
(d) Recipient establishes that the information communicated
was publicly known at the time of Recipient's receipt from Owner
or has become publicly known other than by a breach of this
Agreement; or
(e) Recipient is required by an administrative agency or other
governmental body of competent jurisdiction to disclose the
Proprietary Information pursuant to subpoena or other lawful
process.
9.5 Return of Proprietary Information. Except as otherwise
specifically provided in this Agreement, upon the termination or expiration
of this Agreement, each party shall (a) immediately cease to use the other
party's Proprietary Information, (b) return to the other party such Proprietary
Information and all copies thereof within ten (10) days of the termination or
expiration, unless otherwise provided in this Agreement, and (c) upon
request, certify in writing to the other party that it has complied with its
obligations set forth in this Article IX, unless otherwise provided in this
Agreement.
9.6 Availability of Equitable Remedies. The parties
acknowledge that monetary remedies may be inadequate to protect rights in
Proprietary Information and that, in addition to legal remedies otherwise
available, injunctive relief is an appropriate judicial remedy to protect such
rights.
9.7 Exploitation. PSC shall not use Proprietary Information
received from MBC or any Key User for the purpose of developing
information or statistical compilations for use by third parties or for any
other commercial exploitation, unless otherwise agreed upon in writing
by MBC.
9.8 Reasonable Assistance. Each party agrees to provide
reasonable assistance and cooperation upon the reasonable request of the
other party in connection with any litigation against third parties to protect
the requesting party's Proprietary Information or in seeking a protective
order or other remedy designed to keep the Proprietary Information
confidential, provided that the party seeking such assistance and
cooperation shall reimburse the other party for its reasonable out-of-pocket
expenses.
9.9 Nondisclosure of Existence of Agreement. Neither party
shall refer to the existence of this Agreement or disclose its terms or use
the name of the other party in any press release, advertising or materials
distributed to prospective customers, without consulting the other party.
MBC shall consult with the PSC Account Manager. PSC shall not represent,
directly or indirectly, that any product or service of PSC has been approved
or endorsed by MBC or any Authorized User.
9.10 Section Survives Contract. This Article IX shall survive the
termination or expiration of this Agreement indefinitely without regard
to the cause of such termination or expiration.
Article X. Indemnities
10.1 Indemnification. Each party shall indemnify and hold
harmless the other party and its affiliates, directors, officers, employees
and agents (collectively, the "indemnitee") against any and all losses,
liabilities, judgments, awards and costs (including legal fees and expenses)
(collectively "Losses") arising out of or related to any claim (1) for
personal injury of any agent, employee, customer, business invitees or
business visitor of the indemnitor; (2) damage to real property or tangible
personal property (other than intellectual property infringement claims) in
the possession or under the control of the indemnitor; and (3) any claim by
a third party arising from indemnitor's violation of its obligations of
confidentiality hereunder, including, but not limited to, obligations
relating to patient identities, patient records, or patient related
materials under Article IX of this Agreement, including any damages finally
awarded attributable to such claim and any reasonable expense incurred by
indemnitee in assisting indemnitor in defending against such claim, that
arises out of any action or inaction by the indemnitor or its employees or
agents; provided, however, that indemniteegives indemnitor: (a) written
notice within a reasonable time after indemnitee is served with legal
process in an action asserting such claims, provided that the failure or
delay to notify indemnitor shall not relieve indemnitor from any liability
that it may have to indemnitee hereunder so long as the failure or delay
shall not have prejudiced the defense of such claim and then only to the
extent that the indemnitor actually is prejudiced; and (b) reasonable
assistance in defending the claim. The indemnitor shall be entitled to have
sole authority to defend or settle such claim, provided that, within fifteen
(15) days after receipt of such written notice, the indemnitor notifies the
indemnitee in writing that it acknowledges its responsibility to indemnify
indemnitee for losses from such claim hereunder, and that it has elected to
assume full control. In the event indemnitor fails to acknowledge its
responsibility to indemnify indemnitee in respect of such claim, or elects
not to defend any such claim, indemnitee shall have the option but not the
duty to reasonably settle or defend the claim at its cost and indemnitor
shall indemnify indemnitee for such settlement or any damages finally
awarded against indemnitee attributable to such claim, reasonable costs
and expenses (including attorneys' fees), and interest on such recoverable
funds advanced.
10.2 PSC Infringement Indemnity. PSC agrees to indemnify and
hold harmless MBC and its affiliates, directors, officers, employees and
agents against any and all losses, liabilities, judgments, awards and costs
(including legal fees and expenses) arising out of or related to any third-
party claim that MBC's use or possession of any PSC Software (including for
thissubsection but not limited to any Source Code and related Documentation)
provided by PSC for use by MBC under this Agreement, when used as
provided in this Agreement, infringes or violates the U.S. copyright, patent,
trade secret or other proprietary rights of any third party, including any
damages finally awarded attributable to such claim and any reasonable
expense incurred by MBC in assisting PSC in defending against such claim;
provided, however, that MBC gives PSC: (a) written notice within a
reasonable time after MBC is served with legal process in an action asserting
such claims, provided that the failure or delay to notify PSC shall not
relieve PSC from any liability that it may have to MBC hereunder so long as
the failure or delay shall not have prejudiced the defense of such claim and
then only to the extent that the PSC actually is prejudiced; and (b)
reasonable assistance in defending the claim. PSC shall be entitled to
have sole authority to defend or settle such claim, provided that, within
fifteen (15) days after receipt of such written notice, PSC notifies MBC in
writing that it acknowledges its responsibility to indemnify MBC for losses
from such claim hereunder, and that it has elected to assume full control.
In the event PSC fails to acknowledge its responsibility to indemnify MBC
in respect of such claim, or elects not to defend any such claim, MBC shall
have the option, but not the duty, to reasonably settle or defend the claim
at its cost and PSC shall indemnify MBC for such settlement or any damages
finally awarded against MBC attributable to such claim, reasonable costs and
expenses (including costs of investigation and legal fees and expenses) and
interest on such recoverable funds advanced. PSC will cooperate with MBC
to pass through any applicable indemnity received by PSC from Third Party
Software vendors with respect to such vendors' software.
If use of the PSC Software by MBC is disrupted as a result of a
third party claim, MBC may, in addition to any other rights and remedies
provided in this Agreement, require PSC to perform one or more of the
following actions:
(a) Replacement: Replace the PSC Software by implementing
a non-infringing product of equivalent functional and
performance capability of the PSC Software as described in
the Project Plan and/or respective specifications;
(b) Modification: Modify the PSC Software to avoid the
infringement, provided, however, no such replacement or
modification shall substantially impair the functionality or
performance of such software;
(c) Obtain License: Obtain a license from the third party
claiming infringement for MBC's use of the PSC Software.
PSC shall have the sole discretion of electing which of the three options or
combination thereof it will perform, provided that PSC's choice
ameliorates the disruption.
10.3 MBC Copyright Indemnity. MBC agrees to indemnify and
hold harmless PSC and its affiliates, directors, officers, employees and agents
against any and all losses, liabilities, judgments, awards and costs
(including legal fees and expenses) arising out of or related to any third-
party claim that PSC's use or possession of any MBC owned software
(including for this subsection but not limited to any Source Code and
related Documentation) provided by MBC for use by PSC under this Agreement,
when used as provided in this Agreement, infringes or violates the U.S.
copyright, patent, trade secret or other proprietary rights of any third
party, including any damages finally awarded attributable to such claim and
any reasonable expense incurred by PSC in assisting MBC in defending against
such claim; provided, however, that PSC gives MBC: (a) written notice within a
reasonable time after PSC is served with legal process in an action asserting
such claims, provided that the failure or delay to notify MBC shall not
relieve MBC from any liability that it may have to PSC hereunder so long as
the failure or delay shall not have prejudiced the defense of such claim and
then only to the extent that the MBC actually is prejudiced; and (b)
reasonable assistance in defending the claim. MBC shall be entitled to have sole
authority to defend or settle such claim, provided that, within fifteen (15)
days after receipt of such written notice, MBC notifies PSC in writing that
it acknowledges its responsibility to indemnify PSC for losses from such
claim hereunder, and that it has elected to assume full control. In the
event MBC fails to acknowledge its responsibility to indemnify PSC in
respect of such claim, or elects not to defend any such claim, PSC shall
have the option, but not the duty, to reasonably settle or defend the claim
at its cost and MBC shall indemnify PSC for such settlement or any damages
finally awarded against PSC attributable to such claim, reasonable costs and
expenses (including costs of investigation and legal fees and expenses) and
interest on such recoverable funds advanced. MBC will cooperate with PSC
to pass through any applicable indemnity received by MBC from Third Party
Software vendors with respect to such vendor's Software.
10.4 Subrogation. In the event that an indemnitor shall be
obligated to indemnify an indemnitee pursuant to this Article X, the
indemnitor shall, upon payment of such indemnity in full, be subrogated to
all rights of the indemnitee with respect to claims to which such
indemnification relates.
10.5 Exclusive Remedy. The indemnification rights of each
indemnitee pursuant to this Article X shall be the exclusive remedy of such
indemnitee with respect to the claims to which such indemnification relates;
provided, however, that such indemnitee shall retain the right to seek
injunctive or other non-monetary equitable remedies with respect to such
claims.
Article XI. Remedies
11.1 Measure and Limitation of Damages. The measure of
damages recoverable from one party by the other for any reason, whether
arising by negligence, intended conduct or otherwise, shall not include any
amounts for indirect, special, consequential or punitive damages of any party,
including third parties, even if such damages are foreseeable. In the event
one party shall be liable to the other party for damages arising under or in
connection with this Agreement, whether arising by negligence, intended
conduct or otherwise, then that party may recover from the other its actual
direct damages only. Such damages will be limited to one-half of all Fees
paid by MBC to PSC on the date of the event giving rise to the claim,
provided the total actual damages shall not exceed $______________ for the
Term of this Agreement.
11.2 Exclusion. The limitations set forth in Section 11.1 are not
applicable to (a) any breach of the nondisclosure and confidentiality of
Article IX of this Agreement, (b) the failure of one party to make payments
due under this Agreement to the other, or the (c) indemnification claims as
set forth in Article X.
11.3 Limitation Period. Neither party to this Agreement may
assert against the other party any claim in connection with this Agreement
unless the asserting party has given the other party written notice of the
claim within two (2) years after the asserting party first knew or should
have known of the facts giving rise to such claim.
Article XII. Termination
12.1 Termination for Cause. If either party defaults in the
performance of any of its material obligations under this Agreement (other
than a payment default), and such default is not cured within 30 days after
written notice is received by the defaulting party specifying, in reasonable
detail, the nature of the default, the non-defaulting party may, upon further
written notice to the defaulting party, terminate this Agreement as of the
date specified in such notice of termination.
12.2 Termination For Convenience: Commencing eighteen
(18) months from the Effective Date, at any time MBC or PSC may
terminate this Agreement for any reason by providing the other party 180
days' prior written notice of its decision to terminate.
12.3 Termination for Nonpayment. If MBC defaults in the
payment of any amount due to PSC pursuant to this Agreement and does
not cure such default within ten (10) days after being given written notice
of such default, PSC may terminate this Agreement upon further written
notice to MBC.
12.4 Termination for Insolvency Either party may, by giving
the other notice, terminate this Agreement with immediate effect:
(1) upon the institution by the other party of proceed-
ings to be adjudicated bankrupt or insolvent, or the
consent by the other party to institution of
bankruptcy or insolvency proceedings against it or
the filing by the other party of a petition or answer
or consent seeking reorganization or release under
the Federal Bankruptcy Act, or any similar
applicable Federal or state law, or the consent by
the other party to the filing of any such petition or
the appointment of a receiver, liquidator, assignee,
trustee, or other similar official of the other party or
of all or any substantial part of its property, or the
making by the other party of an assignment for the
benefit of creditors, or the admission in writing by
the other party of its inability to pay its debts
generally as they become due or the taking of
corporate action by the other party in furtherance of
any such action; or
(2) if, within sixty (60) days after the commencement
of an action against the other party seeking any
bankruptcy, insolvency, reorganization, liquidation,
dissolution or similar relief under any present or
future law or regulation, such action shall not have
been dismissed or all orders or proceedings
thereunder affecting the operations or the business
of the other party stayed, or if the stay of any such
order or proceeding shall thereafter be set aside; or
if, within sixty (60) days after the appointment
without the consent or acquiescence of the other
party of any trustee, receiver or liquidator or similar
official of the other party or of all or any substantial
part of the property of the other party, such
appointment shall not have been vacated. In the
event either party becomes or is declared insolvent
or bankrupt, is the subject of any proceedings
related to its liquidation, insolvency or for the
appointment of a receiver or similar officer for it,
makes an assignment for the benefit of all or
substantially all of its creditors, or enters onto an
agreement for the composition, extension or
readjustment of all or substantially all of its
obligations, then the other party may, by giving
notice thereof to such party, terminate this
Agreement as of a date specified in such notice of
termination.
12.5 Transition Fees/PSC Software. Notwithstanding anything
in the Agreement to the contrary, whenever the Agreement is terminated or
expires the following shall apply, in addition to any rights or remedies of
the parties under the Agreement:
12.5.1 Transition Charges. If (1) MBC terminates this
Agreement at the end of the second year pursuant to Section
12.2; or (2) if PSC terminates this Agreement during the
Initial Term pursuant to Section 12.1, 12.3 or 12.4 of this
Article XII, PSC may charge MBC required, reasonable
termination costs, including relocation charges, transportation
charges, equipment charges, and other reasonable documented
expenses related to termination or migration, provided PSC
provides estimates of all transition charges fees at the time
PSC employees are relocated to perform services under this
Agreement, and MBC approves of such transition charges.
MBC's obligation for such fees shall not exceed the approved
estimate.
12.5.2 PSC Software. PSC Software is and shall remain
PSC's property and MBC shall have no rights or interests to
the PSC Software except as described in this Section 12.5.2.
PSC hereby grants to MBC a perpetual, non-exclusive,
restricted license to use the application software programs
(including all related Documentation) of any PSC Software
then being used by PSC in connection with the AMISYS
System upon expiration of this Agreement or termination of
this Agreement. Such license shall be non-transferable except
MBC may transfer such license to MBC Affiliates, as defined
herein, to the extent such MBC Affiliate is not a competitor
of PSC. The license granted in this Section 12.5.2 is
restricted in that MBC and MBC Affiliates may (a) use the
PSC Software only in the operation of the AMISYS System
and not to provide data processing services to third parties
and (b) not disclose the PSC Software or related
Documentation to third parties; provided, however, that MBC
or MBC Affiliates may disclose the PSC Software and related
Documentation to third parties who have executed PSC's
standard non-disclosure agreement as necessary for the
operation or maintenance of the PSC Software to provide
such services to MBC or its Affiliates.
12.6 Rights upon Termination. Upon termination of this
Agreement at the expiration of the Initial Term or any Renewal Term or by
MBC pursuant to Section 12.1, 12.2, 12.3 or Section 12.4 hereof, PSC will,
if requested by MBC, provide reasonable training for MBC personnel or the
personnel of a designated third party to permit continuity in the performance
of implementation services for MBC, said training to be provided during any
notice period hereinabove specified and for up to six (6) additional monthly
increments commencing with the date of termination, and MBC shall pay
PSC for such training at PSC's then current rates (PSC will provide estimates
of these rates upon thirty (30) days notice at any time within the last one
hundred eighty (180) days of the then current term). Such payment will be
billed monthly by PSC and PSC may cease to deliver such services if such
invoices are not paid in full within thirty (30) days of receipt. In the
event PSC terminates this Agreement pursuant to Sections 12.1 or 12.3, MBC
shall immediately pay PSC all amounts due and payable hereunder as of the
termination date; a partial month's fee shall be prorated as set forth
pursuant to Section 5.8 of this Agreement.
12.7 Duties Upon Termination. Upon termination of this
Agreement by either party under the provisions of this Article XII, PSC shall
take reasonable efforts to minimize any further costs, subject to MBC's
obligations to pay PSC reasonable termination costs under Section 12.5.1.
PSC shall be reimbursed only for the services actually performed and the
expenses actually and reasonably incurred as of the date of such termination,
subject to MBC's obligations to pay PSC for services pursuant to Section
12.5.
Article XIII. Taxes
13.1 Taxes. MBC shall pay, or reimburse PSC for payment of, any
taxes or amounts paid in lieu of taxes, however designated or levied, based
upon this Agreement, the charges of PSC for the services or materials
provided under this Agreement, except for taxes based on the net income of
PSC or employment taxes for PSC employees.
Article XIV. Independent Contractor Status
14.1 Independent Contractor Status. PSC, in performance of
this Agreement, is acting as an independent contractor and shall have the
exclusive control of the manner and means of performing the work contracted
for hereunder. Personnel supplied by PSC hereunder, whether or not located
on MBC's premises, are PSC employees or agents and shall not represent
themselves to be otherwise.. Nothing contained in this Agreement shall be
construed to create a joint venture or partnership between the parties.
Article XV. Force Majeure
15.1 Force Majeure. Neither party hereto shall be liable for any
failure or delay in performance of its obligations hereunder (other than
payment obligations) by reason of any event or circumstance beyond its
reasonable control, including without limitation, acts of God, war, riot,
strike, labor disturbance, fire, explosion, flood, or shortage or failure
of suppliers.
Article XVI. Headings
16.1 Headings. The article and section headings used herein are
for reference and convenience only and shall not bear upon the interpretation
of this Agreement or Schedules hereto.
Article XVII. Severability
17.1 Severability. All agreements, clauses and covenants
contained herein are severable, and in the event any of them shall be held to
be unconstitutional, invalid, illegal, or unenforceable, the remainder of this
Agreement shall be interpreted as if such unconstitutional, invalid, illegal
or unenforceable agreements, clauses or covenants were not contained herein.
IT IS EXPRESSLY UNDERSTOOD AND AGREED THAT EACH AND EVERY PROVISION OF THIS
AGREEMENT THAT PROVIDES FOR A LIMITATION OF LIABILITY, DISCLAIMER OF
WARRANTIES OR EXCLUSION OF DAMAGES IS INTENDED BY THE PARTIES TO BE
SEVERABLE AND INDEPENDENT OF ANY OTHER PROVISION AND TO BE ENFORCED AS SUCH.
Article XVIII. Waiver/Modification
18.1 Waiver/Modification. The failure by either party to exercise
any right provided hereunder shall not be deemed a waiver of such right.
This Agreement may be amended, modified or supplemented only by a
writing signed by the parties to this Agreement. Such amendments,
modifications or supplements shall be deemed as much a part of this
Agreement as if so incorporated herein.
Article XIX. Binding Nature of Contract, Informed Exchange
for Value
19.1 Binding Nature of Contract, Informed Exchange for
Value. MBC and PSC represent that both have the legal capacity to enter
into this Agreement and Schedules. This Agreement and Schedules shall
therefore be binding on the parties which have entered into this Agreement.
Article XX. Notices to Parties
20.1 Notices to Parties. All notices required or permitted under
this Agreement shall be in writing or by facsimile and sent to the other party
at the address or the facsimile number specified below or to such other
address or facsimile number as either party may substitute from time to time
by written notice to the other and shall be deemed given upon receipt of such
notice whether by certified mail, postage prepaid, or personal or courier
delivery or, in the case of facsimile transmission, when confirmation is
received, as follows:
If to PSC: 12377 Merit Drive
Suite 1600
Dallas, TX 75251
Attn: Joseph E. Boyd
Facsimile Number: (214) 383-5739
with a copy to: 12377 Merit Drive
Suite 1100
Dallas, TX 75251
Attn: General Counsel
Facsimile Number: (214) 383-5735
If to MBC: Merit Behavioral Care Corporation
13736 Riverport Drive
Maryland Heights, Missouri 63043
Attn: Charles Mangene
Facsimile Number: (314) 595-3526
with a copy to: Merit Behavioral Care Corporation
One Maynard Drive
Park Ridge, New Jersey 07656
Attn: General Counsel
Facsimile Number: (201) 573-1324
Article XXI. Attorney's Fees
21.1 Attorney's Fees. If any legal action or other proceeding is
brought for the enforcement of this Agreement, or because of the alleged
dispute, breach, default or misrepresentation in connection with any of the
provisions of this Agreement, the prevailing party shall recover reasonable
attorney's fees and other court costs associated with the proceeding. This
shall in no way diminish or preclude any other relief to which the prevailing
party is entitled.
Article XXII. Integration/Counterparts
22.1 Integration. The parties hereto acknowledge that they have
read this Agreement in its entirety and understand and agree to be bound by
all of its terms and conditions, and further agree that this Agreement and any
Schedule executed hereunder and any exhibits or schedules hereto or thereto
constitute a complete and exclusive statement of the understanding between
the parties with respect to the AMISYS System and the related delivery of
professional services by PSC and the subject matter of this Agreement which
supersede any and all other communications between the parties, whether
written or oral, with respect thereto. Any prior agreements, promises,
negotiations or representations related to the delivery of the services, as
contemplated by this Agreement and Schedules hereto, by PSC which are not
expressly set forth in this Agreement or Schedules executed hereunder are of
no force and effect.
22.2 Counterparts. This Agreement may be executed in one or
more counter-parts, each of which shall be deemed an original, but all of
which together shall constitute one and the same document. In making proof
of this Agreement, it shall not be necessary to produce or account for more
than one such counterpart executed by the party against whom enforcement
of this Agreement is sought.
Article XXIII. No Third Party Beneficiaries
23.1 No Third Party Beneficiaries. Nothing in this Agreement
or Schedules hereto shall be construed as to create any right or privilege
enforceable by any party other than MBC or PSC and except as specifically
provided otherwise in this Agreement and Schedules.
Article XXIV. Assignment
24.1 Assignment.This Agreement and all of its provisions hereof
will be binding upon and inure to the benefit of each party and its respective
successors and permitted assigns; however, except as specifically set forth in
this Agreement, including the provisions of Sections 7.3, 7.4 and 12.4.2,
neither MBC nor PSC shall assign or transfer this Agreement or any of its
rights or obligations hereunder without the prior written consent of the other
party, which consent shall not be unreasonably withheld, except MBC may
assign this Agreement to its wholly-owned subsidiaries, provided MBC is not
released from any of its obligations hereunder.
Article XXV. Governing Law
25.1 Choice of Law. This Agreement shall be interpreted,
enforced and otherwise governed according to the laws of the State of
Missouri.
25.2 Venue. In the event that either party elects to institute legal
action, such event shall be brought in any court of competent jurisdiction
within the State of Missouri exclusive of all other jurisdictions except that in
the event such action cannot be brought in Missouri, the action may be
brought in any court of competent jurisdiction in the United States of
America. The parties hereby consent to the establishment of jurisdiction of
the State of Missouri and waive any objections to the establishment of
jurisdiction in the State of Missouri.
Article XXVI. Right To Perform For Others
26.1 Right to Perform for Others. MBC understands and agrees
that PSC may perform data processing and other services for third parties,
some of which may be competitors of MBC, including at locations where
PSC processes MBC's data.
Article XXVI. Hiring Of Employees
26.1 Hiring of Employees.MBC and PSC each agrees that, during
the term of this Agreement and for one (1) year thereafter, neither it nor any
of its subsidiaries or affiliates that it controls shall, except with the prior
written consent of the other, offer employment to or employ any person
employed then or within the preceding twelve (12) months by the other or
any affiliate of the other if such person was involved directly or indirectly in
the performance of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
PEROT SYSTEMS CORPORATION
By: /s/ Charles Lyles
Title: Director of Managed Care
MERIT BEHAVIORAL CARE CORPORATION
By: /s/ Dennis P. Moody
Title: Executive Vice President
National Service
INDEX TO SCHEDULES
SCHEDULE A: Generic Business Evaluation & Project Plan
SCHEDULE B: Services and Standards
SCHEDULE C: Implementation and Software Development
Acceptance Criteria
Merit Behavioral Care Corporation
1 Maynard Drive
Park Ridge, NJ 07656
Dear Sir:
At your request, we have read the description included in your
Quarterly Report on Form 10-Q to the Securities and Exchange Commission
for the quarter ended March 31, 1996, of the facts relating to the Company's
method of accounting for deferred start-up costs related to new contracts or
expansion of existing contracts. We believe, on the basis of the facts so set
forth and other information furnished to us by appropriate officials of the
Company, that the accounting change described in your Form 10-Q is to an
alternative accounting principle that is preferable under the circumstances.
We have not audited any consolidated financial statements of Merit
Behavioral Care Corporation and its consolidated subsidiaries as of any date
or of any period subsequent to September 30, 1995. Therefore, we are unable
to express, and we do not express, an opinion on the facts set forth in the
above-mentioned Form 10-Q, on the related information furnished to us by
officials of the Company, or on the financial position, results of operations,
or cash flows of Merit Behavioral Care Corporation and its consolidated
subsidiaries as of any date or for any period subsequent to September 30,
1995.
Yours truly,
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
May 9, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MERIT
BEHAVIORAL CARE CORPORATION'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD
ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO MERIT
BEHAVIORAL CARE CORPORATION'S FORM 10-Q FOR SUCH PERIOD.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 46,000
<SECURITIES> 0
<RECEIVABLES> 28,669
<ALLOWANCES> 1,172
<INVENTORY> 0
<CURRENT-ASSETS> 78,049
<PP&E> 77,176
<DEPRECIATION> 15,405
<TOTAL-ASSETS> 339,428
<CURRENT-LIABILITIES> 81,966
<BONDS> 246,000
0
0
<COMMON> 284
<OTHER-SE> (23,727)
<TOTAL-LIABILITY-AND-EQUITY> 339,428
<SALES> 0
<TOTAL-REVENUES> 222,641
<CGS> 0
<TOTAL-COSTS> 176,291
<OTHER-EXPENSES> 12,837
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,549
<INCOME-PRETAX> (10,685)
<INCOME-TAX> (2,136)
<INCOME-CONTINUING> (8,549)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (1,012)
<NET-INCOME> (9,561)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
