SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended Commission File Number:
September 30, 1998 0-16288
HALIS, INC.
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(Exact name of small business issuer as specified in its charter)
Georgia 58-1366235
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9040 Roswell Road, Suite 470, Atlanta, Georgia 30350
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(Address of principal executive offices) (Zip Code)
(770) 641-5555
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Issuer's telephone number, including area code:
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the last
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
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State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Common Stock, $.01 Par Value, 47,429,805 shares are outstanding
at November 13, 1998
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
ASSETS
- ------
CURRENT ASSETS
- --------------
Cash $ 0
Customer claims and premium funds 299,303
Receivables, less allowance for possible losses
of $288,365 864,958
Other receivables 1,686,763
Other current assets 85,972
----------
Total current assets 2,936,996
PROPERTY AND EQUIPMENT
- ----------------------
Computer equipment 138,872
Office furniture and fixtures 270,076
Leasehold improvements 8,099
Less: accumulated depreciation (140,550)
----------
Total property and equipment, net 276,497
OTHER ASSETS
- ------------
Deposits 115,756
Goodwill, net of accumulated
amortization of $702,342 1,625,444
Capitalized software development costs,
net of accumulated amortization of $ 56,748 104,247
Other intangibles, net of
accumulated amortization of $ 30,034 77,293
Notes receivable - related parties 589,655
Long-term investments 83,333
----------
Total other assets 2,595,728
----------
TOTAL ASSETS $ 5,809,221
==========
The accompanying notes are an integral part of these statements.
2
<PAGE>
HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,974,538
10% Convertible promissory notes 0
Deferred revenue and customer deposits 709,645
Payroll and sales taxes payable 138,245
Notes payable 403,629
Notes payable - related parties 198,241
Obligations under capital leases - current portion 0
Deferred gain on sale of subsidiary 907,696
Other current liabilities 637,264
----------
Total current liabilities 4,969,258
LONG-TERM DEBT
Obligations under capital leases - net of current portion 0
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock $.10 par value 5,000,000
authorized; 0 issued and outstanding 0
Common stock $.01 par value 100,000,000
authorized; 56,937,719 issued and outstanding 569,377
Additional paid-in capital 37,511,425
Stock subscription receivable 0
Unrealized loss on investment (41,667)
Accumulated deficit (37,199,172)
-----------
Total stockholders' equity (deficit) 839,963
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 5,809,221
===========
The accompanying notes are an integral part of this statement.
3
<PAGE>
HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND
THE THREE MONTHS ENDED SEPTEMBER 30, 1997
1998 1997
------------- -------------
SALES REVENUE $ 1,845,785 $ 3,313,209
- -------------
COST AND EXPENSES
- -----------------
Cost of goods sold 447,714 996,320
Selling, general, and administrative 1,852,483 4,488,021
Research and development 198,658 291,159
----------- -----------
2,498,855 5,775,500
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OPERATING LOSS (653,070) (2,462,291)
- --------------
OTHER INCOME (EXPENSES)
- -----------------------
Gain (loss) on asset disposal 0 0
Interest expense (10,790) (45,129)
Interest income 6,860 8,966
Other income (expense) 18,183 0
Merger costs 0 0
----------- -----------
14,253 (36,163)
----------- -----------
NET LOSS $ (638,817) $ 2,498,454)
=========== ===========
BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.01) $ (0.06)
=========== ===========
BASIC AND DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING 56,666,345 39,540,614
=========== ===========
The accompanying notes are an integral part of this statement.
4<PAGE>
HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
SALES REVENUE $ 6,135,153 $ 6,919,135
COST AND EXPENSES
Cost of goods sold 1,492,386 2,395,384
Selling, general, and administrative 7,725,478 7,867,795
Research and development 635,202 999,493
----------- -----------
9,853,066 11,262,672
----------- -----------
OPERATING LOSS (3,717,913) (4,343,537)
OTHER INCOME (EXPENSES)
Gain (loss) on asset disposal 0 8,678
Interest expense (45,000) (122,621)
Interest income 19,350 31,273
Other income (expense) 12,769 3,253
Merger costs 0 (32,137)
----------- -----------
(12,881) (111,554)
----------- -----------
NET LOSS $ (3,730,794) $ (4,455,091)
=========== ===========
BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.07) $ (0.14)
=========== ==========
BASIC AND DILUTED WEIGHTED AVERAGE 0
SHARES OUTSTANDING 52,264,459 32,964,701
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities $ (3,730,794) $ (4,455,091)
Net loss
Adjustments to reconcile net loss to
net cash used by operating activities:
Amortization and depreciation 697,995 1,491,564
Gain on disposal of assets 0 8,678
Increases in provision for losses on accounts receivable 14,458 0
Changes in operating assets and liabilities, net of assets and
liabilities acquired and sold
Increase in accounts receivable (395,392) (485,1368)
Increase in accounts receivable - related parties (14,824) (336)
Increase in notes receivable - related parties 0 6,257
Increase in customer claims and premium funds 51,372 (235,390)
Decrease in inventory 0 1,301
Increase in other current assets (22,370) (150,216)
Increase in deposits (7,053) (95,666)
Increase in intangible assets 0 (144,748)
Increase in accounts payable & accrued expenses 303,966 1,825,258
Decrease in accrued expenses - related parties 0 (75,784)
(Decrease)/Increase in sales & payroll taxes (134,389) (459,182)
Increase in deferred revenues & customer deposits 467,869 109,215
Increase in other current liabilities 275,854 228,863
------------ ------------
Total adjustments 1,237,486 2,024,678
------------ ------------
Net cash used by operating activities (2,493,308) 2,430,413
Cash flows from investing activities:
Purchases of property and equipment (36,835) (290,835)
Increase in long-term investments 0 (120,000)
------------ ------------
Net cash used by investing activities (36,835) (410,835)
Cash flows from financing activities:
Proceeds from issuance of common stock 65,000 3,962,747
Proceeds from 6% convertible debentures 1,505,400 0
Proceeds from 4% convertible debentures 100,000 0
Private equity rescissions (50,000) 0
Net payments on 7% convertible promissory notes (190,000) 500,000
Net payments on 10% convertible promissory notes (25,000) 0
Net (payments) proceeds on lines of credit (92,334) 39,073
Net (payments) proceeds on capital leases (98,347) 197,184
Net proceeds from notes payable 22,615 (551,728)
Net proceeds from notes payable - related parties 132,000 (1,168,635)
------------ ------------
Net cash provided by financing activities 1,369,334 2,978,641
------------ ------------
Net decrease in cash (1,160,809) 137,393
Cash, beginning of the period 1,160,809 719,989
------------ ------------
Cash, end of period $ - $ 857,382
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
6<PAGE>
HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In management's opinion, all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation have been included.
Operating results for the three-month and nine month periods ended
September 30, 1998 are not necessarily indicative of the results that may
be expected for the year ending December 31, 1998. For further information,
refer to the consolidated financial statements and the notes thereto included
in the Company's annual report on Form 10-KSB for the year ended December
31, 1997.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Acquisitions and Dispositions
Resolution of the Sale of Physician's Resource Network
On June 30, 1998 the Company sold to American Enterprise Solutions,
Inc. ("AES") all of the stock of Physician's Resource Network, Inc. ("PRN"),
a wholly owned subsidiary of the Company, that the Company had acquired in
July 1997. Located in Tampa, Florida, PRN delivers practice management
services to healthcare providers. The sale to AES was effected pursuant to
an Agreement and Plan of Merger dated June 25, 1998 (but effective as of
June 30, 1998) among the Company, AES, PRN Acquisition Co., and PRN (the
"Merger Agreement"). Under the terms of the Merger Agreement, the Company
received AES' promise to deliver within 90 days of the closing date, all of
the shares of HALIS common stock owned by AES of record and beneficially as
of the closing date, including without limitation shares that AES has the
right to acquire as of the closing date, which number of shares shall be not
less than 9,984,000 shares of the Company's common stock. The Merger
Agreement provided that if AES delivers more than 11,000,000 shares of
Company common stock, then the Company must also transfer to AES the right
to receive contingent installment payments (the "Installment Payments")
under that certain Asset Purchase Agreement dated December 31, 1997, between
Communications Wiring and Accessories, Inc. and HALIS Services, Inc., a
subsidiary of the Company. To date, the Company has not recorded a
receivable with respect to Installment Payments because of the uncertain
timing and probability of such Installment Payments. Additionally, pursuant
to the Merger Agreement the Company retained certain liabilities in the
aggregate amount of $478,797 related to the business of PRN. Because
the number of shares to be received by the Company as consideration for the
sale of PRN was uncertain (and as of September 30, 1998 was in dispute), the
Company deferred any recognition of the gain on the sale until such time as
this uncertainty was resolved. However, the results of operations for PRN
7
<PAGE>
were not included in the results of operation for the Company for the
three-month period ended September 30, 1998.
On October 9, 1998, the Merger Agreement was amended by the parties to
acknowledge and agree that the number of shares of the Company's common
stock to be delivered by AES totaled 12,048,325 shares. AES agreed to
deliver, or cause to be delivered, 11,548,325 shares on or before October
13, 1998, with the remaining 500,000 shares to be delivered on or before
January 31, 1999. As of November 16, 1998, the Company has received
11,274,880, of which 11,226,625 shares were cancelled and are no longer
outstanding. The Company has received assurances from AES' broker, Paine
Webber, Inc., that the remaining 273,345 shares due under the Merger
Agreement, as amended, are in transit to the Company. The Company plans to
cancel the remaining shares (321,700) as soon as practicable after their
receipt, and does not plan to hold any of these shares in treasury.
Charles Broes, who served as a director of the Company from July 1,
1997 until he resigned on June 10, 1998, served as the Chief Executive
Officer, Secretary, Treasurer and board member of AES. Mr. Broes did not
participate in any meetings of the Company's board of directors with respect
to the Merger Agreement, or the amendment thereto.
For federal income tax purposes, the Merger is not intended to
constitute a reorganization within the meaning of Section 368 of the Code.
The parties to the Merger Agreement acknowledge that the Merger is intended
to constitute a redemption by HALIS of all HALIS stock owned directly or
indirectly by AES pursuant to Section 302(b)(3) of the Internal Revenue Code
of 1986, as amended (the "Code").
The amount of consideration under the AES Merger Agreement, as amended,
was determined by arms-length negotiations between informed business persons
and represents, in the Company's view, fair value for PRN. Due to the fact
that the uncertainty regarding the precise timing of receipt and number of
shares of the Company's common stock was not resolved until October/November
1998, the Company deferred the recognition of the expected gain on the
disposition of PRN, and will recognize this gain in the fourth quarter
ending December 31, 1998.
Sale of the Homa Practice
On September 30, 1998, the Company's wholly-owned subsidiary,
PhySource, Ltd. ("PhySource"), sold to Physician's Enterprise System, LLC
("PES") all of the medical and non-medical assets of its Dr. Homa medical
practice that the Company had acquired in 1997. The Dr. Homa practice had
provided medical services to patients in the Arlington Heights, Illinois
vicinity. The sale was effected through an Agreement for Purchase and Sale
of Assets entered into between PES, the Company and PhySource, and was
effective as of October 1, 1998 (the "Asset Agreement"). Under the terms of
the Asset Agreement, PhySource received $400,000 at the closing, and the
right to receive 50% of collections on the receivables assigned to PES in
excess of $400,000, less a collection fee of 20% (the "Contingent Payment"),
and had certain specific liabilities assumed by the purchaser. The
Contingent Payment is not due to be calculated and paid to the Company until
November 1, 1999. This transaction is considered a taxable event and any
gain or loss associated with the sale will be recognized in the fourth
quarter. Any gain, if any, associated with any amounts received on the
8<PAGE>
Contingent Payment will be deferred until such time as a determination has
been made that any amounts will be due and payable to the Company. The
results from operations for the Dr. Homa practice for the three-month
period ended September 30, 1998 were included in the Company's results from
operations for the same period.
Principles of Consolidation
The consolidated financial statements include the accounts of HALIS,
Inc. and its wholly owned subsidiaries. The Company recorded the disposition
of PRN during the quarter ended September 30, 1998. Hence, the consolidated
balance sheet at September 30, 1998 does not include the accounts of PRN.
All significant inter-company accounts and transactions have been
eliminated.
Revenue Recognition
Revenue consists primarily of physician practice management fees,
third party claims processing fees, consulting services, software licensing
fees, sales of related computer hardware, and post contract customer support
and maintenance.
Practice management, claims When the services are provided.
processing, consulting
services, installation,
training and education
Software Licensing Revenue After shipment of the product and
fulfillment of acceptance terms,
provided no significant obligations
remain and collection of resulting
receivable is deemed probable.
Contract Support Ratably over the life of the
contract from the effective date.
Hardware Upon shipment of computer equipment
to the customer, provided no
significant obligations remain and
collection of resulting receivable
is deemed probable.
Subscription Sales Ratably over the life of the
contract from the effective date.
Goodwill
Goodwill represents the excess of cost over the fair value of assets
acquired and is amortized using the straight-line method over a period of 5
years. The Company assesses the recoverability of its goodwill whenever
adverse events or changes in circumstances or business climate indicate that
expected future cash flows (undiscounted and without interest charges) in
individual business units may not be sufficient to support recorded
goodwill. If undiscounted cash flows are not sufficient to support the
9<PAGE>
recorded asset, an impairment is recognized to reduce the carrying value of
the goodwill based on the expected future cash flows of the business unit.
Realization of Assets
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplate the
continuation of the Company as a going concern. The Company has sustained
losses during the years ended December 31, 1996 and 1997, and such losses
are continuing in fiscal year 1998. Additionally, the Company has used,
rather than provided, cash in its operating activities during the years
ended December 31, 1996 and 1997, and this continues to be the case in 1998.
The Company had a working capital deficiency as of December 31, 1997 and as
of September 30, 1998. Specifically, the Company estimates that it incurred
negative cash flow from operating activities of approximately $2,493,000
from January 1, 1998 to September 30, 1998. Due to its cash flow situation,
the Company has negotiated payment terms with vendors representing a
significant portion of the accounts payable and is managing the payment of
the remaining accounts payable on a case by case basis.
In view of the matters described in the preceding paragraph, there is
significant doubt about the Company's ability to continue as a going
concern. The recoverability of the recorded assets and satisfaction of the
liabilities reflected in the accompanying balance sheet is dependent upon
continued operation of the Company, which is in turn dependent upon the
Company's ability to meet its financing requirements on a continuing basis
and to succeed in its future operations. The financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts or amounts and classification of liabilities that
might be necessary should the Company be unable to continue in existence.
Management plans to take the following steps to improve its operating
results and financial position, which it believes to be sufficient to
provide the Company with the ability to continue in existence during the
ensuing twelve month period.
The Company is presently raising capital in a private placement to
provide up to approximately $1,750,000 of working capital. Management
believes that the net proceeds contemplated by this offering will be
sufficient to fund the Company's operations through December 1998. The
Company has raised net proceeds of approximately $1,499,000 from this
offering as of October 31, 1998, primarily in the form of convertible
debentures. If the Company is unable to increase revenues and cut costs in
order to generate sufficient positive cash flow beginning in December of
1998, an additional capital infusion may be required for the Company to
meet its obligations.
Thus far in 1998, the Company has had limited success entering into
contracts for the sale of the HES product. The Company continues to focus
on the sale of HES software, which the Company believes will continue to
gain market acceptance. In addition to focusing on near term profitability,
the Company is seeking strategic relationships, including possible business
combinations, which will enhance the Company's capital structure, as well as
its sales and marketing infrastructure. While the Company believes the
plan that it is undertaking will be successful and is in the best interest
10<PAGE>
of the Company, no assurances can be given that the Company indeed will be
successful and that the Company will continue as a going concern. Risk
factors include, among others, (i) timely completion of modifications and
enhancements to the Company's healthcare products, (ii) continued working
capital availability while such products are being developed, (iii)
continued availability of key members of management, (iv) acceptance of the
Company's products by customers in the healthcare market, (v) uncertainty of
market acceptance, (vi) reliance on a limited number of products, (vii)
effective integration of acquisitions, (viii) technological change, and (ix)
competition.
Merger Agreements
On July 31, 1998, the Company and HealthWatch, Inc. ("HealthWatch")
(NASDAQ: HEAL) announced the signing of a Letter of Intent to Merge dated as
of July 14, 1998. The merger was expected to be in the form of a tax-free
stock exchange and is subject to, among other things, the completion of due
diligence and approval by the disinterested shareholders of both companies.
At the present time the consummation of the merger as contemplated in the
Letter of Intent is uncertain. In the interim, HALIS and HealthWatch, an
information technology company, are working together to provide the
Company's software and services to the HealthWatch customer base. Paul W.
Harrison and Larry Fisher, who are each a director, and the Chairman and
Chief Executive Officer, and the Executive Vice President, respectively,
of the Company, also serve as officers and directors of HealthWatch. As of
October 31, 1998, HealthWatch beneficially owned approximately 19% of the
Company's common stock. Mr. Harrison, who directly owns 2.7% of the
Company's common stock, also serves as Chairman and Chief Executive Officer
of HealthWatch and, therefore, controls in excess of 21% of the common stock
of the Company. Mr. Fisher directly owns less than 1% of the Company's
common stock, and less than 1% of the common stock of HealthWatch.
On October 2, 1998, HealthWatch completed the acquisition of Paul
Harrison Enterprises, Inc., ("PHE"), an entity founded and controlled by
Paul Harrison, the Chairman and Chief Executive Officer of the Company. Mr.
Harrison serves as the President of PHE and beneficially owned approximately
37% of PHE before the consummation of the acquisition. After the
acquisition, Mr. Harrison beneficially owns approximately 37% of the
Series P preferred stock of HealthWatch, which is not, at this time,
convertible into the common stock of HealthWatch, and has no voting rights
with regard to HealthWatch.
On November 18, 1996, the Company entered into a license agreement with
PHE relating to a proprietary application software utility ("MERAD") that is
owned by PHE. As a result of the acquisition of PHE by HealthWatch,
HealthWatch is now the owner of the MERAD technology, and is entitled to
receive from the Company a license fee equal to 10% of the gross revenues
generated from any software products utilizing or incorporating MERAD and
any derivations thereof by the Company or any of its affiliates. The
Company's HES software was created utilizing MERAD, therefor any sales of
the HES software will result in a royalty payment due directly to PHE
and indirectly to HealthWatch. In addition, the Company was obligated to
pay MERAD Corporation, a PHE subsidiary, a development fee of $15,000 per
month pursuant to a license and software development agreement entered between
11
<PAGE>
MERAD Corporation and HALIS Software, Inc., the predecessor company of HALIS
Services, Inc., a wholly-owned subsidiary of the Company. This arrangement
terminated on June 30, 1998. Mr. Harrison serves as President and is a 21%
shareholder of MERAD Corporation. During 1997 and 1998, $180,000 and
$60,000, respectively, was paid to MERAD Corporation for specific
enhancements and maintenance required by the Company to its software
products. The Company owes MERAD Corporation $30,000 at September 30,
1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION.
FINANCIAL CONDITION
Total assets at September 30, 1998 were $5,809,221, an increase of
$194,342 from total assets of $5,614,879 at June 30, 1998. This increase is
primarily attributable to the disposition of PRN, the removal of its current
assets of $194,248, property and equipment of 387,678, other assets of
709,009, and recording of other receivable of $1,686,763 (representing the
value of the Company shares to be delivered) in connection with the
disposition. The net effect of the disposition and a decrease of $240,166
in customer claims and premium refunds is the cause of the increase.
Current liabilities increased from $4,510,764 at June 30, 1998 to
$4,969,258 at September 30, 1998. This increase of $458,494 is largely
attributable to the deferred gain on the disposition of PRN of $907,696 and
the removal of PRN's current liabilities of $462,139 during the three months
ended September 30, 1998.
Stockholder's equity decreased from $1,044,873 to $839,963, a decrease
of $204,910. This difference is attributable to an operating loss during the
period, offset by the issuance of 2,433,304 shares of common stock upon the
conversion of convertible debentures and the exercise of options by senior
executives during the three months ended September 30, 1998.
RESULTS OF OPERATIONS
Sales revenue decreased by $1,467,424 and $783,982 for the three-month
and nine-month periods ended September 30, 1998 as compared to the
applicable prior year periods. The changes in the three-month period are
primarily the result of the lost revenues from the sales of the Company's
PRN and PhySource subsidiaries (approx. $1 million), an increase in
consulting revenues (approx. $225,000), and a decrease in hardware sales
(approx. $692,000). The overall changes for the nine-month period is
further primarily effected by the net impact of the Company's acquisition
and divestiture activity in 1997 and 1998.
Cost of goods sold decreased $548,606 and $902,998 for the three-month
and nine-month periods ended September 30, 1998 as compared to the
applicable prior year periods. As a percentage of sales revenue, cost of
goods sold were 24.3% and 30.0% for the three months ended September 30,
1998 and September 30, 1997, respectively. As a percentage of sales
revenue, cost of goods sold were 24.3% and 34.6% for the nine months ended
September 30, 1998 and September 30, 1997, respectively. This decrease as a
percentage of revenue is largely attributable to the shift in revenue mix
towards more service revenue and fewer lower margin hardware sales.
12<PAGE>
Selling, general and administrative expenses decreased by $2,635,538
and $142,317 for the three-month and nine-month periods ended September 30,
1998 as compared to the applicable prior year periods. The changes in the
three-month period are primarily the result of reduced expenses associated
with the disposition of the Company's PRN and PhySource subsidiaries
(approx. $1.6 million) and a decrease in corporate overhead (approx. $1.04
million), including $600,000 in salaries as part of the Company's
downsizing. The overall changes for the nine-month period is further
primarily effected by the net impact of the Company's acquisition and
divestiture activity in 1997 and 1998. Included in selling, general and
administrative expenses is amortization and depreciation expense of $697,995
and $1,491,564 for the nine months ended September 30, 1998 and September
30, 1997, respectively.
Research and development costs decreased by a total of $92,501 and
$364,291 for the three-month and nine-month periods ended September 30,
1998 as compared to the applicable prior year periods. These reductions
reflect the movement of the Company's software products from the initial and
beta phase of development to commercial viability during 1998.
The net losses of $638,817 and $3,730,794 for the three-month and
nine-month periods ended September 30, 1998 are an improvement of
$1,859,637, and $724,297, over the comparable periods, and are primarily
attributable to a decrease in the selling, general and administrative
expenses resulting from the downsizing of the Company and the net effect of
its acquisition and divestiture activity during 1997 and 1998.
LIQUIDITY AND CAPITAL RESOURCES
During the nine month period ended September 30, 1998, operating
activities consumed $2,493,308 of cash, primarily due to the net loss of
$3,730,794 for the nine month period ended September 30, 1998. As discussed
in the previous section, the primary reasons for the net losses are the
selling, general and administrative expenses and research and development
expenses incurred to fund the corporate infrastructure development, as well
as the ongoing investment in the Company's proprietary software products.
The Company continues to monitor its cash situation very closely. Due to
the down-sizing of the Company, its cash needs are not as acute as they
were in the previous quarter. However, if the Company is unable to increase
revenues or contain costs, the Company may not be able to continue to generate
sufficient positive cash flow to meet its obligations without seeking an
additional capital infusion.
YEAR 2000
Software applications that use only two digits to identify a year in
the date field may cause fatal errors in the processing of data (the "Year
2000 Concern"). The Company acknowledges that the failure of its software
to recognize the proper date codes could cause substantial harm to the
Company and its customers. Accordingly, the Company developed its HES
software with the Year 2000 Concern in mind and has designed its software to
be Year 2000 compliant. This means that the Company believes that all of
the Company's healthcare software sold to customers will accept and recognize
date codes for the Year 2000 and beyond, and process that information
13<PAGE>
recognizing the correct year in the date field. The Company does not believe
that the failure of any of the software that it utilizes in its operations from
third-party vendors to be Year 2000 compliant will have a material effect on
the Company, with the exception of the claims processing software utilized by
its ABAS subsidiary. ABAS is a third-party administrator and is in the
process of switching to a new claims processing system that will be Year 2000
compliant. The Company estimates that it will convert all of ABAS' data by the
end of the second quarter of 1999, at a cost of approximately $400,000.
Additionally, the Company will be undertaking a review of its business systems
to make a determination of whether those systems are Year 2000 compliant
and will query those vendors whose systems are material to the Company to
determine their Year 2000 readiness. The Company believes that, with the
exception of the software utilized its ABAS subsidiary, even if the remaining
software it utilizes from vendors is not Year 2000 compliant, there are
sufficient alternatives available that the Company can resolve any issues by
the second quarter of 1999 without incurring any material amounts to resolve
any Year 2000 Concerns.
FORWARD-LOOKING STATEMENTS
This Form 10-QSB contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the
Securities and Exchange Act of 1934, as amended, which are intended to be
covered by the safe harbors created thereby. These statements include the
plans and objectives of the Company for future operations. The forward-
looking statements included herein are based on current expectations that
involve numerous risks and uncertainties. The Company's plans and
objectives are based on the assumption that the Company's entry into the
healthcare industry will be successful, that competitive conditions within
the healthcare industry will not change materially or adversely, and that
there will be no material adverse change in the Company's operations or
business. Assumptions relating to the foregoing involve judgments with
respect to, among other things, future economic, competitive and market
conditions, as well as future business decisions, all of which are difficult
or impossible to predict accurately and many of which are beyond the control
of the Company. Although the Company believes that the assumptions
underlying the forward-looking statements included herein are reasonable,
the inclusion of such information should not be regarded as a representation
by the Company, or any other person, that the objectives and plans of the
Company will be achieved.
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
During the three-month period ended September 30, 1998, the Company
raised $261,000 through a private placement of the 6% Convertible Debentures.
The holders of these 6% Convertible Debentures elected to immediately convert
their investment into the Company's Common Stock, resulting in the Company
issuing an aggregate of 1,933,204 shares of Common Stock in full
satisfaction of principal and accrued interest owed to such holders. An
14<PAGE>
additional 500,000 shares were issued to Paul Harrison upon the exercise of
stock options resulting in $65,000 being received by the Company during the
quarter ended September 30, 1998.
The issuance of securities described above were made in reliance on the
exemption from registration provided by Section 3(b) and/or 4(2) of the
Securities Act of 1933 as transactions by an issuer not involving a public
offering. All of the securities were acquired by the recipients thereof for
investment and with no view toward the resale or distribution thereof. In
each instance, the offers and sales were made without any public
solicitation, the certificates bear restrictive legends and appropriate stop
transfer instructions have been or will be given to the transfer agent. No
underwriter was involved in the transactions and no commissions were paid.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are filed with or incorporated
by reference into this report:
3.1 Certificate of Incorporation, as amended (incorporated
by reference to Exhibit 3.1 of the Company's Registration
Statement on Form S-2 (No. 333-45783) filed February 6, 1998)
3.2 Amended and Restated Bylaws (incorporated by reference
to Exhibit 3.2 of the Company's Registration Statement
on Form S-2 (No. 333-34215) filed August 22, 1997)
4.1 Form of Common Stock Certificate (incorporated by reference to
Exhibit 4.1 of the Company's Registration Statement on Form
S-18 (No. 33-14114-A), filed May 7, 1987, as amended)
4.2 Form of 6% Convertible Debenture Subscription Agreement and
Convertible Debenture (incorporated by reference to Exhibit 4.2
of the Company's Quarterly Report on Form 10QSB for the period
ended June 30, 1998, filed August 13, 1998)
10.1 Agreement for Purchase and Sale of Assets By and Between
Physicians Enterprise System, LLC & HALIS, Inc. and PhySource
Ltd., dated as of September 30, 1998, effective as of October
1, 1998
27.1 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K.
The following reports on Form 8-K were filed during the quarter ended
September 30, 1998.
None
15
<PAGE>
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.
HALIS, INC.
Dated: November 20, 1998 By: /s/ Paul W. Harrison
----------------------------------
Paul W. Harrison, Chairman of
the Board, Chief Executive Officer
and President
(Principal Executive Officer)
Dated: November 20, 1998 By: /s/ Larry Fisher
----------------------------------
Larry Fisher, Executive Vice
President, Treasurer and Secretary
(Principal Financial and Accounting
Officer)
16<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
---------- ---------------
3.1 Certificate of Incorporation, as amended (incorporated
by reference to Exhibit 3.1 of the Company's
Registration Statement on Form S-2 (No. 333-45783) filed
February 6, 1998)
3.2 Amended and Restated Bylaws (incorporated by reference
to Exhibit 3.2 of the Company's Registration Statement
on Form S-2 (No. 333-34215) filed August 22, 1997)
4.1 Form of Common Stock Certificate (incorporated by
reference to Exhibit 4.1 of the Company's Registration
Statement on Form S-18 (No. 33-14114-A), filed May 7,
1987, as amended)
4.2 Form of 6% Convertible Debenture Subscription Agreement
and Convertible Debenture (incorporated by reference to
Exhibit 4.2 of the Company's Quarterly Report on Form
10QSB for the period ended June 30, 1998, filed August
13, 1998)
10.1 Agreement for Purchase and Sale of Assets By and
Between Physicians Enterprise System, LLC & HALIS, Inc.
and PhySource Ltd., dated as of September 30, 1998,
effective as of October 1, 1998
27.1 Financial Data Schedule (for SEC use only)
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF HALIS, INC. FOR THE NINE-MONTH ENDED SEPTEMBER 30, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS
</LEGEND>
<CIK> 0000790733
<NAME> HALIS, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,153,323
<ALLOWANCES> 288,365
<INVENTORY> 0
<CURRENT-ASSETS> 2,936,996
<PP&E> 417,047
<DEPRECIATION> 140,550
<TOTAL-ASSETS> 5,809,221
<CURRENT-LIABILITIES> 4,969,258
<BONDS> 0
0
0
<COMMON> 569,377
<OTHER-SE> 270,586
<TOTAL-LIABILITY-AND-EQUITY> 5,809,221
<SALES> 6,135,153
<TOTAL-REVENUES> 6,135,153
<CGS> 1,492,386
<TOTAL-COSTS> 9,853,066
<OTHER-EXPENSES> (32,119)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45,000
<INCOME-PRETAX> (3,730,794)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,730,794)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
_______________________________________________________________________
AGREEMENT FOR PURCHASE AND SALE OF
ASSETS BY AND BETWEEN
PHYSICIANS ENTERPRISE SYSTEM, L.L.C. ("PURCHASER")
&
HALIS, INC. ("HALIS") AND
PHYSOURCE LTD. ("SELLER")
_______________________________________________________________________
As of September 30, 1998
- 1 -
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF ASSETS
THIS AGREEMENT FOR PURCHASE AND SALE OF ASSETS ("Agreement") is
made and entered into as of September 30, 1998, effective as of
October 1, 1998 (the "Effective Date") by and between Physicians
Enterprise System, L.L.C., an Illinois limited liability company (the
"Purchaser"), and Halis, Inc., a Georgia corporation ("Halis"), and
PhySource Ltd., a Georgia corporation ("Seller").
RECITALS
--------
WHEREAS, Purchaser is an Illinois limited liability company
which, among other things, provides management services to primary
care practices; and
WHEREAS, Seller is the owner of assets used in the operation of a
medical practice whose principal place of business is located at the
Office (as defined below); and
WHEREAS, Seller desires to sell, and Purchaser desires to
acquire, the assets that comprise and are used in the Practice (as
defined below), including but not limited to inventory, supplies,
furniture, fixtures, equipment, as more fully described herein, but
excluding the Excluded Assets (defined below), on terms and conditions
as more fully described herein.
NOW, THEREFORE, in consideration of the terms and conditions and
the representations and warranties herein contained, and of other good
and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
ARTICLE 1.
DEFINITIONS
1.1 "ASSIGNMENT AND ASSUMPTION AGREEMENT" shall mean the
Assignment and Assumption Agreement in the form attached hereto as
EXHIBIT A conveying to Purchaser the Transferred Contracts.
1.2 "BILL OF SALE" shall mean the Bill of Sale in the form
attached hereto as EXHIBIT B warranting Seller to be the owner of, and
conveying to Purchaser, the Purchased Assets.
1.3 "CLOSING" shall mean the closing of this transaction,
which shall occur at the office of Ross & Hardies on October 1, 1998,
or on such later date as mutually agreed to by the parties in writing,
and which shall be effective as of 12:01 a.m. on the Effective Date.
1.4 "CLOSING DATE" shall mean the date on which the Closing
occurs.
<PAGE>
1.5 "EXCLUDED ASSETS" shall mean the assets not sold by
Seller to Purchaser under this Agreement, as described more fully in
Section 2.2.
1.6 "MATERIAL ADVERSE EFFECT" shall mean a violation or other
matter that (considered alone or together with all other matters that
would constitute exceptions to the representations and warranties set
forth in this Agreement) would have a material adverse effect on the
Practice's business, condition, assets, liabilities, operations,
financial performance or prospects.
1.7 "KNOWLEDGE OF SELLER" and phrases of similar import such
as "best of Seller's knowledge" and "best knowledge of Seller" shall
mean the knowledge of the President, Vice President and other senior
officers and managers of Seller and Halis, including, without
limitation, Larry Fisher and Beth Marino. For purposes hereof
"knowledge" means such knowledge as a reasonable and prudent business
person has or should have regarding his or her business.
1.8 "PERMITTED LIENS" shall mean (i) liens set forth on
Schedule 1.8 and (ii) liens for current taxes, not yet due and
payable.
1.9 "OFFICE" means the medical office of the Practice at the
location set forth in Schedule 1.9, which location is used in the
medical practice of Seller.
1.10 "PHYSICIANS" shall mean the physicians whose names are
set forth on Schedule 1.10 hereto.
1.11 "PRACTICE" shall mean the medical practice and medical
supervision of patients conducted by Seller with assets held by Seller
from the Office and the medical practice conducted at the hospitals in
which the Physicians now have privileges listed in Schedule 1.11.
1.12 "PURCHASED ASSETS" shall mean the assets sold by Seller
to Purchaser under this Agreement, as described more fully in Section
2.1.
1.13 "PURCHASE PRICE" shall be the amount paid by Purchaser
for the Purchased Assets, as described more fully in Section 3.1.
ARTICLE 2.
PURCHASE AND SALE OF ASSETS;
NO ASSUMPTION OF LIABILITIES
2.1 PURCHASED ASSETS. Seller agrees to sell, transfer and
convey to Purchaser, and Purchaser agrees to purchase and accept, at
Closing, all of Seller's non-medical assets comprising and pertaining
to the Practice (collectively, the "Purchased Assets"), but excluding
the Excluded Assets (as defined in Section 2.2). All of Seller's
medical assets (which are listed on Schedule 2.1, the "Medical
Assets") shall be transferred to Partners in Primary Care, S.C.
- 2 -
<PAGE>
simultaneously with the closing hereunder pursuant to that certain
Bill of Sale of even date herewith, between Partners in Primary Care,
S.C. and Seller (the "Medical Purchase Agreement"). Purchased Assets
include, but are not limited to:
2.1.1 TANGIBLE PERSONAL PROPERTY. All of Seller's
furniture, fixtures, equipment, machinery, instruments, copies of
books, copies of business records, copies of files (other than
original minute books, stock records, and tax returns) and other
non-medical items used in conducting the Practice, such property
to be conveyed free and clear of all liens, pledges, charges,
security interests, encumbrances and claims of any kind other
than Permitted Liens.
2.1.2 PROPRIETARY INFORMATION. All of Seller's
registered trademarks, trade names, service marks, marketing
plans, policies and procedures, trade secrets and other
intangible property and proprietary information of Seller used in
conducting the Practice, such intangible property and proprietary
information to be conveyed free and clear of all liens, pledges,
charges, security interests, encumbrances and claims of any kind,
other than Permitted Liens.
2.1.3 CONTRACTS. All contracts of Seller that are
assignable by Seller to Purchaser and which Purchaser assumes
pursuant to the Assignment and Assumption Agreement ("Transferred
Contracts"). All such contracts shall be set forth in Schedule
2.1.3, and shall be assigned and assumed pursuant to the
Assignment and Assumption Agreement, subject to any consent
required for such assignments.
2.1.4 ACCOUNTS RECEIVABLE.
(a) Subject to paragraph (b) below, the accounts
receivable of Seller set forth in Schedule 2.1.4
(the "Assigned Receivables"), which shall be
assigned to Purchaser pursuant to the Assignment
and Assumption Agreement.
(b) Nothing contained in this Section 2.1.4 or
otherwise in this Agreement shall be construed as
an assignment of medicare or medicaid receivables
in violation of any laws or regulations related
thereto. Seller hereby agrees to have all
medicare and medicaid receivables related to the
Practice placed into a bank account which account
(the "Account") has as joint signatories Seller
and Purchaser. In addition, Seller agrees to
instruct the bank at which the Account is held to
permit Purchaser to sweep the Account on a regular
basis, as determined by Purchaser in its sole and
absolute discretion. In the event Seller fails to
place all medicare and medicaid receivables
related to the Practice in the Account then Seller
- 3 -
<PAGE>
shall indemnify Purchaser, dollar for dollar for
each dollar of such receivables not placed in the
Account.
2.2 EXCLUDED. For purposes of this Agreement, "Excluded
Assets" shall include all furniture, fixtures, equipment and other
items of Seller not used in conducting the Practice as expressly set
forth in Schedule 2.2.
2.3 ASSUMPTION OF LIABILITIES. It is expressly agreed and
understood that Seller shall retain, and be solely responsible for
paying or otherwise discharging or satisfying, all debts, liabilities
and obligations of Seller, including but not limited to those relating
to the Practice and the Purchased Assets, and whether accrued,
contingent known or unknown or otherwise, unless expressly assumed by
Purchaser pursuant to the Assignment and Assumption Agreement.
Purchaser shall not assume or be liable for any debts, liabilities or
obligations relating to Seller or the Practice whether accrued, known
or unknown, unless expressly assumed by Purchaser pursuant to the
Assignment and Assumption Agreement.
ARTICLE 3.
PURCHASE PRICE
3.1 PURCHASE PRICE. As consideration for the Purchased
Assets, Purchaser shall pay to Seller at Closing the sum of FOUR
HUNDRED THOUSAND DOLLARS ($400,000.00) (the "Purchase Price"). In
addition, Purchaser shall pay Seller an amount equal to fifty percent
(50%) of the Assigned Receivables in excess of FOUR HUNDRED THOUSAND
DOLLARS ($400,000.00) (minus a collection of fee of 20%) which are
actually collected by Purchaser within twelve (12) months of the
Closing (the "Receivables Adjustment"). Payment for such shall be
made as provided in Section 3.2.
3.2 CALCULATION OF RECEIVABLES ADJUSTMENT; DISPUTE
RESOLUTION. On or before November 1, 1999, Purchaser shall prepare
and deliver to HALIS and Seller a reasonably detailed calculation of
the Receivables Adjustment (the "Calculation"), which Calculation
shall be made in conformity with generally accepted accounting
principles consistent with the past practices of Seller. HALIS and
Seller shall have the right to examine during normal business hours
such books and records of Purchaser as may be reasonably necessary in
order to verify the Calculation by Purchaser with respect to the
Receivables Adjustment. If neither HALIS nor Seller files with
Purchaser a written notice of disagreement with said Calculation
within fifteen (15) days of the date of receipt by HALIS and Seller of
said Calculation, the Receivables Adjustment shall be paid by
Purchaser within five (5) days following the expiration of said 15-day
period. If HALIS or Seller disagrees with such Calculation, it shall
deliver written notice of such disagreement to Purchaser on or before
the fifteenth (15th) day after the date of receipt by HALIS and Seller
of the Calculation of the Receivables Adjustment. In such event, the
parties agree to submit the dispute to Arthur Andersen's Chicago
Office, who shall determine the accuracy and correctness of
Purchaser's original Calculation within thirty (30) days following
such submission. Said determination of Arthur Andersen shall be final
- 4 -
<PAGE>
and binding on the parties hereto. The parties shall each bear one-
half (1/2) of the expenses of Arthur Andersen. The Receivables
Adjustment shall be paid by Purchaser within five (5) days following
the resolution of such dispute. If Arthur Andersen will not provide
such review, the parties shall mutually agree on another "Big 5"
accounting firm which is not associated with either party.
3.3 ALLOCATION OF PURCHASE PRICE. The parties shall allocate
the Purchase Price as set forth on Schedule 3.2, which indicates the
allocation of the Purchase Price among the various categories of
assets constituting the Purchased Assets. Purchaser and Seller agree
that they shall utilize the allocation set forth in Schedule 3.2 for
purposes of filing their state and federal income tax returns with
respect to the transactions contemplated in this Agreement.
3.4 FORM OF PAYMENT. All sums payable under this Agreement
shall be paid in legal tender of the United States of America in
immediately available funds, or by certified or cashier's check, or by
wire transfer to an account(s) designated by the receiving party.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES OF PURCHASER. As an
inducement to Seller to enter into this Agreement, Purchaser
represents and warrants that the following are true and correct as of
the Closing Date, and Purchaser acknowledges that Seller is relying on
such representations and warranties in connection with the
transactions contemplated by this Agreement:
4.1.1 ORGANIZATION. Purchaser is a limited liability
company duly organized and validly existing under the laws of the
State of Illinois.
4.1.2 AUTHORIZATION. All actions by Purchaser required
to authorize and approve the entering into and execution,
delivery and performance of this Agreement, and the consummation
by Purchaser of the transactions herein, have been duly taken.
Purchaser has the full power, authority and legal right to enter
into this Agreement and any other agreements required to be
entered into by it under the terms hereof and to consummate the
transactions and perform its obligations contemplated hereby.
Upon execution and delivery of this Agreement and of any other
agreements required of Purchaser hereunder, each will constitute
the legal, valid and binding obligation of Purchaser, enforceable
against Purchaser in accordance with its terms except as
Purchaser's obligations hereunder and thereunder may be limited
by the availability of equitable remedies, by public policy or by
bankruptcy, insolvency or other laws affecting the enforcement of
creditors' rights.
4.1.3 CONFLICTS. Neither the execution and delivery of
this Agreement or of any other agreements or instruments required
of Purchaser by the terms hereof, nor the performance of or
- 5 -
<PAGE>
compliance by Purchaser with any of the respective terms and
provisions of this Agreement or of such other agreements or
instruments:
(a) Conflicts with or will conflict with, or will
result in the breach of the provisions of the
Articles of Organization or the Operating
Agreement of Purchaser, or any of the material
terms, conditions or provisions of any mortgage,
bond, debenture, note, indenture, loan or credit
agreement, contract, lease, instrument or any
other agreement or restriction to which Purchaser
is a party or by which Purchaser is bound, or
constitutes a default thereunder or gives rise to
any right of termination by any party or violates
any judgment, order, injunction, decree or award
of any court, administrative agency or
governmental body by which Purchaser is bound or
subject, or contravenes any law, rule or
regulation binding on Purchaser; or
(b) Requires the consent or approval of, or any notice
to, any person, bureau, commission, board or
regulatory agency or a license which Purchaser
does not possess.
4.1.4 BROKERS. Purchaser is not a party to or in any
way obligated under any contract or agreement for payment of fees
and expenses to any broker or finder in connection with the
origin, negotiation, execution or consummation of this Agreement
or the transactions contemplated hereby.
4.1.5 FULL DISCLOSURE. To the best of Purchaser's
knowledge, no representation or warranty made by Purchaser in
this Agreement nor any statement or certificate furnished to
Seller in connection with the execution, delivery or performance
of this Agreement or the consummation of the transactions
contemplated hereby contains any untrue statement of material
fact or fails to state a material fact necessary to make the
statements contained therein not misleading.
4.2 REPRESENTATIONS AND WARRANTIES OF SELLER. As an
inducement to Purchaser to enter into this Agreement, HALIS and
Seller, jointly and severally, represent and warrant that the
following are true and correct as of the Closing Date, and Seller
acknowledges that Purchaser is relying on such representations and
warranties in connection with the transactions contemplated by this
Agreement:
4.2.1 ORGANIZATION. Each of Halis, Inc. and Seller is a
corporation duly organized and validly existing under the laws of
the States of Georgia.
4.2.2 LICENSES OF PHYSICIANS. To the knowledge of
Seller, all Physicians have unrestricted licenses to practice
medicine in the state of Illinois.
- 6 -
<PAGE>
4.2.3 LICENSES AND PERMITS. Seller has all material
business and professional licenses, permits and authorizations
required in connection with the ownership and use of the
Purchased Assets and the conduct of the Practice as presently
conducted. None of such licenses, permits or authorizations have
lapsed or been revoked or terminated, and the Practice has at all
times been operated and conducted in accordance and consistent
with all material terms and conditions thereof and with all
federal, state and local laws, rules and regulations.
4.2.4 EXECUTION. All actions by HALIS and Seller
required to enter into and execute, deliver and perform this
Agreement, and consummation of the transactions described herein,
have been duly taken. Each of HALIS and Seller has the full
corporate power, authority and legal right to enter into this
Agreement and any other agreements required to be entered into by
it under the terms hereof and to consummate the respective
transactions and perform its respective obligations contemplated
hereby. Upon execution and delivery of this Agreement and of any
other agreements required of HALIS and Seller hereunder, each
will constitute the legal, valid and binding obligation of HALIS
or Seller, as the case may be, enforceable against HALIS or
Seller, as the case may be, in accordance with its terms except
as HALIS or Seller's obligations hereunder and thereunder may be
limited by the availability of equitable remedies, by public
policy or by bankruptcy, insolvency or other laws affecting the
enforcement of creditors' rights generally.
4.2.5 CONFLICTS. Except as set forth in Schedule 4.2.5,
neither the execution and delivery of this Agreement or of any
other agreements or instruments required of HALIS and Seller by
the terms hereof, nor the performance of or compliance by HALIS
and Seller with any of the respective terms and provisions of
this Agreement or of such other agreements or instruments:
(a) Conflicts with or will conflict with, or will
result in the breach of the respective Articles of
Incorporation or bylaws of HALIS or Seller, or of
any of the terms, conditions or provisions of any
mortgage, bond, debenture, note, indenture, loan
or credit agreement, contract, lease, instrument
or any other agreement or restriction to which
HALIS or Seller is a party or by which HALIS or
Seller and the Purchased Assets are bound, or
constitutes a default thereunder or gives rise to
any right of termination by any party or violates
any judgment, order, injunction, decree or award
of any court, administrative agency or
governmental body by which HALIS or Seller or the
Purchased Assets is bound or subject, or
contravenes any law, rule or regulation binding on
HALIS or Seller; or
- 7 -
<PAGE>
(b) Requires the consent or approval of or any notice
to, any person, legal entity, bureau, commission,
board or regulatory agency.
4.2.6 TITLE TO ASSETS. Seller has good and marketable
title to the Purchased Assets, free and clear of all mortgages,
liens, pledges, charges, security interests, encumbrances or
claims of any kind other than Permitted Liens.
4.2.7 REAL ESTATE PERMITS. Seller, has not, and to the
best of its knowledge, has not received any notice stating that
Seller has, failed to obtain any license, permit, approval,
certificate or other authorizations required by applicable
statutes, laws, ordinances or regulations for the use and
occupancy of the Office and the building and improvements
thereof.
4.2.8 TANGIBLE ASSETS. To the best of Seller's
knowledge, each of the tangible assets described in Schedule
4.2.8 and included in the Purchased Assets is in operating
condition and good repair, ordinary wear and tear excepted.
4.2.9 LIABILITIES. To the best of Seller's knowledge,
Seller has, and there otherwise are, no liabilities or
obligations that are material, either singly or in the aggregate,
whether secured or unsecured, accrued, absolute, contingent or
otherwise, and whether currently due or due in the future,
relating to the Purchased Assets and/or the Practice except for
accounts payable, wages, current taxes, fees and similar
liabilities incurred in the ordinary course of business
consistent with past practices or which if asserted would be
fully insured by liability policies and professional liability
policies in full force and effect; and
4.2.10 ADVERSE CHANGES. Except as set forth on
Schedule 4.2.10 since the date of the Financial
Statements (as defined below);
(a) There has not been any material adverse change in
or to the Purchased Assets or in the business or
financial condition of the Practice;
(b) There has not been any material damage,
destruction or loss to any of the Purchased
Assets, whether or not covered by insurance, that
has affected or impaired, or that might affect or
impair, the value or usefulness of any of the
Purchased Assets or the ability of Purchaser to
conduct the business of the Practice as heretofore
conducted;
(c) None of the Purchased Assets including, but not
limited to, equipment, furniture and fixtures,
accounts receivable, and inventory of supplies,
- 8 -
<PAGE>
have been sold or materially reduced in value
other than in the ordinary course of business;
(d) There has been no material change in the manner of
keeping the books, accounts or records of Seller
or the Practice or in the accounting practices
reflected therein; and
(e) There has been no suspension of termination of
permits or licenses issued to Seller or the
Physicians.
4.2.11 INVENTORY. With the exception of customary
amounts of obsolete and unusable items held by the Seller on the
date hereof (which is consistent with the Practice's past
practice's of holding such items), all items of inventory
(including without limitation all drugs, medicines, supplies and
other consumables and disposables) are of a quality usable and
saleable in the ordinary course of the Practice.
4.2.12 BROKERS. Seller, HALIS and the Physicians
are not party to or in any way obligated under any contract or
agreement for payment of fees and expenses to any broker or
finder in connection with the origin, negotiation, execution or
consummation of this Agreement.
4.2.13 FULL DISCLOSURE. To the best of Seller's
knowledge, no representation or warranty made by Seller in this
Agreement nor any statement or certificate furnished to Purchaser
in connection with the execution, delivery or performance of this
Agreement or the consummation of the transactions contemplated
hereby contains any untrue statement of material fact or fails to
state a material fact necessary to make the statements contained
therein not misleading.
4.2.14 CONTRACTS. Except as disclosed on Schedule
4.2.14, neither Seller nor, to the knowledge of HALIS and Seller,
any Physician is a party to any written or oral (a) managed care
contract, (b) contract for employment by or in connection with
the Practice, which may not be terminated on not more than thirty
(30) days' notice without liability to Seller or Purchaser; (c)
continuing contract or agreement for the purchase or sale of
materials, supplies, services, machinery, or equipment in
connection with the Practice; (d) lease or license of personal
property used in or otherwise relating to the Practice; (e)
agreement for the purchase or sale of equipment or of machinery
in connection with the Practice; or (f) other contract arising
from or in connection with the Practice involving payment by or
to the Seller of more than TEN THOUSAND DOLLARS ($10,000.00) or
performance of which extends beyond ninety (90) days from the
date of this Agreement. Seller and, to the knowledge of Seller
and HALIS, the Physicians are not in default under any contract,
lease, agreement or other instrument to which either is a party.
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4.2.15 LITIGATION. Except as disclosed on Schedule
4.2.15, there are not now pending, and during the preceding five
(5) years from the date hereof have not been, any suits, actions,
arbitrations, investigations or other legal, administrative or
other proceedings pending or, to the knowledge of Seller and
HALIS, threatened against or affecting Seller, the Purchased
Assets, the business or operations of the Practice or, to the
knowledge of Seller and HALIS, the Physicians (including those
related to professional liability), and Seller knows of no basis
for any of the foregoing. Seller and the Physicians are not in
default with respect to any order, writ or injunction or decree
of any federal, state, local or foreign court, agency or
instrumentality relating to the Purchased Assets or the business
or operations of the Practice.
4.2.16 TAXES. All federal, state, local and other
income, employment and other tax returns, reports and
declarations of every kind and nature required to be filed by or
on behalf of Seller prior to the Closing Date with respect to the
assets, business and operations, including with respect to the
Purchased Assets and the business of the Practice, have been
filed, and such returns are complete and accurate in all material
respects and disclose all taxes required to be paid for the
period covered thereby. All taxes shown on such returns, and any
additional taxes, penalties and interest, that are due and
payable, have been paid. To the best knowledge of Seller, Seller
is not delinquent in the payment of any tax assessment or other
governmental charge relating to its assets or business, and/or to
the Purchased Assets or the Practice, and there are no unpaid and
past due deficiencies in taxes or basis for deficiencies, or
other charges proposed or assessed against Seller in connection
therewith. There are no tax liens on any of the Purchased Assets
and Seller knows of no basis for the imposition of any such
liens.
4.2.17 THIRD PARTY PAYERS. Seller has no knowledge
of: (a) any termination, cancellation, limitation, modification,
or change in the business relationships of Seller with any
patient or payer of the Practice or a Physician that would have a
Material Adverse Effect, or (b) any outstanding overpayment
obligations with respect to any third party payers.
4.2.18 LABOR. Seller is not a party to any
collective bargaining agreement, Letters of Understanding, or
other arrangements, formal or informal, with any labor union or
organization which obligates Seller to recognize the labor union
or organization as the bargaining representative of its employees
or to compensate its employees represented by any labor union or
organization. Seller is not aware of any present attempt to
organize such a union, nor are the Practice's employees
represented by any labor union or organization. There are no
labor disputes, administrative or court proceedings, orders,
investigations, petitions or claims pending or threatened,
between Seller and any present or former employees of the
Practice, applicants for employment or any labor union or
organization representing or claiming to represent such
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employees' interests which would affect the business of the
Practice or the Purchased Assets in any material respect, and
further Seller knows of no state of facts exists or event has
been contemplated that is reasonably expected to give rise to any
such claim, dispute or proceedings. Seller is in compliance in
all material respects with all laws, statutes, ordinances,
executive orders, rules and regulations respecting employment and
employment practices, terms and conditions of employment,
including but not limited to wages and hours, and occupational
safety and health programs, and Seller is not engaged in any
violation of any such law, statute, ordinance, executive order,
rule or regulation related to employment, health or safety,
including unfair labor practices or acts of employment
discrimination.
4.2.19 SALES TAXES. Seller has at no time engaged
in the retail sale of tangible personal property so as to create
or give rise to any liability or duty to report, collect or remit
any sales or use tax to the State of Illinois or to any other
state or local taxing body.
4.2.20 UNEMPLOYMENT INSURANCE. Seller has paid in
full any and all obligations due and owing under the Illinois
Unemployment Insurance Act, 820 ILCS 405/100 et seq. and have
provided all required notices thereunder.
4.2.21 OVERPAYMENTS. Seller has no knowledge of,
and has not received, any notice alleging any overpayments by the
Medicare or Medicaid programs to the Practice.
4.2.22 PHYSICIAN PARTICIPATION IN PAYER CONTRACTS.
To the best of Seller's knowledge no Physician has been
terminated from participation in any contracting arrangement with
a third party payor or a managed care payer.
4.2.23 REFUNDS. The Seller does not have liability
for any overpayment, duplicate payments, refunds, discounts or
adjustments due to Medicare, Medicaid, Blue Cross, Blue Shield or
any other reimbursement program or third-party payer.
4.2.24 COMPLIANCE WITH LAWS.
(a) The Seller is in compliance with all applicable
statutes, laws, ordinances, rules, orders and
regulations of all governmental authorities and to
Seller's knowledge, no facts or circumstances
exist that, with or without the passing of time or
the giving of notice or both, might reasonably
serve as the basis for any claim that the Seller
is not in compliance with any applicable statute,
law, ordinance, rule or regulation of any
governmental authority. The Seller has not
received any written communication from a
governmental authority that alleges that it is not
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in compliance with any statute, law, ordinance,
rule or regulation of any governmental authority.
(b) Neither the Seller nor, to the knowledge of Seller
and HALIS, any Physician has ever been charged or
to the Seller's knowledge, investigated in any
violation of any state or federal statute or
regulation involving fraudulent and abusive
practices relating to its participation in state
or federally sponsored reimbursement programs,
including but not limited to fraudulent billing
practices. Seller has properly and legally billed
all intermediaries and third party payers for
services rendered and has maintained its record to
reflect such billing practices. No funds are now
or will be withheld from the Seller by any
Medicare intermediary or third party payor.
Neither the Seller, any shareholder, officer or
director of the Seller nor any Physician has
engaged on behalf of Seller in any of the
following: (i) knowingly or willfully making or
causing to be made a false statement or
representation of a material fact in any
applications for any benefit or payment under the
Medicare or Medicaid program; (ii) knowingly or
willfully making or causing to be made any false
statement or representation of a material fact for
use in determining rights to any benefit or
payment under the Medicare or Medicaid program;
(iii) failing to disclose knowledge by a claimant
of the occurrence of any event affecting the
initial or continued right to any benefit or
payment under the Medicare or Medicaid program on
its own behalf or on behalf of another, with
intent to secure such benefit or payment
fraudulently; or (iv) knowingly and willfully
soliciting or receiving any remuneration
(including any kickback, bribe or rebate),
directly or indirectly, overtly or covertly, in
cash or in kind or offering to pay such
remuneration (a) in return for referring an
individual to any person or entity for the
furnishing or arranging for the furnishing of any
item or service for which payment may be made in
whole or in part by Medicare or Medicaid, or (b)
in return for purchasing, leasing or ordering or
arranging for or recommending the purchasing,
leasing or ordering of any good, facility,
service, or item for which payment may be made in
whole or in part by Medicare or Medicaid.
(c) The Seller has filed all filings of required cost,
government or other reports required to be filed
under the Medicare and Medicaid programs and state
survey programs that are required to be filed
prior to the Closing Date.
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4.2.25 FINANCIAL STATEMENTS. True, correct and
complete copies of the financial statements of Seller (consisting
of the income, retained earnings and cash flows of Seller related
to the Practice) and dated as of June 30, 1998, are attached
hereto as Schedule 4.2.25 (the "Financial Statements"). Such
Financial Statements fairly present in all material respects the
results of the operations and financial position of the Practice
as of the period and as of the date set forth therein. As of the
Closing Date, except for changes resulting from transactions
described or contemplated hereunder, the balance sheet of the
Seller, with respect to the Practice, will not vary in any
material respect from the most recent balance sheet included in
the Financial Statements.
ARTICLE 5.
CLOSING - DELIVERIES
5.1 CLOSING. The Closing shall occur at the offices of Ross
& Hardies, 150 North Michigan Avenue, Suite 2500, Chicago, Illinois
60601, or at such other location as may be agreed upon by the parties
to this Agreement. The parties shall execute this Agreement at the
Closing, and this Agreement shall be effective as of 12:01 a.m. on the
Effective Date.
5.2 SELLER'S DELIVERIES AT CLOSING. At Closing, Seller shall
deliver to Purchaser the following:
5.2.1 Duly executed Bill of Sale.
5.2.2 Duly executed Assignment and Assumption Agreement.
5.2.3 Written consents, as may be necessary, to
assignment of all of the Transferred Contracts pursuant to the
Assignment and Assumption Agreement.
5.2.4 Illinois Uniform Commercial Code search reflecting
that there are no financing statements on file with the Office of
the Secretary of State of Illinois, the County Clerk or Registrar
of Deeds of Cook County, Illinois or the Secretary of State of
Georgia, or the county clerk or registrar of deeds in the county
where Halis, Inc. is located in Georgia in the name of Seller,
its shareholders or any Physician affecting any of the Purchased
Assets or releases of any such liens indicated thereon or liens
listed on Schedule 4.2.10.
5.2.5 All of Seller's business records maintained in
connection with the Purchased Assets and the Practice.
5.2.6 Certified copies of all corporate resolutions
required to authorize HALIS and Seller to enter into this
Agreement and consummate the transactions contemplated herein.
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5.2.7 Duly executed Employment Agreements in the form
attached hereto as Schedule 5.2.7 signed by each Physician.
5.2.8 Intentionally Omitted.
5.2.9 Intentionally Omitted.
5.2.10 Duly executed terminations of (i) that
certain Employment Agreement dated as of July 31, 1997, by and between
Seller and Theodore M. Homa, M.D., (ii) that certain Employment
Agreement by and between Seller and Sandra Garretson, M.D. and (iii)
that certain Employment Agreement dated as of April 11, 1998, by and
between Seller and Steven Kim, M.D.
5.2.11 Such other documents as Purchaser's counsel
shall reasonably deem necessary to effectuate the transactions
contemplated by this Agreement.
5.3 PURCHASER'S DELIVERIES AT CLOSING. At Closing, Purchaser
shall deliver to Seller the following:
5.3.1 The Purchase Price.
5.3.2 Duly executed Bill of Sale.
5.3.3 Duly executed Assignment and Assumption Agreement.
5.3.4 Certified copies of all resolutions required to
authorize Purchaser to enter into this Agreement and to
consummate the transactions contemplated herein.
5.3.5 Duly executed Employment Agreements in the form
attached hereto as Schedule 5.2.7 with each Physician.
5.3.6 Intentionally Omitted.
5.3.7 Duly executed termination of the Employment
Agreements referred to in Section 5.2.10.
5.3.8 Such other documents as Seller's counsel shall
reasonably deem necessary to effectuate the transactions contemplated
by this Agreement.
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ARTICLE 6.
EMPLOYMENT
6.1 TERMINATION OF EMPLOYEES. The parties acknowledge and
agree that Seller intends to terminate all of its employees
immediately prior to the Closing and Purchaser shall have no
obligation to employ existing employees of Seller whether or not such
employees are terminated by Seller prior to Closing. Purchaser shall
determine in its sole discretion whether to offer employment to any of
Seller's employees and the terms and conditions of such employment
(including, without limitation, compensation and benefits), and, if
such employees accept such offer, then they shall become new employees
of Purchaser.
6.2 EMPLOYMENT OF PHYSICIANS. At Closing, and following
Seller's termination of all of their employees, Purchaser shall enter
into employment agreements in the form attached hereto as Schedule
5.2.7 with all Physicians.
6.3 TERMINATION OF EMPLOYMENT AGREEMENTS. At Closing, Seller
and each of the Physicians shall terminate in writing that the
employment agreements by and between Seller and each Physician
referred to in Section 5.2.10.
ARTICLE 7.
INDEMNIFICATION
7.1 SELLER'S AND HALIS' INDEMNIFICATION OF PURCHASER. HALIS
and Seller, jointly and severally, shall indemnify and hold Purchaser,
its members, managers, employees, officers, agents, representatives,
successors and assigns harmless from and against (a) any uninsured
damage or deficiency resulting from any misrepresentation, breach of
warranty or non-fulfillment of any agreement on the part of Seller
under this Agreement, or from any misrepresentation or omission from
any certificate or other instrument furnished or to be furnished to
Purchaser in accordance with the provisions of this Agreement; (b) any
uninsured liabilities of or claims against Seller, of any nature
whether accrued, absolute, contingent or otherwise arising out of
transactions entered into or services performed by Seller prior to the
Closing except for claims subject to insurance or expressly assumed by
Purchaser pursuant to the Assignment and Assumption Agreement; (c)
Seller's acts and omissions in its operation of the Practice (or
otherwise) prior to Closing; (d) any and all expense, loss, damage or
liability, including reasonable attorneys' fees and court costs, that
Purchaser may suffer as a result of any claims, suits, investigations
or charges asserted by or on behalf of Seller's former employees or
related to their employment arising from events occurring prior to the
Closing related to employment matters, including but not limited to
any matters arising under laws governing wages and hours, wage payment
and collection, employee benefits, employment discrimination and
sexual harassment; (e) Purchaser's satisfaction or payment of any tax
liens set forth on Schedule 4.2.16; (f) Seller's termination of the
Physicians' employment as set forth in Article 6; (g) any and all
liabilities or obligations of Seller arising under the Transferred
Contracts prior to the Closing, and any and all liabilities or
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obligations incurred by Seller or Purchaser in connection with the
assignment (or attempted assignment) of the Transferred Contracts; and
(h) all actions, suits, proceedings, demands, assessments, judgments,
costs and expenses, including reasonable attorney's fees and expenses
incident to any of the foregoing. Except for fraud, this
indemnification shall not apply as to any claim or action brought on
or after the fifth (5th) anniversary of the Closing Date. In
addition, except with respect to any action based on fraud or the bulk
sales law, Halis' and Seller's obligations to make payments under any
indemnification claim by Purchaser hereunder shall not exceed an
amount equal to the Purchase Price plus the amount of the Receivables
Adjustment paid or due to Seller under Sections 3.1 and 3.2 hereunder.
7.2 PURCHASER'S INDEMNIFICATION OF SELLER. Purchaser shall
indemnify and hold Seller, its employees, agents, representatives,
successors and assigns harmless from and against: (a) any uninsured
damage or deficiency resulting from any misrepresentation, breach of
warranty or non-fulfillment of any agreement on the part of Purchaser
under this Agreement, or from any misrepresentation or omission from
any certificate or other instrument furnished or to be furnished to
Seller in accordance with the provisions of this Agreement; (b) any
liability arising out of Purchaser's operation of the Practice
following Closing; (c) the failure of Purchaser to pay, discharge or
perform any liability assumed by Purchaser pursuant to the Assignment
and Assumption Agreement or resulting from any dispute concerning any
such liability; and (d) all actions, suits, proceedings, demands,
assessments, judgments, costs and expenses, including reasonable
attorney's fees and expenses incident to any of the foregoing. Except
for fraud, this indemnification shall not apply as to any claim or
action brought on or after the fifth (5th) anniversary of the Closing
Date. In addition, except with respect to an action based on fraud,
Purchaser's obligation to make payments under any indemnification
claim hereunder shall not exceed an amount equal to the Purchase Price
plus the amount of the Assigned Receivables paid or due to Seller
under Sections 3.1 and 3.2 hereunder.
7.3 DEFENSE OF CLAIMS. In the event that any claim is
asserted against a party to which it is entitled to indemnification
hereunder (the "Indemnified Party"), the Indemnified Party shall
promptly after learning of such claim notify the other party (the
"Indemnifying Party") thereof in writing; provided, however, that the
failure of Indemnified Party to give prompt notice of such claim as
aforesaid shall not relieve the obligation of Indemnifying Party with
respect to such claim. Indemnifying Party shall have the right, by
giving written notice to Indemnified Party within ten (10) calendar
days after receipt from Indemnified Party of notice of such claim, to
conduct at its expense the defense against such claim in its own name,
or, if Indemnifying Party shall fail to give such notice, it shall be
deemed to have elected not to conduct the defense of the subject
claim, and in such event Indemnified Party shall have the right to
conduct such defense and to compromise and settle the claim without
prior consent of Indemnifying Party. In the event that Indemnifying
Party elects to conduct the defense of the subject claim, Indemnified
Party will cooperate with and make available to Indemnifying Party
such assistance and materials as may be reasonably requested by it,
all at the expense of Indemnifying Party, and Indemnified Party shall
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have the right at its expense to participate in the defense, provided
that Indemnified Party shall have the right to compromise and settle
the claim only with the prior written consent of Indemnifying Party.
No legal proceeding in which Indemnified Party is named as a party
shall be settled by Indemnifying Party without Indemnified Party's
prior written consent unless such settlement or compromise (a) affects
no substantive rights of Indemnified Party, (b) involves no admission
of fault by Indemnified Party, and (c)creates no obligations or
liabilities for Indemnified Party. Any judgment entered or settlement
agreed upon in the manner provided herein shall be binding upon
Indemnifying Party, and shall conclusively be deemed to be an
obligation with respect to which Indemnified Party is entitled to
indemnification hereunder.
7.4 NEGATION OF INSURANCE COVERAGE. Notwithstanding anything
to the contrary, a party's obligations with respect to indemnification
for acts described in Article 7 shall not apply to the extent that
such application would nullify any existing insurance coverage of such
party or as to that portion of any claim of loss in which insurer is
obligated to defend or satisfy.
7.5 TAX EFFECT AND INSURANCE. The liability of the
indemnifying party with respect to any claim for indemnification shall
be reduced by the tax benefit actually realized and any insurance
proceeds received by the indemnified party as a result of any damages
upon which such indemnification claim is based, and shall include any
tax detriment actually suffered by the indemnified party as a result
of such damages. The amount of any such tax benefit or detriment
shall be determined by taking into account the effect, if any and to
the extent determinable, of timing differences resulting form the
acceleration or deferral of items of gain or loss resulting from such
damages and shall otherwise be determined so that payment by the
indemnifying party of the indemnification claim, as adjusted to give
effect to any such tax benefit or detriment, will make the indemnified
party as economically whole as is reasonable practical with respect to
the damages upon which the indemnification claim is based.
7.6 SUBROGATION. Upon payment in full of any indemnification
claim, whether such payment is effected by set-off or otherwise, or
the payment of any judgment or settlement with respect to a third
party claim, the indemnifying party shall be subrogated to the extent
of such payment to the right of the indemnified party against any
person or entity with respect to the subject matter of such
indemnification claim or third party claim.
7.7 EXCLUSIVITY. After the Closing, the indemnities set
forth in this Section 7 shall be the exclusive remedies of Purchaser,
HALIS and Seller and their respective officers, directors, employees,
agents and affiliates for any misrepresentation or breach of warranty
set forth in Article 4. This Agreement, and the parties shall not be
entitled to a rescission of this Agreement or to any further
indemnification rights or claims of any nature whatsoever in respect
thereof, all of which are hereby waived.
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7.8 SURVIVAL. Except as otherwise provided in Article 7, the
obligations set forth in this Article 7 shall survive termination of
this Agreement for whatever reason.
ARTICLE 8.
CONFIDENTIALITY
No party shall intentionally disclose the contents of this
Agreement to any third party (and Seller will direct the Physicians
not to disclose same), except as may be reasonably required to obtain
the services of its professional advisors or as may be required by
law. The parties shall notify their professional advisors of the
non-disclosure requirements of this Agreement. The provisions of this
Article 8 shall survive the Closing and/or the termination of this
Agreement.
ARTICLE 9
ACCESS TO PATIENT RECORDS
Following the Closing, Purchaser shall provide Seller with
access, during Purchaser's normal business hours, to patient records
transferred pursuant to this Agreement for the purpose of Seller's
defending against any professional liability claims. Seller shall
provide Purchaser with reasonable notice prior to access. Seller
shall bear the entire cost of reproducing or copying such records.
ARTICLE 10.
COVENANT NOT TO COMPETE
10.1 COVENANTS. Seller agrees that for a period of eight (8)
years following the Closing Date that it will not, directly or
indirectly, alone or in association with others, in its capacity as
partner, shareholder or other legal or beneficial capacity, or
otherwise, or through or in connection with any corporation,
partnership or other form of business entity, without the prior
written consent of Purchaser:
10.1.1 Engage, within a ten (10) mile radius of any
office site of Purchaser, including but not limited to the
Offices "Territory") and any office site opened by Purchaser
during the eight (8) year period during which this Article 10 is
in effect, in any business competitive with or substantially
similar to the business of the Practice or Purchaser;
10.1.2 Solicit, or attempt to solicit, any patient
of the Practice or Purchaser with services which are the same as,
or which are substantially similar in purpose to, the services of
Purchaser;
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10.1.3 Divert or attempt to divert, for its direct
or indirect benefit or for the benefit of any other person, any
patient of the Practice or Purchaser, or any of the business or
patronage of any patient of the Practice or Purchaser;
10.1.4 Influence or attempt to influence any patient
of the Practice or Purchaser to transfer its business or
patronage from Purchaser directly or indirectly to Seller or to
any other person, corporation, partnership, joint venture or sole
proprietorship;
10.1.5 Within the Territory, assist, be or become
involved in or associated with, in any capacity, any person,
corporation, partnership, joint venture, sole proprietorship or
other form of business entity that is engaged in performing
services which are the same as, or which are substantially
similar to, the services of the Practice or Purchaser;
10.1.6 Disclose to any person, corporation,
partnership, joint venture, sole proprietorship or other business
entity the names, addresses, or other confidential information
relating to any patient of the Practice or Purchaser, the prices
charged to patients of Purchaser, or the techniques used by
Purchaser in serving any patient;
10.1.7 In any other manner interfere with, disrupt
or attempt to disrupt the relationship of Purchaser with any of
the Physicians, patients, suppliers, or employees of Purchaser,
including the solicitation of any of the foregoing; or
10.1.8 Transfer, sell, lease, or otherwise convey or
allow the use of any of the trade secrets, proprietary
information, or other assets of Purchaser to any other person,
corporation, or entity to the extent that Seller has any
reasonable basis to believe that such person, corporation or
entity intends to use any of the foregoing to perform any
services which are the same as or substantially similar to any of
the services offered by Purchaser.
10.2 DEFINITION OF PATIENT. For purposes of this Agreement,
the term "patient" shall mean and include any person that was a
patient of the Practice on the date first written above or at any time
during the preceding thirty-six (36) month period or any person who
becomes a patient of the Practice while the Practice is operated by
Purchaser.
10.3 ACKNOWLEDGMENT. Seller acknowledges that it is familiar
with restrictive agreements such as this, has been advised by legal
counsel as it deemed necessary, has concluded that its obligations and
Purchaser's rights hereunder (including without limitation Purchaser's
right to equitable relief as provided herein) are reasonable, and that
it is fully aware of the duties, responsibilities, obligations, and
liabilities imposed upon it by this Agreement.
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10.4 RIGHT TO INJUNCTIVE RELIEF. In the event of a breach of
any provision of this Agreement, Purchaser, as it may elect, shall be
entitled to an injunction restraining Seller from such conduct in
addition to such other remedies as may be available to Purchaser for
such breach.
10.5 SEVERABILITY. If a court of competent jurisdiction
should declare any part of this Agreement unenforceable because of any
unreasonable restriction of duration and/or geographical area, or for
any other reason, then Seller hereby acknowledges and agrees that such
court shall have the express authority to reform the provisions of
this Agreement to provide for reasonable restrictions and/or to grant
Purchaser such other relief at law or in equity as may be reasonably
necessary to protect the interests of Purchaser in its business.
ARTICLE 11.
WAIVER OF BULK TRANSFER COMPLIANCE
Seller and Purchaser agree to waive compliance with the
provisions of any applicable bulk sales or transfer act; provided,
however, that Seller agrees to indemnify and hold Purchaser harmless
for, against and in respect of any and all claims made or assessed
against Purchaser on the grounds that Seller has made a bulk sale or
transfer to Purchaser to which the Illinois Uniform Commercial Code
article on Bulk Transfers applies.
ARTICLE 12.
COLLECTION OF TRANSFERRED CONTRACT REVENUE
Following the Closing, Purchaser shall bill for and collect, at
its own expense, amounts that constitute Transferred Contract
revenues. Such amounts shall be paid to Purchaser, or endorsed to
Purchaser, by Seller. Purchaser agrees to provide collections
support, of the same type Purchaser utilizes in the Purchaser's
collection efforts, to collect Transferred Contract revenues on behalf
of the Seller. If any of Seller's Transferred Contract revenues are
or become receivables more than one hundred twenty (120) days old,
Purchaser may transfer, such receivables to a collection agency of the
choice of Purchaser's board of directors'.
ARTICLE 13.
MISCELLANEOUS PROVISIONS
13.1 ASSIGNMENT. This Agreement shall not be assignable by
either party except with the prior express written consent of the
other party, which shall be in the sole discretion of such other party
to grant or withhold; provided, however, that Purchaser may assign
this Agreement to another entity of which Purchaser or Purchasers
members own or control fifty percent (50%) or more of the voting
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securities/interests or to another corporation of which Purchaser
sells its business. Consent to one assignment shall not be construed
as consent to any subsequent assignment.
13.2 BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the heirs, successors and permitted assigns of
each party hereto.
13.3 ENTIRE AGREEMENT. This Agreement, including the
schedules and exhibits hereto, and the other agreements executed by
Purchaser and Seller at Closing constitute the entire agreement of the
parties with respect to the subject matter hereof and supersede all
prior oral or written representations, warranties and agreements
between the parties with respect to the subject matter hereof and
thereof.
13.4 NOTICES. All notices and other communications required
or permitted to be given under this Agreement shall be in writing and
shall be considered given and delivered when personally delivered to
the party to whom such notice or communication is addressed or when
delivered by courier or when received by facsimile or when deposited
in the United States mail, postage prepaid, return receipt requested,
properly addressed to a party at the address set forth below, or at
such other address as such party shall have specified by notice given
in accordance with this Section:
If to either Halis or Seller: Halis, Inc.
9040 Roswell Road, Suite 470
Atlanta, Georgia 30350
Attention: President
With a copy to: Smith, Gambrell & Russell, L.L.P.
Promenade II, Suite 3100
1230 Peachtree Street, N.E.
Atlanta, Georgia 30309-3592
Attention: William L. Meyer
If to Purchaser: Physicians Enterprise System, L.L.C.
450 East Ohio Street
Chicago, Illinois 60611
Attention: Gordon Lang, M.D.
With a copy to: Ross & Hardies
150 N. Michigan Avenue, Suite 2500
Chicago, Illinois 60601
Attention: Robert J. Pristave, P.C.
13.5 EXPENSES. Each party hereto shall pay its own expenses
incident to this Agreement and the consummation of the transaction
herein described.
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13.6 FURTHER ASSURANCES. At Closing and following, the
parties hereto shall take such further actions and execute and deliver
such additional documents and instruments as may be reasonably
requested by any other party in order to perfect and complete the
purchase and sale of the Purchased Assets as set forth herein, and the
other transactions specifically contemplated herein, and each party
shall bear its own expenses in connection therewith.
13.7 WAIVER. Any term or condition of this Agreement may be
waived at any time by the party or parties entitled to the benefit
thereof, but only by a written notice signed by the party or parties
waiving such terms or conditions. The waiver of any term or condition
shall not be construed as a waiver of any other term or condition of
this Agreement.
13.8 AMENDMENT. This Agreement may be amended, supplemented
or modified at any time, but only by a written instrument duly
executed by HALIS and Seller and by Purchaser, which amendment shall
be effective as of the date specified therein.
13.9 EXHIBITS. The Exhibits and Schedules attached to this
Agreement shall be construed with and as an integral part of this
Agreement to the same extent as if the same had been set forth
verbatim herein. Any fact disclosed on one Exhibit or Schedule hereto
shall be deemed to be disclosed on each other applicable Exhibit or
Schedule and disclosed in this Agreement to the same extent as if the
same had been set forth verbatim herein.
13.10 NO THIRD PARTY RIGHTS. The parties hereto agree that it
is not their intention to create any third party rights by virtue of
this Agreement, except as expressly provided for herein.
13.11 SECTION HEADINGS AND CROSS-REFERENCES. The article and
section headings contained in this Agreement are for reference only
and shall not affect in any way the meaning or interpretation of this
Agreement. All references in this Agreement to article and section
numbers, Exhibits and Schedules refer to articles and sections,
Exhibits and Schedules of this Agreement.
13.12 GOVERNING LAW. This Agreement shall be construed, and
the rights and liabilities of the parties hereto determined, in
accordance with the internal laws of the State of Illinois; provided,
however, that the conflicts of law principles of the State of Illinois
shall not apply to the extent that they would operate to apply the
laws of another state.
13.13 PARTIAL INVALIDITY. In the event that any term or
provision of this Agreement is rendered invalid or unenforceable by
any valid act of Congress or the state legislature, or by any
regulation duly promulgated by officers of the United States or the
State of Illinois acting in accordance with law, or declared null and
void or unenforceable by any court of competent jurisdiction, the
remaining terms and provision of this Agreement shall remain in full
force and effect.
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<PAGE>
13.14 DEFINITION OF KNOWLEDGE. Whenever in this Agreement any
representation or warranty of Seller or Purchaser is expressed in
terms of knowledge or best of knowledge, such knowledge shall be
deemed to include matters actually known to the Seller or Purchaser or
matters which should have been known to them in the reasonable
discharge of its duties.
13.15 COST OF LITIGATION. In the event that any party to this
Agreement takes legal action to enforce any of the terms of this
Agreement, the court, arbitrator or other presiding body shall have
the power to, and the parties shall direct the court, arbitrator or
other presiding body to, award reimbursement for the parties'
reasonable expenses, including but not limited to reasonable
attorneys' fees, incurred in connection with such action.
13.16 ARBITRATION.
13.16.1 Any controversy or claim arising out of or
relating to this Agreement or the transactions contemplated hereby,
other than a controversy or claim arising out of or relating to the
Calculation of the Receivables Adjustment as set forth in Section 3.2
hereof, relating to Articles 8 and 10 hereof, which shall be resolved
as provided in Section 3.2, shall be submitted to and be finally
resolved by arbitration pursuant to the provisions of the United
States Arbitration Act (9 U.S.C. Section 1 et seq.), to be conducted
by the American Arbitration Association ("AAA"), with such arbitration
to be held in Chicago, Illinois in accordance with the AAA's
Commercial Arbitration Rules then in effect. Each party hereby
irrevocably agrees that service of process, summons, notices or other
communications related to the arbitration procedure shall be deemed
served and accepted by the other party if given in accordance with
Section 13.4. The arbitrators shall render a judgment of default
against any party who fails to appear in a properly noticed
arbitration proceeding. The arbitration shall be conducted by a panel
of three arbitrators selected pursuant to AAA Rules. Any award or
decision rendered in such arbitration shall be final and binding on
both parties, and judgment may be entered thereon in any court of
competent jurisdiction if necessary.
13.16.2 Notwithstanding Section 13.16.1 above to the
contrary, any party may seek temporary or preliminary injunctive
relief against the other party at any court of proper jurisdiction
with respect to any and all preliminary injunctive or restraining
procedures pertaining to this Agreement or the breach thereof, pending
the outcome of any arbitration proceeding.
13.17. DR. HOMA. In connection with the purchase and sale
hereunder Seller and Halis, jointly and severally, agree that all
obligations of the Practice open and due as of the date hereof and not
assigned by Purchaser hereunder (the "Obligations") shall be paid in a
timely fashion and Theodore Homa, M.D. and Theodore Homa, M.D., S.C.
and its officers, directors, shareholders, employees, agents,
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<PAGE>
successors and assigns, shall be indemnified by Halis and Seller in
the event any such parties incur any loss due to the failure of Halis
or Seller to pay any Obligation. Halis and Seller hereby acknowledge
and agree that for purposes of this Section 13.17, Dr. Homa shall be a
third party beneficiary with the right to enforce this Section 13.17
directly against Halis and Seller.
[Remainder of Page Left Blank Intentionally]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first written above.
PURCHASER:
PHYSICIANS ENTERPRISE SYSTEM,
L.L.C.
By:________________________________
Its:_______________________________
SELLER:
PHYSOURCE LTD.
By:________________________________
Larry Fisher, Vice President
HALIS:
HALIS, INC.
By:________________________________
Larry Fisher, Executive Vice
President
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