SCHEDULE 14C INFORMATION
Proxy Statement Pursuant to Section 14(c) of the Securities Exchange Act
of 1934
Check the appropriate box:
|_| Preliminary Information Statement
|_| Confidential, for use of the Commission Only (as permitted by Rule
14c-5(d)(2))
|X| Definitive Information Statement
GHS, INC.
- -----------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
|_| No fee required.
|X| Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
1) Title of each class of securities to which transaction applies:
---------------------------------
2) Aggregate number of securities to which transaction applies:
---------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11.
---------------------------------
4) Proposed maximum aggregate value of transaction:
$2,100,000
5) Total Fee Paid:
$420
|X| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
-----------------------------
2) Form, Schedule or Registration Statement No.:
-----------------------------
3) Filing Party:
-----------------------------
4) Date Filed:
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GHS, INC.
1350 Piccard Drive
Rockville, Maryland 20850
NOTICE TO STOCKHOLDERS
Pursuant to Section 271 of the Delaware General Corporation Law and
Regulation 14C of the Securities and Exchange Act of 1934, as amended.
WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE NOT REQUESTED TO SEND US A PROXY.
This Information Statement is being mailed on or about May 28, 1997 to
holders of record on May 22, 1997 of the common stock, $.01 par value per share
(the "Common Stock") of GHS, Inc., a Delaware corporation (the "Company" or
"GHS") in connection with the sale (the "Sale") of substantially all of the
assets related to the Company's business of providing computerized record-based
processing systems and services for managed care, public health and ambulatory
care facilities (the "Systems Business"). The Systems Business, operated through
the Company's two Delaware subsidiaries, Global Health Systems, Inc. ("Global")
and GHS Management Services, Inc. ("Management"), is being sold pursuant to the
terms of an Asset Purchase Agreement, dated as of March 10, 1997 (the "Purchase
Agreement"), by and among the Company, Global, Management, Health Management
Systems, Inc., a New York corporation ("HMS") and Global Health Acquisition
Corp., a Delaware corporation and a wholly-owned subsidiary of HMS ("Sub", and
together with HMS, the "Buyers"). A total of eight stockholders representing
approximately 58% of the outstanding Common Stock, have consented in writing to
the Sale pursuant to the Purchase Agreement, and the consent of such holders is
sufficient under Section 228 of the Delaware General Corporation Law to approve
the Sale. No consideration was solicited or received for such holders' consent.
Accordingly, resolutions will not be submitted to the other Company stockholders
for a vote, and this Information Statement is being furnished to stockholders
solely to provide them with certain information concerning the Sale in
accordance with the requirements of the Securities and Exchange Act of 1934, as
amended (the "Exchange Act") and the regulations promulgated thereunder,
including particularly Regulation 14C and with the requirements of the Delaware
General Corporation Law.
As a result of the Sale, the Company will be left primarily with (i)
assets related to its U.S. NeuroSurgical, Inc. wholly-owned subsidiary ("USN"),
(ii) a 20% equity interest in Florida Specialty Networks, Ltd., a Florida
limited partnership ("FSN") and (iii) the proceeds from the Sale. USN was
organized in 1993 to own and operate stereotactic radiosurgery centers utilizing
the Gamma Knife technology and presently operates one such center in Kansas
City, Missouri and is scheduled to open a second center on the campus of New
York University Medical Center in New York City in mid-1997. FSN is primarily
engaged in providing capitated medical specialty networks to managed care
organizations.
THE TRANSACTION DESCRIBED HEREIN HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE MERITS
OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
Dated: May 28, 1997
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GHS, INC.
1350 Piccard Drive
Rockville, Maryland 20850
INFORMATION STATEMENT
General
This Information Statement is being furnished on or about May 28, 1997 to
stockholders of record on May 22, 1997 of the common stock of GHS, Inc., a
Delaware corporation (the "Company"), in connection with the sale (the "Sale")
of substantially all of the assets related to the Company's business of
providing computerized record-based processing systems and services for managed
care, public health and ambulatory care facilities (the "Systems Business"). The
Systems Business, operated through the Company's two Delaware subsidiaries,
Global Health Systems, Inc. ("Global") and GHS Management Services, Inc.
("Management" and together with the Company and Global, the "Sellers"), is being
sold pursuant to the terms of an Asset Purchase Agreement, dated as of March 10,
1997 (the "Purchase Agreement"), by and among the Company, Global, Management,
Health Management Systems, Inc., a New York corporation ("HMS") and Global
Health Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary
of HMS ("Sub", and together with HMS, the "Buyers"). The Sale is described in
more detail in the body of this Information Statement. The holders of
approximately 58% of the common stock, par value $.01 per share, of the Company
(the "Common Stock") have consented in writing to the Sale, and the consent of
such holders is sufficient under Delaware law to approve the Sale. Accordingly,
resolutions regarding the Sale will not be submitted to the other Company
stockholders for a vote, and this Information Statement is being furnished to
stockholders solely to provide them with certain information concerning the Sale
in accordance with the requirements of the Securities and Exchange Act of 1934,
as amended (the "Exchange Act") and the regulations promulgated thereunder,
including particularly Regulation 14C. On May 22, 1997, there were outstanding
6,979,160 shares of Common Stock and approximately 113 holders of record.
Holders of Common Stock are entitled to one vote per share. Proxies are not
being solicited in connection with the Sale, and you are requested not to
provide the Company with your proxy.
The principal executive offices of the Company are located at 1350 Piccard
Drive, Rockville, Maryland 20850, and its telephone number is (301) 417-9808.
Background of the Sale
Economic and business challenges which the Company's Systems
Business has experienced during the last several years had led the Company's
Board of Directors to undertake a general review of the Company's long-term
strategy and prospects for its Systems Business. As a result of a number of
factors, the Company's Board of Directors had determined to consider a sale of
the Company's Systems Business as a means of preserving stockholder value. The
Company determined, however, not to publicly solicit
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buyers for its Systems Business since such methods would, in its view, have
given the impression that the Company was a distressed seller and might have
reduced, rather than increased the price obtained. See "Reasons for the Sale"
below.
For several years prior to the commencement of discussions leading
to the Purchase Agreement, management of GHS and representatives of Allen &
Company Incorporated, a principal stockholder of the Company ("Allen &
Company"), have from time to time engaged in preliminary discussions with former
and present management of HMS to explore a possible acquisition by HMS of the
Company's Systems Business. These preliminary discussions terminated for various
reasons, including the inability of the companies to agree on financial
valuations of the Systems Business.
In May 1996, discussions recommenced between the Company and Allen &
Company and HMS with respect to the acquisition by HMS of the Company's Systems
Business. Such discussions resulted in an understanding by the Company and HMS
that, subject to the negotiation by the parties of a definitive purchase
agreement, HMS would purchase certain of the assets utilized in connection with
the Systems Business and that HMS would assume certain specified liabilities
relating to the conduct of the Systems Business.
During the period commencing in May 1996 through March 7, 1997, the
Company's management, representatives of Allen & Company and the Company's legal
advisors held a series of telephonic meetings with HMS and its legal counsel to
negotiate and finalize the business terms of the Sale. The parties also
commenced and completed the preparation of a definitive purchase agreement (the
"Purchase Agreement") and other ancillary documents relating thereto. The
parties negotiated a purchase price of $2,100,000 for the Sale of the Systems
Business. Such price was based upon the Company's and HMS's judgment of what was
a fair value for the Systems Business and was not based upon a specific
valuation methodology such as discounted cash flow or the book or market values
of the Purchased Assets. The Company's management believed that such purchase
price represented a favorable value for the Systems Business, in light of the
history of operating losses experienced by the Systems Business and the
realization that the Company did not have access to the level of resources which
would be needed to adequately fund the Systems Business for it to successfully
compete in its industry and achieve consistently profitable operations. In
addition, the Company's management believed such purchase price was a favorable
price given the fact that the price exceeded the Company's total market
capitalization as of the date of execution of the Purchase Agreement and given
the fact that the Company's would retain its interests in USN and FSN. Despite
these difficulties experienced by the Company, such purchase price also
represented for HMS a fair value for the Systems Business because the Systems
Business presented an opportunity for HMS to add a business which was
complementary to its current operations and which served certain of its existing
clients.
On January 24, 1997, the Company's Board of Directors (the "Board of
Directors") met by telephonic conference to consider the general terms and
conditions of the proposed Sale. The Board of Directors also analyzed the impact
of the Sale of the
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ongoing operations of the Company's U.S. NeuroSurgical, Inc. subsidiary ("USN")
after the Sale. The Board of Directors also considered what it regarded as the
positive and negative factors of the Sale. After discussion, the Board of
Directors determined to approve the Sale and the Purchase Agreement and the
transactions contemplated thereby.
On March 10, 1997, the Purchase Agreement was executed by the
Company, Global, Management, HMS and Sub. The Company announced the execution of
the Purchase Agreement through a press release on the same day. On March 7,
1997, the business day immediately preceding the public announcement of the
Sale, the bid and ask prices of the Company's Common Stock on the OTC Bulletin
Board were $0.13 and $0.22, respectively.
Background of the Buyer
HMS furnishes proprietary information management and data processing
services and software to hospitals and other health care providers and to
government health service agencies and other health care payors. These services
address the various types of data generated by the interaction of the
participants in the health process: the health care provider, the third party
payor and the patient. Through its retrospective, concurrent and prospective
service offerings, HMS acts as an outsourcer of information management
addressing the clinical, operational, administrative and financial data which
result from the rendering of health care services. HMS's service offering
benefits its clients by enhancing revenue and accelerating cash flow (achieved
through improved reimbursability and collectability), reducing operating and
administrative costs (by supplying advanced information analytics), and
improving decision making capabilities (via the provision of useful
information.)
The principal executive offices of HMS are located at 401 Park Avenue
South, New York, New York 10016, and its telephone number is (201) 685-4545.
Reasons for the Sale
The Company's Board of Directors has approved the Sale, and believes that
it is in the best interests of the Company and its stockholders to sell the
Company's assets related to its System Business. Prior to reaching it
conclusion, the Board of Directors and the Company's management reviewed and
discussed the long-term strategy and prospects of its Systems Business and the
positive and negative factors of the Sale. In reaching its conclusion to approve
the Sale, the Board of Directors and the Company's management considered certain
material factors, including the following:
1. While the Company has been in the business of developing and marketing
turnkey computer systems for the health care industry since its formation in
1984, its operating profits have never reached a significant level for an
extended period of time. Further, in view of recent developments in the health
care industry, the Company's
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Board of Directors and management expect that fluctuations in revenues and
earnings could increase, and there can be no assurance that the System Business
will ever achieve consistently profitable operations. Therefore, the Board of
Directors has determined that to realize value for its stockholders and to stem
any further losses, it is desirable that the Company sell the Systems Business.
In addition to stemming any further losses of the Systems Business, the Sale
will benefit the Company's stockholders by immediately increasing, on a pro
forma basis, the Company's book value per share and stockholder's equity and by
allowing the Company to increase stockholder value by focusing its energy and
resources on its remaining operations as described below. The immediate benefits
to its ongoing operations which the Company expects to derive from the Sale are
further evidenced by the fact that for the three months ended March 31, 1997 and
for the fiscal years ended December 31, 1996, 1995 and 1994, the expenses
related to the Systems Business exceeded the revenues generated therefrom. See
"Pro Forma Financial Information."
2. The Board of Directors and the Company's management considered the fact
that the health care information processing systems industry is extremely
competitive and likely to become more so. The Company has numerous competitors
and the industry is highly fragmented. Many of such competitors are larger and
have substantially greater resources, financial and otherwise, than the Company.
In addition, the Systems Business may face competition from other new entrants
into its markets and there is no assurance the Company could compete favorably
with all or any of its competitors.
3. Management considered the Company's situation that, in light of the
competitive and industry factors described above, it did not have access to the
level of resources which, most likely, would be needed to adequately fund the
Systems Business for it to successfully compete in its industry and achieve
consistently profitable operations. In addition, the Company expects to require
additional funding for its USN subsidiary, which has established one Gamma Knife
center in Kansas City, Missouri and is scheduled to open a second center on the
campus of New York University Medical Center in New York City in mid-1997.
4. The Board of Directors and the Company's management believed that, in
light of the above-described difficulties affecting the Systems Business, the
purchase price of $2,100,000 payable in connection with the proposed Sale to HMS
presented a favorable opportunity to realize significant value for the assets of
the Systems Business.
5. The Board of Directors considered the long-term strategy and prospects
of the Company's USN subsidiary and the ability of the Company to fund USN's
operations with the proceeds to be received as a result of the Sale. The Board
of Directors believes that USN's prospects are better than that of the Company's
Systems Business because the Systems Business lacked sufficient market share to
compete effectively, and because the capital required for systems research,
development and marketing was not readily available to the Company. As a result
of the Sale, the Company would be able to focus its attention and resources
exclusively on the business of USN. The Company will not be distributing any of
the net proceeds from the Sale to its stockholders, officers or
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directors; instead, such net proceeds will be used by the Company for general
working capital purposes, including, to the extent necessary, to provide funding
for USN's ongoing operations.
In view of the these factors, the Board of Directors concluded that the
Sale was in the best interests of the Company and its stockholders. Accordingly,
the Board of Directors has approved the Sale and the Purchase Agreement and the
transactions contemplated thereby.
Terms of the Sale
The following is a discussion of the material terms of the Purchase
Agreement. This section of the Information Statement does not contain a complete
explanation or description of the Purchase Agreement and is qualified in its
entirety by reference to the terms of the Purchase Agreement, a conformed copy
of which (without the exhibits or schedules thereto) is attached to this
Information Statement as Exhibit A and incorporated herein by reference.
General. The Company has entered into the Purchase Agreement with Buyers
providing for the purchase of substantially all of the assets relating to the
Systems Business by Buyers. The closing of the Sale (the "Closing") is scheduled
to occur on a date (the "Closing Date") after the fulfillment or waiver of
various conditions to consummation of the transaction, including the expiration
of the stockholder notice period required by the Exchange Act.
Assets Acquired. As provided in the Purchase Agreement, assets to be
purchased by Buyer in the Sale (the "Assets") consist of the following assets
and properties of Sellers relating to the Systems Business, other than the
Excluded Assets (as defined below): (i) all tangible personal property,
inventory, equipment, supplies, tools, computer equipment, work in process,
spare parts, furniture and office furnishings, wherever situated, whether or not
carried on the books of Sellers, to the extent that such assets are necessary
to, or used by Global or Management primarily in connection with, the Systems
Business, including items listed on a schedule to the Purchase Agreement; (ii)
the intangible personal property listed on a schedule to the Purchase Agreement;
(iii) the patents, trademarks and trade names, trademark and trade name
registrations, service marks and service mark registrations, copyright
registrations, the applications therefor and the licenses and franchises with
respect thereto, together with the goodwill and the business appurtenant
thereto; all trade secrets and technology (including technology with respect to
which Global is a licensee, in such case only insofar as permitted under the
applicable license agreement), processes, inventions, specifications, patterns,
royalties, privileges, permits and all other similar intangible personal
property, including items listed on a schedule to the Purchase Agreement; (iv)
all technical materials and guidelines, and all brochures, sales literature,
promotional material and other selling material used in the Systems Business,
wherever situated; (v) all papers, documents, instruments, books and records,
files, agreements, books of account and other records by which any of the Assets
might be identified or enforced, or otherwise
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pertaining to the Assets or the Systems Business that are located at the offices
or other locations used in connection with the Assets or the Systems Business
(including, without limitation, customer invoices, customer lists, vendor and
supplier lists, drafts and other documents and materials relating to customer
transactions); (vi) the rights of Global or Management (other than rights to
refunds arising prior to the Closing Date) under all contracts, agreements,
licenses, leases, sales orders, purchase orders and other commitments relating
to the Assets or the Systems Business listed on a schedules to the Purchase
Agreement; (vii) all rights of Global or Management to the computer software
programs and the license or other agreements conferring rights related thereto,
in each case listed on a schedule to the Purchase Agreement, and in each case,
only insofar as permitted under the applicable license or other agreement;
(viii) all accounts receivable of the Systems Business that have arisen prior to
the Closing Date with respect to ongoing liabilities and obligations of Global
or Management to provide products or services after the Closing Date (including
without limitation accounts receivable with respect to all customer advance
payments and maintenance fees) under any contract listed on a schedule to the
Purchase Agreement, which accounts receivable are listed on a schedule to the
Purchase Agreement; and (ix) all right, title and interest of Global or
Management in and to the computer software programs, and the source and object
codes for such software programs, listed on a schedule to the Purchase Agreement
together with all versions thereof and all modules encompassed thereby and, to
the extent used in the Systems Business or otherwise in possession of Sellers as
of the Closing Date, all technical materials, guidelines and other written
material pertaining thereto.
Notwithstanding the foregoing, the Assets shall not include any of the
following assets of Global and Management (collectively, the "Excluded Assets"):
(i) all cash in banks, cash on hand and short-term investments as of the Closing
Date; (ii) except as listed on a schedule to the Purchase Agreement, all
accounts receivable of Sellers attributable to the Systems Business through the
Closing Date; (iii) all claims or rights against third parties relating to
liabilities or obligations that are not assumed by Buyers under the Purchase
Agreement; (iv) all claims for the refund of taxes and other governmental
charges of whatever nature for all periods prior to the close of business on the
Closing Date; (v) all rights and funds in connection with retirement and profit
sharing plans; (vi) the minute books, stock records and related corporate
records of Global and Management; and (vii) those items listed on a schedule to
the Purchase Agreement, including the Company's minority equity interest in
Florida Specialty Networks, Ltd., a company that manages medical specialty
networks ("FSN").
Liabilities Assumed. Pursuant to the Purchase Agreement, Buyers shall not
assume any responsibility for any of Sellers' liabilities or obligations other
than as expressly set forth therein. Buyers shall assume and agree to pay,
perform and discharge when due all liabilities and obligations of Global and
Management that arise on or after the Closing Date under the terms of any
contract, agreement, license, lease, sales order, purchase order or other
commitment that is disclosed by Sellers on the schedules to the Purchase
Agreement. Buyers shall also assume the obligations of Sellers in respect of
vacation accrued prior to the Closing Date for employees of Sellers which accept
offers
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of employment by HMS, provided such accrued vacation is utilized within 12
months of the Closing Date.
Purchase Price and Closing Adjustments. In consideration of the sale of
the Assets on the Closing Date, Buyers shall pay to the Company an amount equal
to $2,100,000 (the "Purchase Price"). On the Closing Date, Buyers shall receive
a credit for (i) the aggregate of all payments received prior to the Closing
Date with respect to ongoing liabilities and obligations of Sellers to provide
products or services relating to the Systems Business after the Closing Date;
and (ii) the aggregate of all accrued expenses of the Systems Business that
relate to any period prior to midnight on the day prior to the Closing Date in
respect of which Sellers have not made payment or for which Sellers will not
remain responsible following the Closing Date. Correspondingly, on the Closing
Date, Sellers shall receive a credit for (i) the aggregate of all expenses of
the Systems Business that relate to any period after the Closing Date and for
which Buyers will receive the benefit in respect of which Sellers have made
payment or for which Sellers will remain responsible after the Closing Date and
all security deposits deposited by Sellers in connection with any contract
assumed by Buyers; and (ii) amounts represented by the value of products and
services that shall have been supplied by Sellers prior to the Closing Date but
have not yet given rise to an account receivable of Sellers.
Representations and Warranties. The Purchase Agreement contains various
customary representations and warranties relating to, among other things, each
of Sellers' and Buyers' (i) organization and similar corporate matters; (ii)
authorization, execution, delivery, performance and enforceability of the
Purchase Agreement and related matters; (iii) conflicts under charters or
by-laws, required consents or approvals and violation of any material
instruments or law; (iv) litigation matters; and (v) compliance with law. In
addition, the Purchase Agreement contains representations and warranties of
Sellers relating to, among other things: (i) their title to the Assets, free and
clear of liens and encumbrances; (ii) the absence of certain changes or events
since the date of most recent financial statements of Global and Management
delivered to Buyers; (iii) condition and status of the Assets; and (iv) certain
tax matters.
Conditions to Closing of the Sale. The obligations of each party to the
Purchase Agreement are subject to the satisfaction of certain conditions,
including (i) the accuracy as of the Closing Date of the representations and
warranties of the other parties contained in the Purchase Agreement; (ii) the
performance in all material respects of all covenants of the parties contained
in the Purchase Agreement which are to be performed on or before the Closing
Date; (iii) the delivery of certain opinions by counsel to the parties; (iv) the
absence of any legal action or proceeding which would restrain, prohibit,
invalidate or otherwise affect the transactions contemplated by the Purchase
Agreement or which would have a material adverse effect on the Systems Business;
and (v) the delivery of certain certificates and agreements by the parties and
their respective officers and directors.
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The obligations of Buyers under the Purchase Agreement are further
conditioned upon the satisfaction of the following conditions: (i) Sellers shall
have obtained all consents and approvals to the assignment of certain material
contracts as set forth on a schedule to the Purchase Agreement (the "Material
Contracts"); (ii) Alan Gold, the President and Chief Executive Officer of the
Company, shall have accepted employment with Buyers; (iii) Global and Management
shall have changed their respective names to names not confusingly similar to
Global Health Systems, Inc. and GHS Management Services, Inc.; and (iv) the
Purchase Agreement shall have been approved by the required affirmative vote of
the stockholders of the Company and by the Company in its capacity as the sole
stockholder of each of Global and Management, and the requisite notices under
federal and state law shall have been delivered.
The obligations of Sellers under the Purchase Agreement are further
conditioned upon the satisfaction of the following conditions: (i) Sellers shall
have been released from any agreement and contracts assigned to Buyers under the
Purchase Agreement; and (ii) the Purchase Agreement shall have been approved by
the required affirmative vote of the stockholders of the Company and the
requisite notices under federal and state law shall have been delivered.
The parties may waive compliance with any of the conditions to their
respective obligations to consummate the Sale. Also, no state or federal
regulatory approval is required in connection with the Sale.
Indemnification Provisions in the Purchase Agreement. The Purchase
Agreement also contains certain indemnification provisions. Sellers have agreed
to indemnify Buyers from all demands, claims, actions or causes of action,
assessments, losses, damages, liabilities, costs and expenses (collectively,
"Damages") arising out of: (i) a breach of any representation, warranty or
covenant of Sellers contained in or made pursuant to the Purchase Agreement;
(ii) any liabilities or obligations of, or claims against or imposed on, Sellers
(whether absolute, accrued, contingent or otherwise and whether a contractual,
or any other type of liability, obligation or claim) not assumed by Buyers
pursuant to the Purchase Agreement; (iii) any liabilities or obligations
(whether absolute, accrued, contingent or otherwise) in respect of (A) any of
the actions, suits or proceedings or threatened actions, suits or proceedings
described on a schedule to the Purchase Agreement, or (B) any actions, suit or
proceeding commenced after the Closing Date based upon an event occurring or a
claim arising prior to the Closing Date; and (iv) any liability in respect of
any failure by Sellers to conduct the Systems Business prior to the Closing Date
in compliance with any federal, state or local laws, statutes, ordinances,
rules, regulations, decrees, orders, permits or other similar items in force as
of the Closing Date. Sellers shall also indemnify Buyers against any and all
taxes imposed upon Sellers for all periods prior to the close of business on the
day prior to the Closing Date and any taxes imposed upon Sellers arising out of
the consummation of the transactions contemplated by the Purchase Agreement.
Buyers have agreed to indemnify Sellers from all Damages arising out of:
(i) a breach of any representation, warranty or covenant of Buyers contained in
or made
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pursuant to the Purchase Agreement; (ii) the failure of Buyers to pay, perform
and discharge when due the liabilities and obligations assumed by Buyers
pursuant to the Purchase Agreement; (iii) any liabilities or obligations
(whether absolute, accrued, contingent or otherwise) in respect of any action,
suit or proceeding based on an event occurring or claim arising on and after the
Closing Date; and (iv) any liability in respect of any failure by Buyers to
conduct the Systems Business on and after the Closing Date in compliance with
any federal, state or local laws, statutes, ordinances, rules, regulations,
decrees, orders, permits or other similar items from time to time in force.
Buyers shall also indemnify Sellers against any and all taxes imposed upon
Buyers for all periods after the close of business on the day prior to the
Closing Date and any taxes imposed upon Buyers arising out of the consummation
of the transactions contemplated by the Purchase Agreement.
The indemnities set forth in the Purchase Agreement and all
representations, warranties and covenants in the Purchase Agreement shall
survive for a period of one year following the Closing Date, unless such
indemnities, representations, warranties and covenants of the parties pertain to
tax claims, in which event they shall survive until expiration of the applicable
statute of limitations. Sellers shall be entitled to a credit or offset against
any liability to indemnify Buyers of an amount equal to $20,000 (the
"Threshold"), provided that at such time as Sellers' liability for Damages
exceeds the Threshold, Buyers shall be entitled to recover from Sellers any and
all amounts for which a claim for indemnity has been made, without regard to the
Threshold. In no event, however, shall Sellers' be liable for Damages to Buyers
exceed 15% of the Purchase Price, except for cases of intentional fraud.
Termination of the Purchase Agreement. The Purchase Agreement may be
terminated at any time prior to the Closing Date: (i) by Buyers, if the
conditions to the obligations of Buyers shall not have been complied with on or
before 120 days following March 10, 1997, the date of execution of the Purchase
Agreement (the "Execution Date") (except 180 days following the Execution Date
with respect the condition requiring Sellers to obtain the assignment of the
Material Contracts); (ii) by Sellers, if the conditions to the obligations of
Sellers shall not have been complied with on or before 120 days following the
Execution Date (except 180 days following the Execution Date with respect the
condition requiring the affirmative vote of the stockholders of the Company to
have obtained and the requisite notices to stockholders under federal and state
law to have been delivered); (iii) by Buyers or Sellers in the event the Closing
Date has not occurred on or prior to the close of business 180 days following
the Execution Date; (iv) by either Buyers or Sellers if any court or
governmental body takes any action preventing the consummation of the
transactions contemplated by the Purchase Agreement or making any such
transactions illegal; or (v) by either Buyers or Sellers if any court or
governmental body takes any action which would prohibit Sellers' ownership or
operation of all or a material portion of the Assets or Systems Business or
compel Buyers to dispose of all or a material portion of the Assets or the
Systems Business or render the parties unable to consummate the transactions
contemplated by the Purchase Agreement.
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Non-Compete Agreement. Pursuant to the Purchase Agreement, Sellers and Mr.
Alan Gold, the President and Chief Executive Officer and a director of the
Company, will be required, as a condition to the closing of the Sale, to enter
into a Non-Compete Agreement (the "Non-Compete Agreement") with Buyers. Pursuant
to the Non-Compete Agreement, Sellers will agree that, for a period or three
years following the Closing Date (the "Sellers' Restricted Period"), they shall
not, directly or indirectly, engage in a business, or own any interest in any
business, that provides to entities or persons located in the United States
computerized medical record-based transaction processing systems and services
for ambulatory health care providers and managed care organizations in the
public and private sector, provided that the Company shall be permitted to
retain its minority interest in FSN. In addition, pursuant to the Non-Compete
Agreement, Mr. Gold will also agree not to compete in such manner until the
later of the third anniversary of the Closing Date or the first anniversary of
the termination of Mr. Gold's employment by HMS (the "Gold Restricted Period"
and together with the Sellers' Restricted Period, the "Restricted Periods"). See
also "Interest of Certain Persons" below.
Pursuant to the Non-Compete Agreement, Sellers and Mr. Gold will also
agree, for the duration of their respective Restricted Periods, that they will
not (i) solicit for employment any employees of Sellers which become employees
of Buyers following the Closing Date or other employees employed by Buyers in
connection with the Systems Business or (ii) hire employees employed by Buyers
in connection with the Systems Business prior to the expiration of six months
after the date on which such person shall have ceased to be employed by Buyers;
provided that Mr. Gold shall be permitted to continue to act as an executive
officer and director of the Company. Sellers and Mr. Gold will also agree
pursuant to the Non-Compete Agreement to maintain the confidentiality of
confidential or proprietary information relating to the Systems Business.
Accounting Treatment. For accounting purposes, the Sale pursuant to the
Purchase Agreement is treated as a sale.
No Appraisal Rights. Delaware law does not provide for a right of
appraisal or other dissenters' rights in connection with a sale of substantially
all corporate assets such as that contemplated by the Sale. Delaware General
Corporation Law Section 262 provides for appraisal rights only in connection
with a merger or consolidation. The corresponding provision (Section 271)
governing sales of substantially all corporate assets does not provide for
appraisal rights.
Federal Income Tax Consequences of the Proposal. THE FOLLOWING DISCUSSION
SUMMARIZING CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS BASED ON CURRENT LAW AND
IS INCLUDED FOR GENERAL INFORMATION ONLY. STOCKHOLDERS SHOULD CONSULT THEIR OWN
TAX ADVISOR AS TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CIRCUMSTANCES.
10
<PAGE>
In the opinion of management, consummation of the Sale by the Company as
contemplated by the Purchase Agreement will not have any federal income tax
consequences for holders of the Company's Common Stock. The Sale is anticipated
to result in a net gain to the Company of approximately $1,650,000,
substantially all of which will be offset by the Company's net operating losses
of approximately $2,700,000.
Interest of Certain Persons
Pursuant to the Purchase Agreement, Buyers shall offer to continue the
employment of each of the Company's employees, or consultancy of all
consultants, who are engaged in the Systems Business on terms that are initially
no less favorable than the terms of their employment or consultancy by Sellers.
The employees and consultants who accept Buyers' offer of employment or
consultancy (the "Retained Employees") will be afforded the opportunity to
participate in benefits and equity acquisition programs that currently are
available to employees of HMS and on similar terms of participation. It is a
condition to Buyers' obligation to close the Sale under the Purchase Agreement
that Mr. Alan Gold, the President and Chief Executive Officer and a director of
the Company, shall have also accepted employment by Buyers. Pursuant to an
employment offer letter provided by HMS to Mr. Gold (the "Offer Letter"), HMS
has offered to employ Mr. Gold as president of a subsidiary or division of HMS
which will continue to operate the Systems Business following the Closing. HMS
has agreed to permit Mr. Gold to continue to act as an executive officer and
director of the Company and its subsidiaries, provided that such activities will
not interfere with the performance of his duties for HMS. It is therefore,
expected that Mr. Gold shall remain the President and Chief Executive Officer of
the Company subsequent to the Sale.
Pursuant to the Offer Letter, upon consummation of the Closing, HMS has
agreed to provide Mr. Gold with an initial annual salary of $175,000, to pay Mr.
Gold $21,876 for 260 hours of accrued vacation hours and to grant to Mr. Gold
ten-year options to purchase 13,000 shares of HMS common stock, which options
will vest evenly over a four-year period and will be exercisable at the fair
market value of the HMS common stock on the date of grant. In the event Mr.
Gold's employment is terminated prior to two years following the Closing, the
Offer Letter provides that Mr. Gold will be entitled to severance payments equal
to six months salary payable in regular installments, provided that if Mr. Gold
voluntarily terminates his employment or is terminated by HMS "for cause" he
shall not be entitled to any severance payments. The Offer Letter defines
termination "for cause" as a termination due to a conviction of a felony or a
crime of moral turpitude or a showing by clear and convincing evidence that the
employee has acted dishonestly to the material detriment of HMS or in gross
dereliction of his duties.
Pursuant to the terms of the Offer Letter, Mr. Gold will be required to
enter into a non-competition and non-solicitation agreement (the "HMS
Non-Competition Agreement") with HMS relating to his employment with HMS. Mr.
Gold is also required to enter into the Non-Compete Agreement required pursuant
to the Purchase Agreement. See "Terms of the Sale -- Non-Compete Agreement"
above. Pursuant to the HMS Non-Competition Agreement, Mr. Gold will agree for
the Gold Restricted Period not to directly or indirectly engage in any business
or enterprise within 50 miles
11
<PAGE>
of any client serviced by HMS which is competitive with the business conducted
by HMS. Additionally, during the Gold Restricted Period, Mr. Gold will be
prohibited from soliciting for employment, either on his own behalf or on behalf
of another person or entity, any person who is then employed by HMS.
12
<PAGE>
SELECTED FINANCIAL DATA
The following financial data is derived from the consolidated financial
statements of the Company for the periods indicated. The Company's consolidated
financial statements for the fiscal years ending December 31, 1992, 1993, 1994,
1995 and 1996 have been derived from the Company's Annual Report on Form 10-K/A
for the fiscal year ended December 31, 1996, attached hereto as Exhibit B. The
selected balance sheet data at March 31, 1997 and the selected income statement
data for the three-month periods ended March 31, 1997 and March 31, 1996 have
been derived from the Company's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1997, attached hereto as Exhibit C. The information set
forth in the following table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's consolidated financial statements and notes thereto in the
Company's Annual Report on Form 10-K/A for the fiscal year ended December 31,
1996 and the Company's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1997, attached hereto as Exhibits B and C, respectively.
<TABLE>
<CAPTION>
Fiscal Year Ended December 31, Quarter Ended March 31
--------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1997 1996
---- ---- ---- ---- ---- ---- ----
Consolidated Income
Statement Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $4,232,000 $4,445,000 $2,335,000 $2,493,000 $2,062,000 $1,208,000 $1,278,000
Net Income (loss) 168,000 (176,000) (666,000) 53,000 60,000 35,000 85,000
Net Income (loss) .02 (.03) (.10) .01 .01 .01 .01
per share
Weighted Average
Common Shares
Outstanding 6,947,828 6,947,828 6,935,016 5,817,677 5,185,328 6,947,828 6,947,828
</TABLE>
<TABLE>
<CAPTION>
At December 31, At March 31,
----------------------------------------------------------------------------
1996 1995 1994 1993 1992 1997
---- ---- ---- ---- ---- ----
Consolidated Balance Sheet Data:
<S> <C> <C> <C> <C> <C> <C>
Working Capital $ (824,000) $ 579,000 $ 883,000 $1,861,000 $1,105,000 $ (78,000)
Total Assets 8,635,000 7,339,000 5,885,000 6,991,000 2,012,000 8,720,000
Long term debt 3,944,000 2,838,000 2,236,000 2,694,000 -- 4,495,000
Common Stock issued
with put option 500,000 500,000 500,000 500,000 -- 500,000
Total Stockholders equity 2,097,000 1,929,000 2,105,000 2,748,000 1,456,000 2,132,000
Book Value per common share 0.30 0.28 0.30 0.47 0.28 0.31
Cash Dividends per common share -- -- -- -- -- --
</TABLE>
13
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma consolidated balance sheet as of March 31, 1997
gives effect to the sale to Buyers of substantially all the assets in the
Company's Systems Business pursuant to the Purchase Agreement. See "Summary of
Sale." The pro forma consolidated balance sheet assumes that the transaction for
which pro forma effects are shown was completed on March 31, 1997. The pro forma
income statements for the quarterly period ended March 31, 1997 and the fiscal
years ended December 31, 1996, 1995 and 1994 have been presented as if the Sale
took place on January 1, 1997, 1996, 1995 and 1994, respectively. The pro forma
information is not necessarily indicative of the results which would have
occurred if the Sale had taken place on these dates nor of our results which may
occur in the future. Accordingly, the pro forma information should be read in
conjunction with the Company's historical financial statements and related notes
included in the Company's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1996 and the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1997, which are attached to this Information
Statement as Exhibits B and C, respectively.
PRO FORMA CONSOLIDATED BALANCE SHEET FOR THE QUARTER ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
Historical Pro Forma Adjustments Pro Forma
---------- --------------------- -----------
<S> <C> <C> <C>
Current Assets $1,515,000 $1,900,000(1) $ 3,415,000
Fixed Assets 5,909,000 (78,000)(2) 5,831,000
Total Other Assets 1,296,000 (150,000)(3) 1,146,000
Total Assets 8,720,000 1,672,000(4) 10,392,000
Current Liabilities 1,593,000 -- 1,593,000
Long Term Debt 4,495,000 -- 4,495,000
Common Stock issued with put option 500,000 -- 500,000
Stockholder's Equity 2,132,000 1,672,000(5) 3,804,000
Book Value Per Common Share 0.31 0.24(6) 0.55
</TABLE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE QUARTER ENDED 3/31/97
<TABLE>
<CAPTION>
Historical Pro Forma Adjustments Pro Forma
---------- --------------------- -----------
<S> <C> <C> <C>
Revenue $1,208,000 $(820,000)(7) $ 388,000
Expenses 1,085,000 (860,000)(8) 225,000
Income from operations 123,000 40,000(9) 163,000
Net interest expense (88,000) -- (88,000)
Net Income 35,000 40,000(10) 75,000
Net income per common share 0.005 0.005(11) 0.01
Number of shares of common stock outstanding 6,947,828 -- 6,947,828
</TABLE>
14
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED 12/31/96
<TABLE>
<CAPTION>
Historical Pro Forma Adjustments Pro Forma
---------- --------------------- -----------
<S> <C> <C> <C>
Revenue $4,232,000 $(2,780,000)(7) $1,452,000
Expenses 4,361,000 (3,400,000)(8) 961,000
Income (loss) from operations (129,000) 620,000(9) 491,000
Net interest income (expense) (307,000) -- (307,000)
Net Income 168,000 132,000(10) 300,000
Net income per common share 0.02 0.02(11) 0.04
Number of shares of common stock outstanding 6,947,828 -- 6,947,828
</TABLE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED 12/31/95
<TABLE>
<CAPTION>
Historical Pro Forma Adjustments Pro Forma
---------- --------------------- -----------
<S> <C> <C> <C>
Revenue $4,445,000 $(3,162,000)(7) $1,283,000
Expenses 4,140,000 (3,297,000)(8) 843,000
Income (loss) from operations 305,000 135,000(9) 440,000
Net interest income (expense) (503,000) -- (503,000)
Net Income (loss) (176,000) 135,000(10) (41,000)
Net income (loss) per common share (0.03) 0.025(11) (0.005)
Number of shares of common stock outstanding 6,947,828 -- 6,947,828
</TABLE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED 12/31/94
<TABLE>
<CAPTION>
Historical Pro Forma Adjustments Pro Forma
---------- --------------------- -----------
<S> <C> <C> <C>
Revenue $2,335,000 $(1,954,000)(7) $ 381,000
Expenses 2,801,000 (2,281,000)(8) 520,000
Income (loss) from operations (466,000) 327,000(9) (139,000)
Net interest income (expense) (285,000) -- (285,000)
Net Income (loss) (666,000) 327,000(10) (339,000)
Net income (loss) per common share (0.10) 0.05(11) (0.05)
Number of shares of common stock outstanding 6,935,016 -- 6,935,016
</TABLE>
15
<PAGE>
The Pro Forma Adjustments to the Unaudited Pro Forma Balance Sheet as of March
31, 1997 and the Unaudited Pro Forma Statement of Operations for the quarter
ended March 31, 1997 and the years ended December 31, 1996, 1995 and 1994 are as
follows:
(1) Represents the addition of the proceeds from the Sale less transaction
expenses and estimated taxes.
(2) Represents the elimination of book value of the Assets sold in the Sale.
(3) Represents the elimination of capitalized software related to the Systems
Business.
(4) Represents the proceeds from the Sale, less the book value of the Assets
sold in the Sale.
(5) Represents the gain on the Sale.
(6) Represents the stockholders' equity divided by the total number of shares
of common stock outstanding at March 31, 1997 and December 31, 1996, 1995
and 1994, as the case may be.
(7) Represents the elimination of all revenues related to the Systems
Business.
(8) Represents the elimination of all expenses related to the Systems
Business.
(9) Represents the elimination of loss from operations related to the Systems
Business.
(10) Represents the elimination of net loss related to the Systems Business and
adjustment for the change in income taxes as a result of the Sale.
(11) Represents the elimination of net loss per common share related to the
Systems Business.
16
<PAGE>
Voting Securities and Principal Holders Thereof
The following table sets forth, as of March 1, 1997, certain information
concerning beneficial ownership of the Company's Common Stock by (i) each person
known to the Company to beneficially own 5% or more of the Company's outstanding
Common Stock, (ii) all executive officers and directors of the Company naming
them, and (iii) all executive officers and directors of the Company as a group,
without naming them.
Name and Address of Number of Shares
Beneficial Owner Beneficially Owned (1) Percent of Class
- ---------------- ---------------------- ----------------
Alan Gold (2) 535,420 7.6%
President, Chief Executive
Officer and Director
1350 Piccard Drive
Rockville, MD 20850
William F. Leimkuhler -- --
Director
711 Fifth Avenue
New York, NY 10022
Jerry M. Brown, Ph.D. 28,500 0.4%
Director
1205 Stratford Drive
Anderson, SC 29621
Stanley S. Shuman (3) 1,071,250 15.4%
711 Fifth Avenue
New York, NY 10022
Allen & Company Incorporated (4) 2,022,000 28.6%
711 Fifth Avenue
New York, NY 10022
Research Medical Center 500,000 7.2%
2316 East Meyer Blvd.
Kansas City, MO 64132
Charles Elsner 400,000 5.8%
c/o The Forschner Group Inc.
151 Long Hill Crossroads
Shelton, CT 86484
All Directors and Officers as a 563,920 8.0%
group (three persons) (2)
- ----------
(1) Unless otherwise indicated, all shares are beneficially owned and sole
voting and investment power is held by the person named above.
(2) Includes 420,500 shares held jointly by Mr. Gold and his wife, Ms. Susan
Greenwald, as joint tenants with right of survivorship and 100,000
exercisable stock options.
(3) Includes 210,250 shares held in certain trusts for the benefit of Mr.
Shuman's children, of which shares Mr. Shuman disclaims beneficial
interest. Also includes warrants to purchase 20,000 shares of Common Stock
beneficially owned by Mr. Shuman.
(4) In addition to those shares beneficially owned by Allen & Company, certain
officers of Allen & Company and their families, including Mr. Shuman, own
1,721,750 shares. Also includes warrants to purchase 120,000 shares of
Common Stock.
17
<PAGE>
Financial Statements
A copy of the Company's Annual Report on Form 10-K/A for the fiscal year
ended December 31, 1996 and the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1997 are included as Exhibits B and C,
respectively, to this Information Statement, are hereby incorporated herein by
this reference and contain the Company's financial statements for the three
fiscal years ended December 31, 1996 and the three-month periods ended March 31,
1997 and March 31, 1996.
Incorporation by Reference
The following additional documents are hereby incorporated by reference in
their entirety: The Company's Annual Report on Form 10-K/A for the fiscal year
ended December 31, 1996, the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1997 and all other reports filed with the
Securities and Exchange Commission pursuant to Sections 13(a) or 15(d) of the
Exchange Act since the end of the fiscal year ended December 31, 1996.
Signature
The above information statement is sent by order of the Board of Directors
of the Company.
/S/ ALAN GOLD
- --------------------------------------
Alan Gold
President and Chief Executive Officer
Dated: May 28, 1997
18
<PAGE>
================================================================================
EXHIBIT A
TO
INFORMATION STATMENT
ASSET PURCHASE AGREEMENT
by and among
GHS, INC.,
GLOBAL HEALTH SYSTEMS, INC., and
GHS MANAGEMENT SERVICES, INC.
and
HEALTH MANAGEMENT SYSTEMS, INC., and
GLOBAL HEALTH ACQUISITION CORP.
Dated as of March 10, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
I. TRANSFERS.............................................................. 1
SECTION 1.01 Transfer of Assets.............................. 1
SECTION 1.02 Instruments of Conveyance and Transfer.......... 5
SECTION 1.03 Nonassignable Contracts......................... 5
SECTION 1.04 Ancillary Agreements............................ 6
II. CLOSING, PURCHASE PRICE, LIABILITIES, ETC.............................. 6
SECTION 2.01 Closing......................................... 6
SECTION 2.02 Payment to Sellers on the Closing Date.......... 6
SECTION 2.03 Assumption of Liabilities....................... 6
SECTION 2.04 Non-Assumption of Certain Liabilities........... 7
SECTION 2.05 Sellers' Net Funding Requirement................ 8
SECTION 2.06 Change of Names................................. 10
III. REPRESENTATIONS AND WARRANTIES......................................... 10
SECTION 3.01 Representations and Warranties
of Sellers...................................... 24
SECTION 3.02 Representations and Warranties
of Buyers....................................... 24
IV. COVENANTS.............................................................. 26
SECTION 4.01 Covenants of Sellers............................ 26
SECTION 4.02 Confidentiality................................. 28
SECTION 4.03 Allocation of Purchase Price.................... 28
SECTION 4.04 Preparation of Certain Financial
Information..................................... 29
SECTION 4.05 Certain Tax Matters............................. 30
SECTION 4.06 Insurance....................................... 30
SECTION 4.07 Retention of Employees; Benefits................ 30
SECTION 4.08 Further Assurances.............................. 31
SECTION 4.09 No Solicitation; Acquisition
Proposals....................................... 32
V. GHS STOCKHOLDERS' CONSENT; INFORMATION STATEMENT....................... 33
SECTION 5.01 GHS Stockholders' Meeting....................... 33
SECTION 5.02 Preparation and Filing of Information
Statement....................................... 33
SECTION 5.03 Recommendations of GHS Board of
Directors....................................... 33
SECTION 5.04 Irrevocable Proxy............................... 33
i
<PAGE>
Page
VI. CONDITIONS PRECEDENT................................................... 34
SECTION 6.01 Conditions Precedent to the
Obligations of Buyers........................... 34
SECTION 6.02 Conditions Precedent to the
Obligations of Sellers.......................... 37
VII. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION........................... 39
SECTION 7.01 Survival of Representations..................... 39
SECTION 7.02 Tax Indemnity................................... 39
SECTION 7.03 General Indemnity............................... 40
SECTION 7.04 Conditions of Indemnification................... 41
SECTION 7.05 Direct Claims................................... 42
SECTION 7.06 Certain Information............................. 42
SECTION 7.07 Limitations on Liability of Sellers............. 43
VIII.TERMINATION............................................................ 43
SECTION 8.01 Termination..................................... 43
SECTION 8.02 Effect of Termination........................... 44
IX. MISCELLANEOUS.......................................................... 45
SECTION 9.01 Bulk Transfer Laws.............................. 45
SECTION 9.02 Expenses, Etc................................... 45
SECTION 9.03 Risk of Loss.................................... 45
SECTION 9.04 Execution in Counterparts....................... 46
SECTION 9.05 Notices......................................... 46
SECTION 9.06 Waivers......................................... 47
SECTION 9.07 Amendments, Supplements, Etc.................... 47
SECTION 9.08 Entire Agreement................................ 48
SECTION 9.09 Applicable Law; Jurisdiction.................... 48
SECTION 9.10 Binding Effect; Benefits........................ 48
SECTION 9.11 Assignability................................... 49
SECTION 9.12 Update to Schedules............................. 49
ii
<PAGE>
INDEX TO EXHIBITS
Exhibit Description
A Form of Bill of Sale, Assignment and Assumption Agreement
B Form of Non-Compete Agreement
C Form of Proxy with respect to GHS
D Form of Proxy with respect to Global and Management
iii
<PAGE>
INDEX TO SCHEDULES
Schedule Description
1.01(a)(i) Tangible Personal Property
1.01(a)(ii) Intangible Personal Property
1.01(a)(viii) Accounts Receivable Relating to Unearned
Revenues
1.01(c)(vii) Other Excluded Assets
1.03 Consents To Assignment Not Required to be
Sought
2.03 Accrued Vacation
2.05(a) Sellers' Net Funding Requirement
2.05(a)(i) Payments Relating to Unearned Revenues
2.05(a)(ii) Accrued Expenses
2.05(a)(iii) Prepaid Expenses and Security Deposits
2.05(a)(iv) Work in Process
3.01(a) State Qualifications
3.01(c) Effect of Agreements
3.01(d) Governmental Approvals
3.01(e) Financial Statements
3.01(f) Certain Changes or Events
3.01(g) Liens and Encumbrances
3.01(h) List of Properties, Leases, Proprietary
Rights, Contracts and Employment
Arrangements
3.01(h)(i) Real and Personal Property Leases
3.01(h)(ii) Patents, Trademarks, Trade Names,
Servicemarks and Copyrights
3.01(h)(iii) Employment Agreements and Benefit
Plans
3.01(h)(iv) Software Marketing Agreements
granted by or to Seller
3.01(h)(v) Third Party Vendor Contracts and
Commitments
3.01(i) Litigation
3.01(k) Employee Benefit Plans
3.01(m)(i)-1 The Owned Software
3.01(m)(i)-2 The Licensed Software
3.01(p) Compliance with Law; Permits
3.01(q) Customer Contracts Matters
3.01(r) Taxes
4.07(a) Certain Retained Employees
6.01(e) Required Consents
iv
<PAGE>
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of March 10, 1997, by and among
GHS, INC. ("GHS"), a Delaware corporation, GLOBAL HEALTH SYSTEMS, INC.
("Global"), a Delaware corporation, GHS MANAGEMENT SERVICES, INC.
("Management"), a Delaware corporation (GHS, Global and Management are sometimes
hereinafter referred to collectively as the "Sellers"), HEALTH MANAGEMENT
SYSTEMS, INC. ("HMS"), a New York corporation, and GLOBAL HEALTH ACQUISITION
CORP., a Delaware corporation and a wholly-owned subsidiary of HMS ("Sub") (HMS
and Sub are sometimes hereinafter referred to collectively as "Buyers").
WHEREAS, GHS, through Global and Management, provides computerized
medical record-based transaction processing systems and services for ambulatory
healthcare providers and managed care organizations in the public and private
sector (the "Business"); and
WHEREAS, Sellers desire to sell to Buyers, and Buyers desire to
purchase from Sellers, substantially all the assets and properties of the
Business, excluding certain specified assets, and to assume certain liabilities,
all on the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereby agree as follows:
I. TRANSFERS
SECTION 1.01 Transfer of Assets. (a) On the terms and subject to the
conditions hereinafter set forth, on the Closing Date (as hereinafter defined),
Sellers shall sell, convey, transfer, assign and deliver to Buyers, and Buyers
shall purchase from Sellers, for the aggregate purchase price set forth in
Article II hereof, (x) the assets and properties of Global and Management
relating to the Business listed in clauses (i)-(viii) below and those additional
assets referred to in Section 1.01(b) hereof, but excluding those assets
referred to in Section 1.01(c) below (all said assets and properties so to be
sold, conveyed, transferred, assigned and delivered being hereinafter
collectively called the "Non-Software Assets") and (y) the assets and properties
of Global and Management listed in clause (ix) below (the "Owned Software" and,
collectively with the Non-Software Assets, the "Assets"):
(i) all tangible personal property, inventory, equipment,
supplies, tools, computer equipment, work in process, spare parts,
furniture and office furnishings, wherever situated, whether or not
carried on the books of Sellers, to the extent that such assets are
necessary to, or used by Global or Management primarily in
<PAGE>
connection with, the Business, including but not limited to all items
listed on Schedule 1.01(a)(i) hereto;
(ii) the intangible personal property listed on Schedule
1.01(a)(ii) hereto;
(iii) the patents, trademarks and trade names, trademark and
trade name registrations, service marks and servicemark registrations,
copyrights and copyright registrations, the applications therefor and the
licenses and franchises with respect thereto, in each case listed on
Schedule 3.01(h)(ii) hereto, together with the goodwill and the business
appurtenant thereto; all trade secrets and technology (including
technology with respect to which Global is a licensee, in such case only
insofar as permitted under the applicable license agreement), processes,
inventions, specifications, patterns, royalties, privileges, permits and
all other similar intangible personal property, in each case as listed on
Schedule 3.01(h)(ii) hereto;
(iv) all technical materials and guidelines (other than any
such as are included in the Owned Software), and all brochures, sales
literature, promotional material and other selling material used in the
Business, wherever situated;
(v) all papers, documents, instruments, books and records,
files, agreements, books of account and other records by which any of the
Assets might be identified or enforced, or otherwise pertaining to the
Assets or the Business that are located at the offices or other locations
used in connection with the Assets or the Business (including, without
limitation, customer invoices, customer lists, vendor and supplier lists,
drafts and other documents and materials relating to customer
transactions);
(vi) the rights of Global or Management (other than rights to
refunds arising prior to the Closing Date) under all contracts,
agreements, licenses, leases, sales orders, purchase orders and other
commitments relating to the Assets or the Business listed on Schedules
3.01(h) (other than commitments of the kind described in Section
3.01(h)(v) hereof) and on Schedule 3.01(q) hereto;
(vii) all rights of Global or Management to the computer
software programs and the license or other agreements conferring rights
related thereto, in each case listed on Schedule 3.01(m)(i)-2 hereto and
in each case, only insofar as permitted under the applicable license or
other agreement (the "Licensed Software");
2
<PAGE>
(viii) all accounts receivable of the Business that have
arisen prior to the Closing Date with respect to ongoing liabilities and
obligations of Global or Management to provide products or services after
the Closing Date (including without limitation accounts receivable with
respect to all customer advance payments and maintenance fees) under any
contract listed on Schedule 3.01(q) hereto, which accounts receivable are
identified and set forth on Schedule 1.01(a)(viii) hereto;
(ix) all right, title and interest of Global or Management in
and to the computer software programs, and the source and object codes for
such software programs, listed on Schedule 3.01(m)(i)-1 hereto together
with all versions thereof and all modules encompassed thereby and, to the
extent used in the Business or otherwise in possession of Sellers as of
the Closing Date, all technical materials, guidelines and other written
material pertaining thereto; and
(b) In the event that Buyers shall reasonably establish to the
Sellers' reasonable satisfaction and notify Sellers at any time or from time to
time during the three-month period following the Closing Date that any of the
Schedules describing the Assets as provided in Section 1.01(a) hereof failed to
include assets or properties of Global or Management used by Global or
Management exclusively or primarily in the Business (other than any such assets
or properties specifically excluded under Section 1.01(c) hereof or made
available to Buyers pursuant to any of the Ancillary Agreements, as such term is
defined in Section 1.04 hereof) then:
(i) with respect to any such assets or properties used
exclusively in the Business, Sellers shall promptly convey, transfer,
assign and deliver to Buyers or other such person as may be designated by
Buyers, and Buyers or such designee shall acquire from Sellers, without
additional consideration, all such assets and properties, which shall be
deemed for all purposes to be included in the definition of Assets
hereunder as provided in Section 1.01(a) hereof.
(ii) with respect to any such assets or properties used
primarily, but not exclusively, in the Business, Sellers shall grant to
Buyers an irrevocable, royalty-free license or otherwise convey to Buyers
the unlimited right to use any such asset or property, without additional
consideration.
(c) Anything herein contained to the contrary notwithstanding, the
following assets and properties of Global
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and Management are specifically excluded from the Assets and shall be retained
by Global and Management:
(i) all cash in banks, cash on hand and short-term investments
as of the Closing Date;
(ii) except as set forth on Schedule 1.01(a)(viii) hereto, all
accounts receivable of Seller attributable to the Business through the
Closing Date;
(iii) all claims or rights against third parties relating to
liabilities or obligations (including, without limitation, any such
liabilities or obligations referred to in clause (ii) of Section 2.04)
that are not assumed by Buyer hereunder;
(iv) all claims for the refund of Taxes (as hereinafter
defined) and other governmental charges of whatever nature for all periods
prior to the close of business on the day prior to the Closing Date;
(v) all rights and funds in connection with retirement and
profit sharing plans;
(vi) the minute books, stock records and related corporate
records of Global and Management; and
(vii) those items listed on Schedule 1.01(c)(vii) hereto.
(d) Each of the Buyers, on the one hand, and Sellers, on the other
hand, agrees to cooperate with the other parties hereto to establish reasonable
procedures to identify and remit payments received but not owned by them from
third parties, being amounts attributable to Global's and Management's conduct
of the Business prior to the Closing Date or Buyers' conduct of the Business
after the Closing Date, as the case may be, which amounts shall, for the
purposes of this Section 1.01(d), include payments under the Subcontracted
Contracts (as defined in Section 1.03 hereof). Such payments shall be made
promptly, but in no event later than 15 days after receipt thereof by Buyers or
Sellers, as the case may be. The parties agree to reasonably cooperate with the
other parties hereto and use their reasonable efforts, at the request and
expense of the other parties, and to assist each other, under the direction of
the party entitled to such payments, in the collection of amounts due to such
parties.
SECTION 1.02 Instruments of Conveyance and Transfer. On the Closing
Date, Sellers shall execute and deliver to Buyers (i) a bill of sale in the form
included in the form of the Bill of Sale, Assignment and Assumption Agreement
annexed hereto as Exhibit A (the "Bill of Sale") and (ii) such other documents
of
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transfer that Buyers may reasonably request, transferring to Buyers the
properties and assets to be acquired by Buyers under the terms of this
Agreement.
SECTION 1.03 Nonassignable Contracts. Nothing in this Agreement
shall be construed as an attempt or agreement to assign (i) any contract,
agreement, license, lease, sales order, purchase order or other commitment that
is nonassignable without the consent of the other party or parties thereto
unless such consent shall have been given, subject, however, to the covenant of
Sellers in Section 4.01(d) hereof, or (ii) any contract or claim as to which all
the remedies for the enforcement thereof enjoyed by Sellers would not pass to
Buyers as an incident of the assignments provided for by this Agreement. In
order, however, that the full value of every contract and claim of the character
described in clauses (i) and (ii) above, and all claims and demands on such
contracts may be realized, Sellers shall use all reasonable efforts to obtain
consent for the assignment thereof, other than any such consent with respect to
contracts and claims listed on Schedule 1.03 hereto. With respect to those
contracts and claims of which Sellers shall have failed to obtain consent for
the assignment thereof pursuant to their obligations under Section 4.01(d)
hereto and this Section 1.03 listed on Schedule 1.03 hereto, Sellers shall, at
the request and expense and under the direction of Buyers, in the name of
Sellers or otherwise as Buyers shall specify and as shall be permitted by law,
take all action and do or cause to be done all things as shall in the opinion of
Buyers be reasonably necessary or proper (x) in order that the rights and
obligations of Sellers under such contracts shall be preserved and (y) for, and
to facilitate, the collection of the moneys due and payable, and to become due
and payable, to Sellers in and under every such contract and claim and in
respect of every such claim and demand, and Sellers shall hold the same for the
benefit of and shall pay the same over promptly to Buyers, subject to due
payment, performance and discharge by Buyers on behalf of Sellers of all
liabilities and obligations of Sellers with respect to any such contracts and
claims that have not been assigned hereunder but as to which Sellers shall have
obtained the full value thereof for the benefit of Buyers as required hereunder
(the "Subcontracted Contracts").
SECTION 1.04 Ancillary Agreements. In connection with the purchase
and sale of the Assets by Buyers and Buyers' operation of the Business from and
after the Closing Date, Sellers hereby covenant and agree to enter into on the
Closing Date the Non-Compete Agreement in the form annexed hereto as Exhibit B
(the "Non-Compete Agreement" and, collectively with the Bill of Sale, the
"Ancillary Agreements").
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II. CLOSING, PURCHASE PRICE, LIABILITIES, ETC.
SECTION 2.01 Closing. The closing of the transactions contemplated
by this Agreement shall take place at the offices of Coleman & Rhine LLP, 1120
Avenue of the Americas, New York, New York 10036, on such date as the parties
may mutually agree in writing, after satisfaction of all of the conditions set
forth in Sections 6.01 and 6.02 hereof, and for all purposes shall be deemed
effective as of the close of business on the day prior to such date (such date
and time of closing being herein called the "Closing Date"). The parties shall
use their best efforts to cause the Closing Date to occur within 45 days after
the date of this Agreement.
SECTION 2.02 Payment to Sellers on the Closing Date. On the Closing
Date, in full consideration for the sale, conveyance, transfer, assignment and
delivery to Buyers of the Assets and the execution and delivery of the Ancillary
Agreements, subject to the assumption of liabilities provided for herein, Buyers
shall pay to Sellers an amount (the "Purchase Price") equal to $2,100,000 by
bank check payable to GHS.
SECTION 2.03 Assumption of Liabilities. On the Closing Date, Buyers
shall execute and deliver to Sellers an Assumption Agreement, in the form
included in the Bill of Sale, pursuant to which Buyers shall assume and agree to
pay, perform and discharge when due all liabilities and obligations of Global
and Management that arise on and after the Closing Date under the terms of any
contract, agreement, license, lease, sales order, purchase order or other
commitment that is disclosed on Schedules 3.01(h) (other than any commitment of
the kind described in Section 3.01(h)(iii) hereof) or 3.01(q) hereto, other than
any of the foregoing that shall not be assigned as contemplated by Section 1.03
hereof; provided, however, that if at any time after the Closing Date consent to
assignment satisfactory to Buyers and their counsel is obtained with respect to
any such commitment that shall not have been assigned as contemplated by said
Section 1.03, Buyers shall thereafter be deemed to have assumed all such
liabilities and obligations of Global and Management thereunder. On the Closing
Date, Buyers shall also assume and agree to be responsible for all obligations
of Sellers in respect of vacation accrued for the Retained Employees prior to
the Closing Date as set forth on Schedule 2.03; provided that Buyers may make it
a condition to the offers of employment made pursuant to Section 4.07(a) that
any such accrued vacation be utilized within twelve months of the Closing Date
or expire at such time.
SECTION 2.04 Non-Assumption of Certain Liabilities. Subject as set
forth in Section 2.05, Buyers are not assuming, and shall not be deemed to have
assumed, any liabilities or obligations of Sellers of any kind or nature
whatsoever, except as expressly provided herein or in the Bill of Sale. Without
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limiting the generality of the foregoing, it is hereby agreed that Buyers are
not assuming any liability and shall not have any obligation for or with respect
to: (i) any liabilities or obligations of Sellers that arise under the terms of
a contract, agreement, license, lease, sales order, purchase order, or other
commitment which shall not be assigned as contemplated by Section 1.01(c) of
this Agreement; (ii) any liabilities or obligations of Sellers (x) attributable
to the operations of the Business prior to the Closing Date or (y) that would
not have arisen but for the consummation of the transactions contemplated by
this Agreement, unless, in either case, such liabilities or obligations are
expressly assumed by Buyers as provided herein or in the Bill of Sale; (iii) any
liabilities or obligations of Sellers under any Plan (as defined in Section
3.01(k)), including any obligation to adopt or to sponsor such Plan except as
Buyers may, in their sole discretion, elect to adopt or to sponsor; (iv) any
liabilities or obligations of Sellers for any commissions, refunds, rebates,
discounts or other such sums, falling due before the Closing Date, in respect of
services rendered prior to the Closing Date; (v) any obligation of Sellers
arising out of any action, suit or proceeding based upon (A) an event occurring
or a claim arising prior to the Closing Date or (B) a claim arising on and after
the Closing Date based on an event occurring prior to the Closing Date in the
case of claims in respect of products or services sold and delivered or required
to be delivered by Sellers or provided by Sellers or the conduct of the Business
prior to the Closing Date and attributable to acts performed or omitted by
Sellers prior to the Closing Date; (vi) any obligation of Sellers to any
employee in respect of personal or sick days accrued prior to the Closing Date;
(vii) any obligation of Sellers to any employee of, or consultant to, the
Business who does not become a Retained Employee (as hereinafter defined) or to
any other employee of, or consultant to, the Business whose employment or
consultancy is terminated by Sellers prior to or effective at the Closing Date
or, except as provided in Section 4.07 hereof, to any employee who is on
administrative leave as of the Closing Date; and (viii) any and all Taxes
incurred by or imposed upon Sellers relating to periods prior to the Closing
Date, whether such Taxes are assessed before or after the Closing Date,
including without limitation, but subject to the provisions of Section 4.05(a)
hereof, any Taxes incurred by or lawfully imposed upon Sellers, other than any
Taxes to be paid by Buyers in accordance with this Agreement or any of the
Ancillary Agreements.
SECTION 2.05 Sellers' Net Funding Requirement. (a) Buyers and
Sellers agree that Sellers shall pay to Buyers on the Closing Date, in cash, an
amount equal to the net amount ("Sellers' Net Funding Requirement") set forth on
Schedule 2.05(a) calculated by subtracting the amounts described in clauses
(iii) and (iv) below from the amount described in clauses (i) and (ii) below;
provided, however, that if the Sellers' Net Funding Requirement is less than
zero, Buyers shall pay to
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Sellers on the Closing Date, in cash, an amount equal to such negative amount:
(i) Unearned Revenues. The aggregate of all payments received prior to the
Closing Date, in each case, with respect to ongoing liabilities and
obligations of Sellers to provide products or services after the day prior
to the Closing Date (including, without limitation, all customer advance
payments, maintenance fees and the estimated value of all warranty
obligations to be discharged or performed with respect to work performed
or services rendered prior to the Closing Date) under any contract listed
on Schedule 3.01(q) hereto, all of which payments and amounts have been
identified and set forth by Sellers on Schedule 2.05(a)(i) hereto;
(ii) Accrued Expenses. The aggregate of all expenses of the Business that
relate to any period prior to 12:00 midnight on the day prior to the
Closing Date in respect of which Sellers have not made payment or, subject
to payment thereof on or before the due date thereof, an account payable
has arisen or an accrual made on Sellers' books of account prior to the
Closing Date for which Sellers will not remain responsible after the
Closing Date, which amounts have been identified and set forth by Sellers
on Schedule 2.05(a)(ii) hereto;
(iii) Prepaid Expenses and Security Deposits. The aggregate of (A) all
expenses of the Business that relate to any period after 12:01 a.m. on the
Closing Date and for which Buyers will receive the benefit in respect of
which Sellers have made payment or, subject to payment thereof on or
before the due date thereof, an account payable has arisen or an accrual
made on Sellers' books of account prior to the Closing Date for which
Sellers will remain responsible after the Closing Date and (B) all
security deposits deposited by Sellers in connection with any contract,
agreement, license, lease, sales order, purchase order or other commitment
that is assumed by Buyers pursuant to the terms of the Agreement, which
amounts have been identified and set forth by Sellers on Schedule
2.05(a)(iii) hereto; and
(iv) Work in Process. Amounts represented by the value, as determined in
accordance with the related contract in respect thereof, of products and
services that shall have been supplied by the Sellers prior to the Closing
Date under any contract listed on Schedule 3.01(q) hereto but have not yet
given rise to an account receivable of Sellers, payment for which will be
included in invoices of Buyers and not Sellers after the Closing Date,
which amounts have been
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identified and set forth by Sellers on Schedule 2.05(a)(iv) hereto.
(b) In the event that Buyers or Sellers shall, at any time or from
time to time during the three-month period following the Closing Date, notify
the other in writing, that any of Schedules 2.05(a)(i) through 2.05(a)(iv)
failed to include amounts, which properly should reasonably have been included
in such Schedules in accordance with generally accepted accounting principles,
based on the information available to Sellers, after due inquiry, as of the
Closing Date, but not thereafter, then Buyers or Sellers, as the case may be,
shall promptly pay to the other such amount.
(c) To the extent that any amounts described in Section 2.05(a)(i)
and (ii) hereof has been fully provided for and included in the amount to be
paid in respect of Sellers' Net Funding Requirement, Buyers shall be deemed upon
such payment to have assumed the related liability and obligation,
notwithstanding anything to the contrary contained in Section 2.04 hereof.
Conversely, to the extent that any amount described in Section 2.05(a)(iii) and
(iv) hereof has been fully provided for and deducted from the amount to be paid
in respect of Sellers' Net Funding Requirement, Buyers shall be deemed upon such
payment to have acquired the related asset (which shall be deemed for all
purposes to be included in the definition of Assets hereunder), notwithstanding
anything to the contrary contained in Section 1.01(c) hereof.
SECTION 2.06 Change of Names. At the Closing, Sellers shall cause
the corporate names of Global and Management to be changed to names which are
not confusingly similar to the names of Global and Management, and shall assign
all their rights to Global's and Management's names to Buyers. Sellers shall
furnish to Buyers at the Closing all documents reasonably necessary to enable
Buyers to utilize and/or register such names following the Closing, including
any consents required by the states of California, Delaware, Maryland, New York
and all other jurisdictions where Global and Management are qualified to do
business as foreign corporations. In addition, Sellers will use their best
efforts to obtain the consent of any other person whose consent to Buyers' use
of such names is required, provided, that Sellers shall not be required to pay
any money to obtain such consent. Sellers agree that they will not, subsequent
to the Closing, cause Global and Management to amend their Certificates of
Incorporation to any corporate name which is confusingly similar to Global
Health Systems, Inc. or GHS Management Services, Inc., respectively.
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III. REPRESENTATIONS AND WARRANTIES
SECTION 3.01 Representations and Warranties of Sellers. Sellers
represent and warrant to Buyers as follows:
(a) Organization, Corporate Power, Etc. Each of GHS, Global and
Management is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and is duly
qualified to do business as a foreign corporation in each jurisdiction in which
it is required to be so qualified with respect to the operations of the
Business, except where the failure to be so qualified would not have a material
adverse effect on the properties, results of operations, financial condition or
prospects of the Business (a "Material Adverse Effect"). Sellers have all
requisite corporate power and authority to own, operate and lease the Assets, to
carry on the Business as it is now being conducted, to execute and deliver this
Agreement and the Ancillary Agreements and to perform their obligations
hereunder and thereunder. Schedule 3.01(a) hereto sets forth a complete list of
the jurisdictions in which Global and Management are qualified to do business
with respect to the operations of the Business.
(b) Authorization of Agreements. The execution and delivery by
Sellers of this Agreement and the Ancillary Agreements, and the consummation by
Sellers of the transactions contemplated hereby and thereby, have been duly
authorized by all requisite corporate action, subject to approval of this
Agreement by the stockholders of GHS. This Agreement has been duly and validly
executed by Sellers and, subject to such approval by the stockholders of GHS,
constitutes the legal, valid and binding obligation of Sellers, enforceable in
accordance with its terms and the Ancillary Agreements, when duly executed and
delivered in accordance with this Agreement, will constitute legal, valid and
binding obligations of Sellers, enforceable in accordance with their respective
terms, except as enforceability may be limited by applicable equitable
principles or by bankruptcy, insolvency, reorganization, moratorium, or similar
laws from time to time in effect affecting the enforcement of creditors' rights
generally. All of the issued and outstanding capital stock of Global and
Management is owned by GHS. Except for the requisite affirmative vote of GHS
under the laws of the State of Delaware, the authorization of no other person or
entity is required to consummate the transactions contemplated herein by virtue
of any such person or entity having an equitable or beneficial interest in
Global or Management.
(c) Effect of Agreements. Except as set forth on Schedule 3.01(c)
hereto, the execution and delivery by Sellers of this Agreement and the
Ancillary Agreements, and the performance by Sellers of their obligations
hereunder and thereunder, will not violate any provision of law, any order of
any court or other
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agency of government, the Certificates of Incorporation or By-laws of Sellers,
or any judgment, award or decree or any indenture, agreement, permit or other
instrument to which Sellers are parties, or by which Sellers or any of the
Assets are bound or affected, or conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under, any such
indenture, agreement, permit or other instrument, or result in the creation or
imposition of any lien, charge, security interest or encumbrance of any nature
whatsoever upon any of the Assets.
(d) Governmental Approvals. Except as set forth on Schedule 3.01(d)
hereto, no approval, authorization, consent or order or action of or filing with
any court, administrative agency or other governmental authority (i) is required
for the execution and delivery by Sellers of this Agreement or any of the
Ancillary Agreements or the consummation by Sellers of the transactions
contemplated hereby or thereby or (ii) is necessary in order that the Business
may be conducted immediately following the Closing Date substantially in the
same manner as heretofore conducted, other than those that become applicable
solely as a result of the specific regulatory status of Buyers or its
affiliates.
(e) Financial Statements. Attached as Schedule 3.01(e) hereto are
the unaudited balance sheet of each of Global and Management as at December 31,
1996 (collectively, the "December Balance Sheets") and the related statement of
operations of each of Global and Management for the nine months ended December
31, 1996 (collectively with the December Balance Sheets, the "Financial
Statements"). The Financial Statements are complete and correct in all material
respects and have been prepared in accordance with generally accepted accounting
principles (including, without limitation, Global's and Management's policies of
revenue recognition), consistently applied and consistent with prior periods,
except that the Financial Statements will be subject to normal year-end
adjustments, which adjustments in the aggregate will not have a Material Adverse
Effect. Except as set forth on Schedule 3.01(e) hereto, the Financial Statements
fairly present the operating results of the Business during the period indicated
therein.
(f) Absence of Certain Changes or Events. Since December 31, 1996,
except as otherwise set forth on Schedule 3.01(f) hereto and except for the
transactions contemplated hereby, Sellers have not with respect to the Business:
(i) incurred any material obligation or liability of any kind
or nature whatsoever, except normal trade or business obligations incurred
in the ordinary course of business and consistent with past practice and
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except in connection with this Agreement and the transactions contemplated
hereby;
(ii) discharged or satisfied any material lien, security
interest or encumbrance or paid any obligation or liability (fixed or
contingent) of any kind or nature whatsoever, other than in the ordinary
course of business and consistent with past practice;
(iii) mortgaged, pledged or subjected to any lien, security
interest or other encumbrance any of the Assets (other than mechanic's,
materialman's and similar statutory liens arising as a matter of law and
purchase money security interests arising in the ordinary course of
business between the date of delivery and payment);
(iv) transferred, leased or otherwise disposed of any of the
Assets except in the ordinary course of business and consistent with past
practice or, except in the ordinary course of business and consistent with
past practice, acquired any assets or properties to be used by or in
connection with the activities of the Business;
(v) canceled or compromised any material debt or claim related
to the Business, except in the ordinary course of business and consistent
with past practice;
(vi) waived or released any rights of material value related
to the Business, except in any case in the ordinary course of business and
consistent with past practice;
(vii) transferred or granted any rights under any concessions,
leases, licenses, sublicenses, agreements, patents, inventions,
trademarks, trade names, service marks or copyrights or with respect to
any know-how related to the Business, except in the ordinary course of
business and consistent with past practice;
(viii) made or granted any wage, salary or benefit increase or
paid any bonus applicable to any group or classification of employees
generally, entered into or amended the terms of any employment contract
(other than employment agreements terminable at will by Sellers without
liability) with, or made any loan to, or granted any severance benefits to
or entered into or amended the terms of any material transaction of any
other nature with any person listed on Schedule 4.07(a) hereto, except in
the ordinary course of business and consistent with past practice;
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(ix) suffered any casualty loss or damage (whether or not such
loss or damage shall have been covered by insurance) that affects in any
material respect their ability to conduct the Business or received any
claim or claims in respect of the Business in excess of insurable limits,
or canceled any insurance coverage, in whole or in part, under any policy
the coverage limits of which exceed $25,000;
(x) suffered any adverse change in any of their operations or
in their financial condition or in their assets, properties or business,
which adverse change is material or could reasonably be expected to be
material to the Business;
(xi) surrendered or had revoked or otherwise terminated any
material license, permit or other approval, authorization or consent from
any court, administrative agency or other governmental authority relating
to the conduct of the Business; or
(xii) entered into any agreement or commitment to take any
action described in this Section 3.01(f).
(g) Title to Properties, Absence of Liens and Encumbrances. Except
as set forth on Schedule 3.01(g) hereto, Sellers have good and marketable title
to all the Non-Software Assets, free and clear of all liens, charges, pledges,
security interests or other encumbrances of any nature whatsoever, subject to
restrictions on assignment in any agreements relating to any Non-Software
Assets. Except as set forth on Schedule 3.01(g) hereto, all leases of personal
property of Sellers to be assigned to Buyers hereunder are, to the knowledge of
Sellers, valid and binding in accordance with their respective terms and there
is not under any of such leases any existing default, or any condition, event or
act attributable to Sellers or, to the knowledge of Sellers, attributable to the
other party to such leases, which with notice or lapse of time or both would
constitute such a default, nor would consummation of the transactions
contemplated hereby result in a default or any such condition, event or act,
which, in any such case, would have a Material Adverse Effect. As used in this
Agreement, "to the knowledge of Sellers" shall mean the collective knowledge of
Alan Gold and Howard Grunfeld (collectively, the "Sellers' Officers"), the
President and the Chief Executive Officer and the Controller, respectively, of
GHS. "Knowledge" when used in this context shall mean, as to the facts or
circumstances represented: (i) actual knowledge of any one of the Sellers'
Officers; and (ii) knowledge that any one of the Sellers' Officers should
reasonably be expected to possess after due inquiry.
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(h) List of Properties, Contracts and Other Data. Annexed hereto as
Schedule 3.01(h) hereto is a list setting forth with respect to the operations
of the Business, as of the dates specified on such Schedule, the following:
(i) all leases of real or personal property included in the
Assets involving payments in excess of $5,000 per annum to which Sellers
are a party, either as lessee or lessor, with a brief description of the
parties to each such lease, the property to which each such lease relates
and the termination dates thereof;
(ii) (A) all patents, trademarks and trade names, trademark
and trade name registrations, servicemarks and servicemark registrations,
copyrights and copyright registrations which are used in connection with
the operations of the Business, all applications pending for patents or
for trademark, trade name, servicemark or copyright registrations, and all
other proprietary rights (in each case, other than any such rights in the
Owned Software) owned or held by Sellers, and reasonably necessary to, or
primarily used in connection with, the Business, and (B) all licenses and
sublicenses granted by or to Sellers and all other agreements to which
Sellers are a party which relate, in whole or in part, to any items of the
categories mentioned in (A) above with respect to other proprietary rights
reasonably necessary to, or primarily used in connection with, the
Business, whether owned by Sellers or any affiliate thereof (in each case,
other than any such rights of Sellers in the Licensed Software);
(iii) with respect to the persons listed on Schedule 4.07(a)
hereto, all employment and consulting agreements, executive compensation
plans, collective bargaining agreements, bonus plans, guaranteed bonus
arrangements, deferred compensation agreements, employee pension plans or
retirement plans, employee profit sharing plans, employee stock purchase
and stock option plans, group life insurance, hospitalization insurance or
other plans or arrangements providing for benefits to such employees
(other than employment agreements terminable at will by Sellers without
liability);
(iv) all contracts pursuant to which Sellers have (A) been
granted rights to market software owned by third parties relating to the
Business or (B) granted marketing rights in the Owned Software to third
parties; and
(v) all contracts and commitments (including proposed (i)
contracts and commitments and (ii) amendments to contracts and
commitments) relating to the Business, whether oral or written, to which
Sellers are or may become
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parties or to which Sellers or any of their assets or properties are or
may become subject and which are not specifically referred to in Schedule
3.01(m)(i) hereto, Schedule 3.01(q) hereto or any of clauses (i) through
(iv) above, and which is a contract or group of related contracts which
involve payments by or to Sellers exceeding $5,000 per annum in amount or
cannot be canceled within 365 days after the Closing Date without breach
or penalty.
True and complete copies of all documents and complete descriptions
of all oral contracts (if any) referred to in Schedule 3.01(h) hereto have been
provided or made available to Buyers and their counsel. Except as disclosed in
said Schedule 3.01(h) hereto, Sellers have not received any claim that any
contract referred to therein is not valid and enforceable in accordance with its
terms (subject, as to enforcement, to the rights of creditors generally) for the
periods stated therein, and there does not exist under any such contract any
existing default or event of default or event which with notice or lapse of time
or both would constitute such a default, in either case, on the part of Sellers,
or to the knowledge of Sellers, on the part of any other party thereto, except
where any such default or event of default or event would not have a Material
Adverse Effect.
(i) Litigation. Except as set forth on Schedule 3.01(i) hereto,
there are no actions, suits or proceedings involving claims pending, or to the
knowledge of Sellers, threatened, against Sellers with respect to the Business
or against any officer or employee of the Business (other than any matter that
is unrelated to such person's employment, or actions taken in the course of such
person's employment, in the Business) or relating to any operations of the
Business, at law or in equity, or before or by any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality. To the knowledge of Sellers, and except as set forth on
Schedule 3.01(i) hereto, there are no orders, judgments or decrees of any court
or governmental agency with respect to which Sellers have been named or is a
party that apply, in whole or in part, to the Business or any of the Assets.
(j) Collective Bargaining Agreements; Labor Controversies; Etc.
Sellers are not a party to any labor or collective bargaining agreement and
there are no labor or collective bargaining agreements which pertain to any
employees engaged in the operations of the Business. No employees of Sellers are
represented by any labor organization. No labor organization or group of
employees of Sellers has made a pending demand for recognition, and there are no
representation proceedings or petitions seeking a representation proceeding
presently pending or, to the knowledge of Sellers, threatened to be brought or
filed with the National Labor Relations Board or
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other labor relations tribunal relating to the Business. There is no organizing
activity relating to the Business involving Sellers pending or, to the knowledge
of Sellers, threatened by any labor organization or group of employees of
Sellers. There are no (A) strikes, work stoppages, slowdowns, lockouts or
arbitrations or (B) material grievances or other material labor disputes pending
or, to the knowledge of Sellers, threatened against or involving Sellers
relating to the Business. There are no unfair labor practice charges, grievances
or complaints pending or, to the knowledge of Sellers, threatened against or
involving Sellers or any group of employees of Sellers relating to the Business.
There are no complaints, charges or claims against Sellers pending or, to the
knowledge of Sellers, threatened to be brought or filed with any governmental
body based on, arising out of, in connection with, or otherwise relating to the
employment by Sellers of any individual, including any claim for workers'
compensation relating to the Business. Hours worked by and payments made to
employees of Sellers engaged in the operations of the Business have not been in
violation of the federal Fair Labor Standards Act or any other law dealing with
such matters.
(k) Employee Benefit Plans.
(i) Schedule 3.01(k) hereto lists each employee benefit plan
within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), maintained by Sellers or to
which Sellers contributes or is required to contribute or in which any
employee of Sellers engaged in the operations of the Business participates
as a result of being employed by Sellers (a "Plan"). Sellers have complied
and currently are in compliance, in all material respects, both as to form
and operation, with the applicable provisions of ERISA and the Internal
Revenue Code of 1986, as amended (the "Code"), respectively, with respect
to each Plan.
(ii) Each of the Plans that is intended to qualify under
Section 401(a) of the Code does so qualify and is exempt from taxation
pursuant to Section 501(a) of the Code.
(iii) Sellers have not maintained, contributed to or been
required to contribute to, nor do any of their employees participate in, a
"multiemployer plan" (as defined in Section 3(37) of ERISA). No amount is
due or owing from Sellers on account of a "multiemployer plan" (as defined
in section 3(37) of ERISA) or on account of any withdrawal therefrom.
(iv) Sellers do not maintain for the benefit of any of their
employees engaged in the operations of the
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Business a defined benefit plan, as defined in section 3(35) of ERISA.
(v) Notwithstanding anything else set forth herein, Sellers
have not incurred any liability with respect to any Plan under ERISA
(including, without limitation, Title I or Title IV of ERISA), the Code or
other applicable law, which has not been satisfied in full, and no event
has occurred, and there exists no condition or set of circumstances which
could result in the imposition of any material liability under ERISA
(including, without limitation, Title I or Title IV of ERISA), the Code or
other applicable law with respect to any of the Plans.
(vi) No Plan, other than a Plan which is an employee pension
benefit plan (within the meaning of Section 3(2)(A) of ERISA), provides
benefits, including without limitation death, health or medical benefits
(whether or not insured), with respect to current or former employees of
Sellers engaged in the operations of the Business beyond their retirement
or other termination of service with Sellers (other than coverage mandated
by applicable law or benefits the full cost of which is borne by the
current or former employee (or his or her beneficiary)).
(vii) Except as set forth on Schedule 3.01(k) hereto, the
consummation of the transactions contemplated by this Agreement will not
(A) entitle any current or former employee or officer of Sellers to
severance pay, unemployment compensation or any other payment, or (B)
accelerate the time of payment or vesting, or increase the amount of
compensation due any such employee or officer.
(viii) Sellers have provided to Buyers true and complete
copies of each of the Plans together with summary plan descriptions and
each determination letter from the Internal Revenue Service with respect
to each Plan that is intended to qualify under Section 401(a) of the Code.
(1) Patents, Trademarks, Etc. The patents, trademarks and trade
names, trademark and trade name registrations, service mark registrations
and copyrights, the applications therefor and the licenses and sublicenses
with respect thereto (collectively, "Business Property Rights") listed on
Schedule 3.01(h)(ii) hereto, together with Sellers' rights in the Owned
Software, constitute all Business Property Rights of Sellers reasonably
necessary to, or primarily used in connection with, the conduct of the
Business. To the knowledge of Sellers, except as set forth on such
Schedule, Sellers own or have valid rights to use all Business Property
Rights without conflict with the rights of others. No person has advised
Sellers of or, to the knowledge of
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Sellers, threatened to make, any claims that the operations of the
Business are in violation of or infringe upon any such Business Property
Rights or any other proprietary or trade rights of any third party.
(m) Software.
(i) The Owned Software listed on Schedule 3.01(m)(i)-l hereto
comprises all of the operating and applications computer software programs
and databases that have been licensed by Sellers to any customer of the
Business or as to which Sellers have agreed to provide services to any
customer of the Business, in each case, pursuant to the contracts listed
on Schedule 3.01(q) hereto. The Owned Software and the Licensed Software
listed on Schedule 3.01(m)(i)-2 hereto comprise all of the operating and
applications computer software programs and databases used by Sellers in
connection with the operations of the Business, the licensing, servicing,
developing, or maintaining of the Owned Software or otherwise used by
Sellers in the Business.
(ii) Except as set forth on Schedule 3.01(m)(i)-l hereto and
except for the rights of the customers of the Business under the contracts
listed on Schedule 3.01(q) hereto and the rights of the parties to the
marketing agreements listed on Schedule 3.01(h)(iv) hereto, Sellers have
good and marketable title to all Owned Software, free and clear of all
liens, charges, pledges, security interests, or other encumbrances of any
nature whatsoever. Sellers hold valid licenses to all Licensed Software,
subject, in any event, to the terms of any agreements relating to the
Licensed Software. To the knowledge of Sellers, none of the Owned
Software, and no use by Sellers of the Licensed Software, infringes upon
or violates any patent, copyright, trade secret or other proprietary right
of any other person and no claim with respect to any such infringement or
violation is threatened.
(iii) Sellers possess or have access to (i) to the extent
required to conduct the Business, the source and object codes for all
Owned Software and, to the extent permitted under the respective license
agreements, for all the Licensed Software used by Sellers in the conduct
of the Business and (ii) all other technical materials, guidelines and
other written materials pertaining to the Owned Software or, to the
knowledge of Sellers, the Licensed Software. Upon consummation of the
transactions contemplated by this Agreement, Buyers will (A) own all the
Owned Software, free and clear of all claims, liens, encumbrances,
obligations and liabilities, except (x) for the rights of customers under
the contracts listed on Schedule 3.01(q) hereto and
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the rights of the parties to the marketing agreements listed on Schedule
3.01(h)(iv) hereto, and (y) as set forth on said Schedule 3.01(m)(i)-l
hereto, and (B) have, pursuant to a valid and binding assignment thereof
hereunder, a valid license to use all Licensed Software in the Business
without violation or infringement of the respective license agreements
relating thereto, to the extent permitted by such license agreements. To
the extent that Buyers shall identify, at any time or from time to time
during the three-month period following the Closing Date, any Licensed
Software for which no such valid license has been assigned, Sellers shall
promptly use best efforts to obtain such licenses and transfer, assign and
deliver same to Buyers, which shall be deemed for all purposes to be
included in the definition of Assets hereunder as provided in Section 1.01
hereof.
(iv) To the knowledge of Sellers, any programs, modifications,
enhancements or other inventions, improvements, discoveries, methods or
works of authorship included in the Owned Software that were created by
employees of Sellers were made in the regular course of such employees'
employment with Sellers using Sellers' facilities and resources and, as
such, constitute "works made for hire".
(n) Use of Real Property. The real property as set forth on Schedule
3.01(h) hereto are used and operated in material compliance and conformity with
all applicable leases, contracts, licenses and permits. Sellers have not
received notice of any material violation of any applicable zoning or building
regulation, ordinance or other law, order, regulation or requirement relating to
the conduct of the Business or to the Assets and, to the knowledge of Sellers,
there is no such violation. To the knowledge of Sellers, all buildings used in
the operations of the Business substantially conform with all applicable
ordinances, codes, regulations and requirements, and no law presently in effect
or condition precludes or materially restricts continuation of the present use
of such properties.
(o) Condition of Assets. All tangible personal property, furniture,
fixtures and equipment comprising the Assets are (i) in a reasonable state of
repair (ordinary wear and tear excepted) and operating condition and are
suitable for the purposes for which they are being used and (ii) to the
knowledge of Sellers, substantially conform with all applicable ordinances,
codes, regulations and requirements, including without limitation all applicable
ordinances, codes, regulations and requirements relating to occupational safety,
and no law presently in effect or condition precludes or materially restricts
continuation of the present use of such properties. No warranty is made
regarding the tangible personal property comprising the Assets.
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All such tangible personal property is conveyed hereunder AS IS, WHERE IS, WITH
ALL FAULTS AND DEFECTS.
(p) Compliance With Law; Permits. Except as set forth on Schedule
3.01(p) hereto, to the knowledge of Sellers, the conduct of the Business by
Sellers does not violate any federal, state or local laws, statutes, ordinances,
rules, regulations, decrees, orders, permits or other similar items in force on
the date hereof that are applicable to the Business, other than any such
violation which would not or would not reasonably be expected to have a Material
Adverse Effect. Except as set forth on Schedule 3.01(p) hereto, Sellers have all
material governmental licenses, franchises and permits required under applicable
law for the conduct of the Business as currently conducted and, to the knowledge
of Sellers, the Business is being conducted in compliance with all such
licenses, franchises and permits. Schedule 3.01(p) hereto lists all material
licenses, franchises and permits held by Sellers.
(q) Customer Contracts.
(i) Schedule 3.01(q) hereto contains a list of (A) all
contracts between Sellers and the customers of the Business pursuant to
which Sellers have agreed to provide goods or services to such customers,
(B) all contracts between Sellers and the customers of the Business
pursuant to which Sellers have licensed any Owned Software to such
customers and (C) all proposed amendments to any such contracts. All
correspondence files with respect to such contracts shall be made
available for review by Buyers upon their reasonable request.
(ii) Except as set forth on said Schedule 3.01(q) hereto and
except for contracts under which Sellers are not currently obligated to
supply any product or provide any service, no such contract contains a
prohibition on the assignment thereof without the consent of the other
party thereto.
(iii) Except as set forth on said Schedule 3.01(q) hereto,
since December 31, 1996, Sellers have not with respect to the Business had
any contracts with customers terminated prior to the expiration date
thereof or been notified in writing by any customer of its intention to
terminate any contract listed on Schedule 3.01(q) hereto prior to the
expiration date thereof that, in the aggregate, accounted for more than 5%
of the revenues of the Business during the nine-month period ended
December 31, 1996 (and, to the knowledge of Sellers, no customer has
notified Sellers in writing that it would, in the event of the sale of the
Business, terminate any such contract). Except as set forth on Schedule
3.01(q) hereto, since December 31,
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1996, Sellers have not received written notice from any customer of the
Business claiming that Sellers have materially breached any contract or
other agreement required to be scheduled pursuant to this Agreement.
(iv) Schedule 3.01(q) hereto identifies each agreement of the
Business that (A) requires joint services to be performed by the Business
and GHS's other business units or (B) is with any administrative agency or
other governmental authority. In addition, Schedule 3.01(q) hereto sets
forth all outstanding contract proposals relating to the Business for
which a contract has been requested for goods or services involving fees
in excess of $25,000 per annum.
(r) Taxes.
(i) Except as set forth on Schedule 3.01(r) hereto, all
federal, state, local and foreign income, franchise, sales, use, property,
payroll, employment, transfer and all other tax returns and information
statements ("Tax Returns") required to be filed with respect to the
operations of the Business have been properly prepared and timely filed
for all years and periods for which such Tax Returns have become due and
all such Tax Returns are correct and complete in all respects. For
purposes of this Agreement, "Taxes" shall mean any and all income,
franchise, sales, use, property, payroll, employment, transfer and any
other taxes, charges, fees, levies, imports, duties, licenses or other
assessments, together with interest, penalties and any other additions to
tax or additional amounts imposed by any governmental or taxing authority,
or liability for such amounts as a result of Seller being a member of an
affiliated, consolidated, combined or unitary group or being a party to
any agreement or arrangement whereby Sellers may be liable for Taxes of
any other person for any period prior to (or up to and including) the
close of business on the day prior to the Closing Date.
(ii) Sellers have paid to the appropriate taxing authority,
all Taxes owed by Sellers with respect to the operations of the Business,
whether or not shown on any Tax Return, to the extent such Taxes are due.
(iii) Sellers are not parties to any agreement, contract or
arrangement that would result, by reason of the consummation of any of the
transactions contemplated hereby, separately or in the aggregate, in the
payment of any "excess parachute payment" within the meaning of Section
28OG of the Code.
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(iv) None of the Assets is required to be treated as being
owned by any other person pursuant to the "safe harbor" leasing provisions
of Section 168(f)(8) of the Code of 1954, as in effect prior to the repeal
thereof.
(s) Environmental Matters. No Hazardous Substances (as hereinafter
defined) have been, or have been threatened to be, discharged, released or
emitted by Sellers into the air, water, surface water, ground water, land
surface or subsurface strata or transported to or from any property used by
Sellers in the operations of the Business except in accordance with all
applicable Environmental Laws, and except for incidental release of Hazardous
Substances in amounts or concentrations that could not reasonably be expected to
give rise to any material claims or liabilities against Sellers under any
Environmental Law. Sellers have not received any notification from a
governmental agency that there is any violation of any Environmental Law with
respect to the properties of Sellers used in the operations of the Business or
any notification from a governmental agency pursuant to Section 104, 106 or 107
of the Comprehensive Environmental Response Compensation and Liability Act, as
amended.
For purposes of this Agreement, the following terms shall have the
following meanings:
"Environmental Law" shall mean any federal, state or local statute,
law, ordinance, rule or regulation and any order to which Sellers are parties or
are otherwise bound with respect to the operations of the Business, relating to
pollution or protection of the environment, including natural resources, or
exposure of persons, including employees, to Hazardous Substances; and
"Hazardous Substances" shall mean any substance, whether liquid,
solid or gas listed, identified or designated as hazardous or toxic under any
Environmental Law, which, applying criteria specified in any Environmental Law,
is hazardous or toxic, or the use or disposal of which is regulated under any
Environmental Law.
(t) Broker's or Finders' Fees. All negotiations relative to this
Agreement and the transactions contemplated hereby have been carried out by
Sellers directly with Buyers, without the intervention of any person on behalf
of Sellers in such a manner to give rise to any claim by any person against
Buyers for a finder's fee, brokerage commission or similar payment.
(u) The Assets. To the knowledge of Sellers, the Assets referred to
in Section 1.01(a) constitute all of the assets or properties of Sellers used by
Sellers exclusively or primarily in the Business.
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(v) Other Information. None of the information furnished by Sellers
to Buyers in this Agreement, the exhibits hereto, the schedules identified
herein, or in any certificate or other document to be executed or delivered
pursuant hereto by Sellers at or prior to the Closing Date, is, or on the
Closing Date will be, in any material respects, false or incomplete or contains,
or on the Closing Date will contain, any misstatement of material fact.
SECTION 3.02 Representations and Warranties of Buyers. Buyers
represents and warrants to Seller as follows:
(a) Organization, Corporate Power, Etc. Each of Buyers is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and is duly qualified to do business as
a foreign corporation in each jurisdiction in which it is required to be so
qualified, except where the failure to be so qualified would not have a material
adverse effect on the properties, results of operations or financial condition
of Buyers. Buyers have all requisite corporate power and authority to acquire,
own, lease and operate the Assets and the Business, to execute and deliver this
Agreement and the Ancillary Agreements and to perform their respective
obligations hereunder and thereunder.
(b) Authorization of Agreements. The execution, delivery and
performance by Buyers of this Agreement and the Ancillary Agreements, and the
consummation by Buyers of the transactions contemplated hereby and thereby, have
been duly authorized by all requisite corporate action. This Agreement has been
duly and validly executed by Buyers and constitutes the legal, valid and binding
obligation of Buyers, enforceable in accordance with its terms, and the
Ancillary Agreements, when duly executed and delivered in accordance with this
Agreement, will constitute legal, valid and binding obligations of Buyers,
enforceable in accordance with their respective terms, except as enforceability
may be limited by applicable equitable principles or by bankruptcy, insolvency,
reorganization, moratorium, or similar laws from time to time in effect
affecting the enforcement of creditors' rights generally. All of the issued and
outstanding capital stock of Sub is owned by HMS. Except for the affirmative
vote of HMS, under the laws of the State of Delaware, the authorization of no
other person or entity is required to consummate the transactions contemplated
herein by virtue of any such person or entity having an equitable or beneficial
interest in Sub.
(c) Effect of Agreements. The execution and delivery by Buyers of
this Agreement and the Ancillary Agreements, and the performance by Buyers of
their respective obligations hereunder and thereunder, will not violate any
provision of law, any order of any court or other agency of government, the
Certificates of
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Incorporation or By-laws of Buyers or any judgment, award or decree or any
indenture, agreement or other instrument to which Buyers are parties or by which
Buyers or their properties or assets are bound or affected, or conflict with,
result in a breach of or constitute (with due notice or lapse of time or both) a
default under, any such indenture, agreement or other instrument, or result in
the creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any of the properties or assets of Buyers.
(d) Litigation. There is no action, suit, investigation or
proceeding pending or, to the knowledge of Buyers, threatened against or
affecting Buyers before any court or by or before any governmental body or
arbitration board or tribunal that might enjoin or prevent the consummation of
the transactions contemplated by this Agreement. For purposes of this Agreement,
"to the knowledge of Buyers" shall mean the collective knowledge of Paul J. Kerz
and Phillip Siegel (collectively, the "Sellers' Officers"), the President and
Chief Executive Officer and the Chief Financial Officer, respectively, of HMS.
"Knowledge" when used in this context shall mean, as to the facts or
circumstances represented: (i) actual knowledge of any one of the Buyers'
Officers; and (ii) knowledge that any one of the Buyers' Officers should
reasonably be expected to possess after due inquiry.
(e) Governmental Approvals. No approval, authorization, consent or
order or action of or filing with any court, administrative agency or other
governmental authority is required for the execution and delivery by Buyers of
this Agreement or the Ancillary Agreements or the consummation by Buyers of the
transactions contemplated hereby or thereby.
(f) Broker's or Finder's Fees. All negotiations relative to this
Agreement and the transactions contemplated hereby have been carried out by
Buyers directly with Sellers, without the intervention of any person on behalf
of Buyers in such a manner to give rise to any claim by any person against
Sellers for a finder's fee, brokerage commission or similar payment.
(g) Other Information. None of the information furnished by Buyers
to Sellers in this Agreement, the exhibits hereto, the schedules identified
herein, or in any certificate or other document to be executed or delivered
pursuant hereto by Buyers at or prior to the Closing Date, is, or on the Closing
Date will be, false or incomplete or contains, or on the Closing Date will
contain, any misstatement of material fact.
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IV. COVENANTS
SECTION 4.01 Covenants of Sellers.
(a) Sellers agree that, at all times between the date hereof and the
Closing Date, unless Buyers and Sellers shall otherwise agree in writing,
Sellers shall:
(i) operate the Business only in the usual, regular and
ordinary manner and, to the extent consistent with such operations, use
all reasonable efforts to preserve the current business organization of
the Business intact, keep available the services of those officers and
employees currently engaged in the operations of the Business and preserve
their present relationships with customers of, and all other persons
having business dealings with, the Business;
(ii) maintain all the assets and properties deemed reasonably
necessary for the conduct of the Business in good repair, order and
condition, reasonable wear and tear excepted; and
(iii) maintain the books of account and records relating to
the Business in the usual, regular and ordinary manner, on a basis
consistent with past practice, and use their best efforts to comply with
all laws applicable to them and to the conduct of the Business and perform
all their material obligations without default.
(b) Between the date of this Agreement and the Closing Date, Sellers
shall, upon reasonable prior notice, afford the representatives of Buyers
reasonable access during normal business hours to the offices, facilities, books
and records of Sellers pertaining to the Business and the opportunity to discuss
the affairs of the Business with officers and employees of Sellers familiar
therewith.
(c) Between the date of this Agreement and the Closing Date, Sellers
shall not, except as required by generally accepted accounting principles, with
respect to the operations of the Business (i) utilize accounting principles
different from those used in the preparation of the Financial Statements, (ii)
change in any manner their method of maintaining their books of account and
records from such methods as in effect on December 31, 1996, or (iii) accelerate
booking of revenues or the deferral of expenses, other than as shall be
consistent with past practice and in the ordinary course of business.
(d) Between the date hereof and the Closing Date, Sellers shall,
with Buyers' assistance and cooperation, but at the expense of Sellers, promptly
apply for or otherwise seek and
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use all reasonable efforts to obtain all authorizations, consents, waivers and
approvals as may be required in connection with the assignment of the contracts,
agreements, licenses, leases, sales orders, purchase orders and other
commitments to be assigned to Buyers pursuant hereto (other than those listed on
Schedule 1.03 hereto); provided, however, that Buyers shall bear the expense of
posting any performance bonds and any reasonable and necessary special travel
expenses of Sellers' required to obtain such consents, waivers and approvals,
subject to Buyers' prior approval and reimbursement for travel expenses
consistent with Buyers' existing policies.
(e) As of the Closing Date, Sellers shall have paid any amount owed
(or that will be owed as of the Closing Date) by such Sellers to any Retained
Employee, in respect of salary, bonus or other compensation. To the extent that
amounts to be paid to any Retained Employee in reimbursement of expenses
incurred by such Retained Employee on behalf of Sellers shall be unpaid as of
the Closing Date, Sellers shall pay such amounts in accordance with Sellers'
customary practice upon receipt of a duly prepared claim therefor properly
submitted by such Retained Employee.
(f) Between the date hereof and the Closing Date, Sellers shall not
enter into any transaction or make any agreement or commitment, or permit any
event to occur, which would result in any of the representations, warranties or
covenants of Sellers contained in this Agreement not being true and correct at
and as of the time immediately after the occurrence of such transaction or
event.
SECTION 4.02 Confidentiality. The contents of this Agreement shall
be kept confidential between the parties, except as otherwise required by law,
including but not limited to the provisions of the federal securities laws, and
except that each party may reveal and discuss the contents with its professional
advisors, including attorneys and accountants. In addition, the parties may
mutually agree in writing as to the disclosure of the subject transaction to
current employees of the Business and to the public. In so doing, the parties
shall agree to the timing and content of the release of such information.
SECTION 4.03 Allocation of Purchase Price. For all federal, state
and local tax purposes, Buyers and Sellers agree to allocate the consideration
described in Section 2.02 hereof (i) as to a portion thereof to the covenants
and agreements of Sellers contained in the Non-Compete Agreement and (ii) as to
the balance, in the manner reasonably determined by Buyers, but subject to the
reasonable approval of Sellers, which approval shall not be unreasonably
withheld. Within 180 days following the Closing, Buyers shall deliver to Sellers
a schedule (the "Allocation Schedule") allocating the Purchase Price (including,
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for the purpose of this Section 4.03, any other consideration paid to Sellers,
including any liabilities assumed pursuant hereto) among the Assets and the
covenant not to compete granted pursuant to the Non-Compete Agreement. The
Allocation Schedule shall be reasonable and shall be prepared in accordance with
Section 1060 of the Code and the regulations thereunder. Buyers and Sellers each
agree to file Internal Revenue Service Form 8594, and all federal, state, local
and foreign Tax Returns, in accordance with the Allocation Schedule. Buyers and
Sellers each agree to provide the other parties promptly with any other
information required to complete Form 8594 and with a copy of such form after it
is filed.
SECTION 4.04 Preparation of Certain Financial Information.
(a) After the Closing Date, at the reasonable request of Buyers, but
only in contemplation of and in order to comply with the rules and regulations
(the "SEC Rules") of the Securities and Exchange Commission (the "SEC"), Sellers
shall cause the independent accountants of Sellers to prepare, at the election
of Buyers, audited or compiled financial statements for the Business for the
period commencing on January 1 of the year that is five years (or such shorter
period as is permissible under the SEC Rules) prior to the end of the year
immediately prior to the date such request is made, through the Closing Date, it
being understood and agreed by Sellers and Buyers that such assistance shall
include, without limitation, (i) providing Buyers and their representatives with
all necessary financial information and data relating to the Business for such
periods, (ii) making available to Buyers all employees of Sellers or any of
their affiliates deemed necessary by Buyers to assist in the preparation of such
financial statements, and (iii) delivering a management representation letter.
(b) The fees and expenses of such independent accountants in
preparing audited and/or compiled financial statements for the Business as
provided in this Section 4.04 shall be borne by Buyers, and Buyers shall
compensate Sellers for their out-of-pocket expenses in assisting in such
preparation.
(c) After the Closing Date, Buyers shall afford the representatives
of Sellers reasonable access during normal business hours to such books of
account and other financial records of Buyers pertaining to the Business and
acquired by Buyers pursuant to this Agreement as Sellers may reasonably request
in order to prepare, file, amend or respond to questions of any governmental
authority relating to its financial statements and Tax Returns for any period or
portion thereof that Sellers owned the Business. Sellers shall compensate Buyers
for their out-of-pocket expenses incurred in assisting Seller pursuant to this
Section 4.04(c).
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SECTION 4.05 Certain Tax Matters.
(a) All sales and use taxes, including interest, penalties and any
other additions to such sales and use taxes, imposed by any governmental or
taxing authority upon or incurred by any of the parties hereto in connection
with this Agreement and the transactions contemplated hereby shall be borne by
Buyers. All transfer taxes, including interest, penalties and any other
additions to such transfer taxes, imposed by any governmental or taxing
authority upon or incurred by any of the parties hereto in connection with this
Agreement and the transactions contemplated hereby shall be borne by Sellers.
Sellers and/or Buyers, to the extent required by law and this Section 4.05(a),
shall prepare and file all necessary Tax Returns and other documents with
respect to all such transfer, sales and use taxes. Sellers and Buyers agree to
cooperate in any endeavor to effect a reduction in any such transfer, sales and
use taxes.
(b) For all federal, state, local and foreign income and franchise
Tax purposes, each of the parties hereto agrees to treat the acquisition of the
Assets by Buyers, pursuant to the terms and conditions of this Agreement, as a
taxable sale of the assets of Sellers to Buyers solely in exchange for cash (and
the liabilities assumed by Buyers from Sellers).
(c) Sellers shall be responsible for and shall pay any and all Taxes
with respect to the operations of the Business relating to all periods prior to
the Closing Date and Buyers shall be responsible for and shall pay any and all
Taxes with respect to the operations of the Business relating to periods
commencing the Closing Date.
SECTION 4.06 Insurance. Between the date of this Agreement and the
Closing Date, Buyers shall use reasonable efforts to obtain policies of fire,
liability, workers' compensation and other forms of insurance in such amounts
and against such risks as Buyers deem appropriate, and Sellers shall reasonably
cooperate with Buyers in obtaining such insurance.
SECTION 4.07 Retention of Employees; Benefits.
(a) Offers of Employment. Effective immediately as of the Closing
Date, Buyers shall offer to continue the employment, at will, or consultancy of
all employees or consultants that, at Buyers' request, Sellers have listed on
Schedule 4.07(a) hereto on terms that are initially no less favorable than the
terms of their employment or consultancy by Sellers. Sellers shall promptly
notify Buyers if any employee of, or consultant to, the Business shall announce
his or her intention not to accept such offer by Buyers. The employees and
consultants listed on Schedule 4.07(a) hereto who accept Buyers' offer of
employment or
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consultancy are herein referred to collectively as the "Retained Employees".
(b) Benefits. Following the Closing Date, Retained Employees
(excluding consultants unless otherwise indicated on Schedule 4.07(a)) will be
afforded the opportunity to participate in benefits and equity acquisition
programs that currently are available to employees of HMS and on similar terms
of participation; provided, however, that following the Closing Date, Retained
Employees shall continue their existing medical insurance on the current terms
thereof, subject to such changes as Buyers may implement in the future but which
shall accord the Retained Employees health benefits comparable to their current
arrangement. In the event during the first twelve months after the Closing Date,
Buyers shall make a change in the medical insurance covering the Retained
Employees and in connection therewith require a contribution from the Retained
Employees toward the cost of medical insurance, Buyers shall cause the Retained
Employees to be given an increase in compensation equal to the amount of the
required contribution.
(c) No Offer of Employment. Nothing in this Agreement, express or
implied, shall confer upon any employee of Sellers engaged in the Business, or
any representative of any such employee, any rights or remedies, including any
right to employment or continued employment for any period, of any nature
whatsoever, whether as third-party beneficiary or otherwise, it being understood
and agreed that any such employment shall, to the maximum extent permitted by
applicable law, be employment at will.
(d) Buyers' Own Investigation. Prior to the Closing Date, Sellers
shall, upon reasonable prior notice, afford Buyers reasonable access during
normal business hours to the employees of, and consultants to, Sellers listed on
Schedule 4.07(a) hereto to permit Buyers to evaluate and make their own
investigation with respect to each such employee and consultant, and Sellers
shall not be liable to Buyers for the acts or omissions of any Retained Employee
after the Closing Date.
SECTION 4.08 Further Assurances. From time to time following the
Closing Date, Sellers shall execute and deliver, or cause to be executed and
delivered, to Buyers such bills of sale, deeds, endorsements, assignments and
other good and sufficient instruments of conveyance and transfer, in form
reasonably satisfactory to Buyers and their counsel, as Buyers may reasonably
request or as may be otherwise reasonably necessary to vest in Buyers all the
right, title and interest of Sellers in, to or under, and put Buyers in
possession of, any part of the Assets.
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SECTION 4.09 No Solicitation; Acquisition Proposals. From the date
of this Agreement until the Closing Date or until this Agreement is terminated
as provided in Article VIII, Sellers will not directly or indirectly (i) solicit
or initiate (including by way of furnishing any information) discussions with or
(ii) enter into negotiations or agreements with, or furnish any information to,
any corporation, partnership, person or other entity or group (other than
Buyers, an affiliate of Buyers or their authorized representatives pursuant to
this Agreement) concerning any proposal for a merger, sale of substantial
assets, sale of shares of stock or securities or other takeover or business
combination transaction (an "Acquisition Transaction") involving the Business;
and Sellers will instruct their officers, directors, advisors and other
financial and legal representatives and consultants not to take any action
contrary to the foregoing provisions of this sentence; provided, however, that
the actions prohibited by the foregoing clauses (i) and (ii) shall be subject to
any action taken by the Boards of Directors of Sellers in the exercise of their
good faith judgment as to their fiduciary duties to their respective
stockholders, which judgment is based upon the advice of independent counsel
that a failure of the Boards of Directors to take such action would be likely to
constitute a breach of their fiduciary duties to their respective stockholders.
Sellers will notify Buyers promptly in writing if Sellers become aware that any
inquiries or proposals are received by, any information is requested from, or
any negotiations or discussions are sought to be initiated with Sellers with
respect to an Acquisition Transaction and will immediately after receipt provide
to Buyers a copy of any letter, proposal or other document in which any proposal
for an Acquisition Transaction is made or expressed. Sellers will immediately
cease any existing activities, discussions or negotiations with any third
parties which may have been conducted on or prior to the date hereof with
respect to an Acquisition Transaction and shall direct and use reasonable
efforts to cause their officers, advisors and representatives not to engage in
any such activities, discussions or negotiations.
V. GHS STOCKHOLDERS' CONSENT;
INFORMATION STATEMENT
SECTION 5.01 GHS Stockholders' Meeting. GHS agrees that this
Agreement shall be submitted to its stockholders for approval at a meeting (the
"GHS Stockholders' Meeting") of the stockholders of GHS or such other means as
permitted under applicable law. As soon as practicable after the date of this
Agreement, GHS shall take all action, to the extent necessary in accordance with
applicable law and its Certificate of Incorporation and By-laws, to obtain the
approval of the GHS stockholders of this Agreement and such other matters as may
be necessary or desirable to consummate the transactions contemplated hereby.
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SECTION 5.02 Preparation and Filing of Information Statement. As
soon as practicable after the date of this Agreement, GHS shall prepare and file
with the SEC, subject to the prior approval of Buyers, which approval shall not
be unreasonably withheld, an information statement (the "Information Statement")
relating to the GHS Stockholders' Meeting or as otherwise required under
applicable law. Buyers shall reasonably cooperate with GHS in the preparation of
the Information Statement. As soon as is permissible under the SEC Rules, GHS
shall mail the Information Statement to its stockholders.
SECTION 5.03 Recommendations of GHS Board of Directors. GHS hereby
represents that its Board of Directors has (i) determined that the terms of the
transactions contemplated by this Agreement are fair to and in the best
interests of GHS's stockholders, (ii) approved this Agreement, the Ancillary
Agreements and the transactions contemplated hereby and thereby, and (iii)
resolved to and, subject to its fiduciary obligations under Delaware law, will
recommend in the Information Statement adoption of this Agreement and the
Ancillary Agreements and authorization of the transactions contemplated hereby
and thereby by the stockholders of GHS.
SECTION 5.04 Irrevocable Proxy. In consideration of the execution of
this Agreement by Sellers, Sellers have caused to be delivered to Buyers
irrevocable proxies:
(a) in the form of Exhibit C hereto, in favor of designees of
Buyers, authorizing such proxies to vote in favor of this Agreement and the
transactions contemplated hereby at the GHS Stockholders' Meeting. Such
irrevocable proxies represent in excess of 50% of the shares of GHS capital
stock which will be entitled to vote on this Agreement and the transactions
contemplated hereby at the GHS Stockholders' Meeting; and
(b) from GHS in its capacity as the sole stockholder of Global and
Management, in the form of Exhibit D hereto, in favor of designees of Sellers,
authorizing such proxies to vote in favor of, or to consent to, this Agreement
and the transactions contemplated hereby.
VI. CONDITIONS PRECEDENT
SECTION 6.01 Conditions Precedent to the Obligations of Buyers. The
obligations of Buyers under this Agreement are subject, at the option of Buyers,
to the satisfaction at or prior to the Closing Date of each of the following
conditions:
(a) Accuracy of Representations and Warranties. The representations
and warranties of Sellers contained in this Agreement or in any certificate or
document delivered to Buyers pursuant hereto shall be true and correct in all
material
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respects on and as of the Closing Date as though made at and as of that date,
subject to the updating of schedules as provided in Section 9.12, and Sellers
shall have delivered to Buyers a certificate to that effect.
(b) Compliance with Covenants. Sellers shall have performed and
complied in all material respects with all terms, agreements, covenants and
conditions of this Agreement to be performed or complied with by them at or
prior to the Closing Date, and Sellers shall have delivered to Buyers a
certificate to that effect.
(c) Opinion of Counsel for Sellers. Buyers shall have received the
favorable opinion from Werbel & Carnelutti, counsel to Sellers, dated the
Closing Date, in the form reasonably satisfactory to Buyers.
(d) Legal Actions or Proceedings. No legal action or proceeding
shall have been instituted or threatened seeking to restrain, prohibit,
invalidate or otherwise affect the consummation of the transactions contemplated
hereby or which would, if adversely decided, have a Material Adverse Effect on
the Business.
(e) Assignment of Contracts. Sellers shall have (i) obtained all
authorizations, consents, waivers and approvals required in connection with the
assignment of those contracts, agreements, licenses, leases, sales orders,
purchase orders and other commitments (collectively, the "Material Contracts")
to be assigned to Buyers pursuant to this Agreement as set forth on Schedule
6.01(e) that are material to the conduct of the Business, which in the case of
contracts with Sellers' customers shall include and be limited to all contracts
with the Los Angeles County Department of Health, the City of Chicago Department
of Health and San Mateo County and (ii) otherwise made arrangements satisfactory
to Buyers and their counsel so that Buyers will receive the benefit of all such
Material Contracts. Notwithstanding the foregoing, subject to Section 4.01(d),
Sellers will use their best efforts, at Sellers' expense, to obtain all
authorizations, consents, waivers and approvals required to assign to Buyers all
other contracts, agreements, licenses, leases, sales orders, purchase orders and
other commitments set forth on Schedule 6.01(e). The obligations of Sellers set
forth in the immediately preceding sentence shall continue from and after the
Closing Date.
(f) Consents and Regulatory Approvals. Subject to subsection (e)
above, Buyers shall have been furnished with the written consents, permits,
licenses, authorizations and approvals in forms acceptable to Buyers of any and
all persons, including without limitation government agencies, authorities and
third parties, required to be obtained prior to the consummation of the
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transactions contemplated hereby and required to be obtained in order that
Buyers may conduct the Business immediately following the Closing Date.
(g) Ancillary Agreements. Sellers and Alan Gold (in the case of the
Non-Compete Agreement) shall have executed and delivered the Ancillary
Agreements, and said Agreements shall be in full force and effect as of the
Closing Date.
(h) Retained Employees. Alan Gold shall have agreed to his
employment by Buyers.
(i) Name Change. Sellers shall have executed and delivered to Buyers
all instruments necessary to effectuate the change of Global's and Management's
names to names not confusingly similar to Global Health Systems, Inc. and Global
Management Services, Inc., and to enable Buyers to use such names subsequent to
the Closing Date.
(j) Supporting Documents. Buyers and their counsel shall have
received copies of the following supporting documents:
(i) (1) copies of the Certificate of Incorporation of each
Seller and all amendments thereto, certified as of a recent date by the
Secretary of State of the State of Delaware, and (2) a certificate of said
Secretary dated as of a recent date as to the good standing of each such
Seller and listing all documents of such Seller on file with said
Secretary; and
(ii) a certificate of the Secretary or an Assistant Secretary
of each of the Sellers dated the Closing Date and certifying: (1) that
attached thereto is a true and complete copy of the By-laws of such Seller
as in effect on the date of such certification; (2) that attached thereto
is a true and complete copy of resolutions duly adopted by the Board of
Directors of such Seller authorizing the execution, delivery and
performance of this Agreement and the Ancillary Agreements and the
transactions contemplated hereby and thereby and that all such resolutions
are still in full force and effect and are all the resolutions adopted in
connection with the transactions contemplated by this Agreement; (3) that
attached thereto is a true and complete copy of resolutions duly adopted
by the stockholders of such Seller (if required by applicable law)
authorizing and adopting this Agreement and the Ancillary Agreements and
the transactions contemplated hereby and thereby; (4) that the Certificate
of Incorporation of such Seller has not been amended since the date of the
last amendment referred to in the certificate delivered pursuant to clause
(i)(2) above; and (5) as to the incumbency and specimen signature of each
officer of such Seller executing this Agreement and any
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certificate or instrument furnished pursuant hereto, and a certification
by another officer of such Seller as to the incumbency and signature of
the officer signing the certificate referred to in this paragraph (ii).
(k) Stockholder Approval. This Agreement shall have been approved
and adopted by the required affirmative vote of (i) the stockholders of GHS and
(ii) GHS in its capacity as the sole stockholder of Global and Management, and
the requisite notices under federal and state law shall have been delivered.
(l) All Proceedings To Be Satisfactory. All corporate and other
proceedings to be taken by Sellers in connection with the transactions
contemplated hereby and all documents incident thereto shall be reasonably
satisfactory in form and substance to Buyers and their counsel, and Buyers and
said counsel shall have received all such counterpart originals or certified or
other copies of such documents as they may reasonably request.
SECTION 6.02 Conditions Precedent to the Obligations of Sellers. The
obligations of Sellers under this Agreement are subject, at the option of
Sellers, to the satisfaction at or prior to the Closing Date of each of the
following conditions:
(a) Accuracy of Representations and Warranties. The representations
and warranties of Buyers contained in this Agreement or in any certificate or
document delivered to Sellers pursuant hereto shall be true and correct in all
material respects on and as of the Closing Date as though made at and as of that
date, and Buyers shall have delivered to Sellers a certificate to that effect.
(b) Compliance with Covenants. Buyers shall have performed and
complied in all material respects with all terms, agreements, covenants and
conditions of this Agreement to be performed or complied with by them at or
prior to the Closing Date, and Buyers shall have delivered to Sellers a
certificate to that effect.
(c) Opinion of Counsel for Buyers. Sellers shall have received the
favorable opinion of Coleman & Rhine LLP, counsel for Buyers, dated the Closing
Date, in the form reasonably satisfactory to Sellers.
(d) Legal Actions or Proceedings. No legal action or proceeding
shall have been instituted or threatened seeking to restrain, prohibit,
invalidate or otherwise affect the consummation of the transactions contemplated
hereby.
(e) Consents and Regulatory Approvals. Buyers shall have been
furnished with the written consents, permits, licenses, authorizations and
approvals of any and all persons, including
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without limitation government agencies, authorities and third parties, required
to be obtained prior to the consummation of the transactions contemplated hereby
and required to be obtained in order that Buyers may conduct the Business
immediately following the Closing Date.
(f) Sellers Released. Sellers shall have been released from any
obligations under any agreements and contracts assigned to Buyers under this
Agreement, provided that (i) such obligations arise on and after the Closing
Date or (ii) Buyers have specifically assumed such obligations.
(g) Ancillary Agreements. Buyers shall have executed and delivered
the Ancillary Agreements, and said Agreements shall be in full force and effect
as of the Closing Date.
(h) Supporting Documents. Sellers and their counsel shall have
received copies of the following supporting documents:
(i) (1) copies of the Certificate of Incorporation of Sub and
all amendments thereto, certified as of a recent date by the Secretary of
State of the State of Delaware, (2) a certificate of said Secretary of
State, with respect to Sub, and of the Secretary of State of the State of
New York, with respect to HMS, dated as of a recent date, as to the due
incorporation and good standing of Buyers and listing all documents of
Buyers on file with each of said Secretaries; and
(ii) a certificate of the Secretary or an Assistant Secretary
of each of the Buyers dated the Closing Date and certifying: (1) that
attached thereto is a true and complete copy of resolutions duly adopted
by the Board of Directors of such Buyer authorizing the execution,
delivery and performance of this Agreement and the Ancillary Agreements
and the transactions contemplated hereby and thereby and that all such
resolutions are still in full force and effect and are all the resolutions
adopted in connection with the transactions contemplated by this
Agreement; and (2) as to the incumbency and specimen signature of each
officer of such Buyer executing this Agreement and any certificate or
instrument furnished pursuant hereto, and a certification by another
officer of such Buyer as to the incumbency and signature of the officer
signing the certificate referred to in this paragraph (ii).
(i) Stockholder Approval. This Agreement shall have been approved by
the required affirmative vote of (i) the stockholders of GHS and (ii) GHS in its
capacity as the sole stockholder of Global and Management, and the requisite
notices under federal and state law shall have been delivered.
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(j) All Proceedings To Be Satisfactory. All corporate and other
proceedings to be taken by Buyers in connection with the transactions
contemplated hereby and all documents incident thereto shall be reasonably
satisfactory in form and substance to Sellers and their counsel, and Sellers and
said counsel shall have received all such counterpart originals or certified or
other copies of such documents as they may reasonably request.
VII. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
SECTION 7.01 Survival of Representations. Subject as set forth
below, (i) all representations and warranties (other than representations and
warranties as to Tax matters) made by any party hereto in this Agreement or
pursuant hereto shall survive for the period commencing on the date hereof and
ending on the first anniversary of the Closing Date, and (ii) the
representations and warranties as to Tax matters made by any party hereto in
this Agreement or pursuant hereto shall survive for the applicable Tax statute
of limitation period, including any extensions or waivers thereof.
SECTION 7.02 Tax Indemnity.
(a) Sellers hereby agree to indemnify, defend and hold Buyers
harmless from and against:
(i) any and all Taxes incurred by, imposed upon or
attributable to Sellers for all periods prior to (and up to and including)
the close of business on the day prior to the Closing Date, including
reasonable legal fees and expenses incurred by any party hereto and
relating to such Taxes; and
(ii) subject to the provisions of Section 4.05(a) hereof, any
and all Taxes incurred by, imposed upon or attributable to Sellers,
arising out of the consummation of any of the transactions contemplated
hereby, including reasonable legal fees and expenses incurred by any party
hereto and relating to such Taxes.
(b) Buyers hereby agree to indemnify, defend and hold Sellers
harmless from and against:
(i) any and all Taxes incurred by, imposed upon or
attributable to Buyers for all periods after the close of business on the
day prior to the Closing Date, including reasonable legal fees and
expenses incurred by any party hereto and relating to such Taxes; and
(ii) subject to the provisions of Section 4.05(a) hereof, any
and all Taxes incurred by, imposed upon or attributable to Buyers, arising
out of the consummation
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of any of the transactions contemplated hereby, including reasonable legal
fees and expenses incurred by any party hereto and relating to such Taxes.
(c) For purposes of this Section 7.02, any interest, penalty or
additional charge included in Taxes shall be deemed to be a Tax for the period
in which the items on which the interest, penalty or additional charge is based
occurs.
(d) The indemnity provided for in this Section 7.02 shall be
independent of any other indemnity provision hereof and, anything in this
Agreement to the contrary notwithstanding, shall survive until the expiration of
the applicable statutes of limitation, including any extensions or waivers
thereof, for the Taxes referred to herein and any Taxes, legal fees and expenses
subject to indemnification under this Section 7.02 shall not be subject to
indemnification under Section 7.03.
SECTION 7.03 General Indemnity.
(a) Subject to the terms and conditions of this Article VII, Sellers
hereby agree to indemnify, defend and hold Buyers harmless from and against all
demands, claims, actions or causes of action, assessments, losses, damages,
liabilities, costs and expenses, including, without limitation, interest,
penalties and reasonable attorneys' fees and expenses (collectively, "Damages"),
asserted against, resulting to, imposed upon or incurred by Buyers by reason of
or resulting from:
(i) a breach of any representation, warranty or covenant of
Sellers contained in or made pursuant to this Agreement;
(ii) any liabilities or obligations of, or claims against or
imposed on, Sellers (whether absolute, accrued, contingent or otherwise
and whether a contractual, or any other type of liability, obligation or
claim) not assumed by Buyers pursuant to this Agreement;
(iii) any liabilities or obligations (whether absolute,
accrued, contingent or otherwise) in respect of (A) any of the actions,
suits or proceedings or threatened actions, suits or proceedings described
on Schedule 3.01(i) hereto, or (B) any action, suit or proceeding
commenced after the Closing Date based upon an event occurring or a claim
arising prior to the Closing Date; and
(iv) any liability in respect of any failure by Sellers to
conduct the Business prior to the Closing Date in compliance with any
federal, state or local laws, statutes, ordinances, rules, regulations,
decrees, orders,
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permits or other similar items in force as of the Closing Date.
(b) Subject to the terms and conditions of this Article VII, Buyers
hereby agree to indemnify, defend and hold Sellers harmless from and against all
Damages asserted against, resulting to, imposed upon or incurred by Sellers, by
reason of or resulting from:
(i) a breach of any representation, warranty or covenant of
Buyers contained in or made pursuant to this Agreement;
(ii) the failure of Buyers to pay, perform and discharge when
due the liabilities and obligations assumed by Buyers pursuant to this
Agreement;
(iii) any liabilities or obligations (whether absolute,
accrued, contingent or otherwise) in respect of any action, suit or
proceeding based on an event occurring or claim arising on and after the
Closing Date; and
(iv) any liability in respect of any failure by Buyers to
conduct the Business on and after the Closing Date in compliance with any
federal, state or local laws, statutes, ordinances, rules, regulations,
decrees, orders, permits or other similar items from time to time in
force.
SECTION 7.04 Conditions of Indemnification. The respective
obligations and liabilities of Sellers, on the one hand, and Buyers, on the
other hand (the "indemnifying party"), to the other (each, collectively, the
"party to be indemnified") under Sections 7.02 and 7.03 hereof with respect to
claims resulting from the assertion of liability by third parties shall be
subject to the following terms and conditions:
(a) within 10 days after receipt of notice of commencement of any
action or the assertion in writing of any claim by a third party, the party to
be indemnified shall give the indemnifying party written notice thereof together
with a copy of such claim, process or other legal pleading, and the indemnifying
party shall have the right to undertake the defense thereof by representatives
of its own choosing;
(b) in the event that the indemnifying party, by the 20th day after
receipt of notice of any such claim (or, if earlier, by the tenth day preceding
the day on which an answer or other pleading must be served in order to prevent
judgment by default in favor of the person asserting such claim), does not elect
to defend against such claim, the party to be indemnified will (upon further
notice to the indemnifying party) have the right to undertake the defense,
compromise or settlement of such
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claim on behalf of and for the account and risk of the indemnifying party,
subject to the right of the indemnifying party to assume the defense of such
claim at any time prior to settlement, compromise or final determination
thereof, provided that the indemnifying party shall be given at least 15 days
prior written notice of the effectiveness of any such proposed settlement or
compromise; and
(c) anything in this Section 7.04 to the contrary notwithstanding
(i) if there is a reasonable probability that a claim may materially and
adversely affect the indemnifying party other than as a result of money damages
or other money payments, the indemnifying party shall have the right, at its own
cost and expense, to compromise or settle such claim, but (ii) the indemnifying
party shall not, without the prior written consent of the party to be
indemnified, settle or compromise any claim or consent to the entry of any
judgment which does not include as an unconditional term thereof the giving by
the claimant or the plaintiff to the party to be indemnified a release from all
liability in respect of such claim.
SECTION 7.05 Direct Claims. Any claim by the party to be indemnified
for indemnification other than with respect to claims resulting from the
assertion of liability by third parties (a "Direct Claim") will be asserted by
giving the indemnifying party reasonably prompt written notice thereof, and the
indemnifying party will have a period of twenty (20) calendar days within which
to respond in writing to such Direct Claim. If the indemnifying party does not
so respond within such twenty (20) calendar day period, the indemnifying party
will be deemed to have rejected such claim, in which event the party to be
indemnified will be free to pursue another remedy to which it may be entitled.
SECTION 7.06 Certain Information. In connection with any
indemnification provided in this Article VII, the indemnified party shall
cooperate in all reasonable requests of the indemnifying party and each party
shall furnish or cause to be furnished to the other (at reasonable times and at
the expense of the party requesting such information) upon request as promptly
as practicable such information (including access to books and records of the
Business and to employees familiar with the affairs thereof) and assistance
relating to the Business as is reasonably necessary for the defense of any
claim, suit or proceeding.
SECTION 7.07 Limitations on Liability of Sellers.
(a) The indemnities set forth in Section 7.03 and all
representations, warranties and covenants hereunder shall survive for a period
of one year following the Closing Date, unless such indemnities,
representations, warranties and covenants of the
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Sellers hereunder pertain to Tax claims, in which event they shall survive until
expiration of the applicable statute of limitation period. Upon the expiration
of such respective periods, the Sellers shall have no liability for Damages
under such indemnification provisions unless the Buyers have been given notice
of a claim asserting liability by a third party prior to the expiration of such
respective periods and thereafter provides notice to the Sellers in the manner
provided in Section 7.04 above prior to the expiration of such periods.
(b) If the Sellers become liable for Damages to Buyers hereunder,
the Sellers shall be entitled to a credit or offset against such liability of an
amount equal to $20,000 (the "Threshold"). At such time as the aggregate of all
Damages exceeds the Threshold, the Buyers shall be entitled to recover from the
Sellers any and all amounts for which a claim for indemnity has been made,
without regard to the Threshold.
(c) If the Sellers become liable for Damages to Buyers hereunder, in
no event shall the liability of the Sellers exceed in the aggregate 15% of the
Purchase Price; provided, however, that nothing in this section 7.07(c) shall
limit, in any manner, any remedy at law or in equity to which Buyers may be
entitled as a result of intentional fraud by any party to this Agreement.
VIII. TERMINATION
SECTION 8.01 Termination. This Agreement may be terminated at any
time prior to the Closing Date:
(a) by Buyers, if the conditions set forth in Section 6.01 shall not
have been complied with or performed in any material respect by Sellers on or
before 120 days following the date hereof (except 180 days following the date
hereof in the case of the condition set forth in Section 6.01(e)) and such
noncompliance or nonperformance shall not have been waived, cured or eliminated
(or by its nature cannot be cured or eliminated);
(b) by Sellers, if the conditions set forth in Section 6.02 shall
not have been complied with or performed in any material respect by Buyers on or
before 120 days following the date hereof (except 180 days following the date
hereof in the case of the condition set forth in Section 6.02(i)) and such
noncompliance or nonperformance shall not have been waived, cured or eliminated
(or by its nature cannot be cured or eliminated);
(c) by Buyers or Sellers, in the event the Closing Date has not
occurred on or prior to the close of business 180 days following the date hereof
or such later date as the parties hereto may agree in writing (unless such event
has been caused by the breach of this Agreement by the party seeking such
termination);
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(d) by either Sellers or Buyers if (i) there shall be a final
nonappealable order of a federal or state court in effect preventing
consummation of the transactions contemplated by this Agreement or (ii) there
shall be any action taken, or any statute, rule, regulation or order enacted,
promulgated or issued or deemed applicable to the transactions contemplated by
this Agreement by any governmental entity which would make consummation of the
transactions contemplated by this Agreement illegal; or
(e) by either Sellers or Buyers if there shall be any action taken,
or any statute, rule, regulation or order enacted, promulgated or issued or
deemed applicable to the transactions contemplated by this Agreement by any
governmental entity, which would (i) prohibit the Sellers' ownership or
operation of all or a material portion of the Assets or the Business, or compel
Buyers to dispose of or hold separate all or a material portion of the Assets or
the Business or of HMS and its subsidiaries taken as a whole, as a result of the
transactions contemplated by this Agreement or (ii) render Sellers or Buyers
unable to consummate the transactions contemplated by this Agreement, except for
any waiting period provisions.
SECTION 8.02 Effect of Termination. In the event of the termination
of this Agreement pursuant to Section 8.01 hereof, this Agreement shall
thereafter become void and have no effect, and no party hereto shall have any
liability to the other party hereto or its stockholders, directors or officers
in respect thereof, except as provided in Section 9.02 hereof and except that
nothing herein shall relieve any party from liability for any willful breach
hereof. Notwithstanding the foregoing, in the event of the termination of this
Agreement pursuant to Section 8.01 hereof, Buyers shall not solicit any of
Sellers' customers as of the date of termination within the scope of Sellers'
then current contracted services to such customers for a period of one year from
the date of such termination or until the expiration of Sellers' then current
contract with such customers, whichever is the shorter period; provided,
however, the foregoing restriction shall not apply to any of Sellers' customers
(the "Overlap Customers") for whom Buyers are providing similar services;
provided further, however, that for such Overlap Customers, Buyers shall not
expand the scope of services which they are providing to such Overlap Customers
until the restriction herein expires as provided above.
IX. MISCELLANEOUS
SECTION 9.01 Bulk Transfer Laws. Buyers hereby waive compliance by
Sellers with any applicable bulk transfer laws including, without limitation,
the bulk transfer provisions of the Uniform Commercial Code of any state, or any
similar statute
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that may be applicable to the sale or transfer of the Assets hereunder with
respect to the transactions contemplated hereby.
SECTION 9.02 Expenses, Etc. Whether or not the transactions
contemplated by this Agreement are consummated, Sellers, on the one hand, and
Buyers on the other hand, shall not have any obligation to pay any of the fees
and expenses of the other party incident to the negotiation, preparation and
execution of this Agreement, including the fees and expenses of counsel,
accountants, investment bankers and other experts. Sellers, on the one hand, and
Buyers on the other hand, will indemnify the other and hold the other harmless
from and against any claims for finder's fees or brokerage commissions in
relation to or in connection with such transactions as a result of any agreement
or understanding between such indemnifying party and any third party.
SECTION 9.03 Risk of Loss. Sellers assume all risk of condemnation,
destruction, loss or damage due to fire or other casualty from the date of this
Agreement through the Closing Date. If the condemnation, destruction, loss or
damage is such that the Business is interrupted or curtailed or the Assets are
materially affected, then Buyers shall have the right either to terminate this
Agreement or to continue with the Closing provided that Buyers shall have
received from Sellers an assignment of all insurance benefits paid or to be paid
to Sellers as a result of such casualty (which benefits Sellers shall agree so
to assign following a request from Buyers therefor).
SECTION 9.04 Execution in Counterparts. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
SECTION 9.05 Notices. All notices that are required or may be given
pursuant to the terms of this Agreement shall be in writing and shall be
sufficient in all respects if delivered by hand or via a national overnight
courier service or mailed by registered or certified mail postage prepaid, as
follows:
(a) If to Buyers:
c/o Health Management Systems, Inc.
401 Park Avenue South
New York, New York 10016
Attention: Paul J. Kerz, President
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and to:
Coleman & Rhine LLP
1120 Avenue of the Americas
New York, New York 10036
Attention: Bruce S. Coleman, Esq.
(b) If to Sellers:
Global Health Systems, Inc.
1350 Piccard Drive
Suite 360
Rockville, Maryland 20850
Attention: Alan Gold, President
GHS Management Services, Inc.
1350 Piccard Drive
Suite 360
Rockville, Maryland 20850
Attention: Alan Gold, President
GHS, Inc.
1350 Piccard Drive
Suite 360
Rockville, Maryland 20850
Attention: Alan Gold, President
and to:
Werbel & Carnelutti
711 Fifth Avenue, 5th Floor
New York, New York 10022
Attention: Peter DiIorio, Esq.
or such other address or addresses as Sellers, on the one hand, or Buyers, on
the other hand, shall have designated by notice to the other in writing. Any
such notice, claim or other communication shall be deemed conclusively to have
been given and received (i) on the first business day following the day timely
received by a national overnight courier, with the cost of delivery prepaid;
(ii) on the fifth business day following the day duly sent by certified or
registered United States mail, postage prepaid and return receipt requested; or
(iii) when otherwise personally delivered to the addressee.
SECTION 9.06 Waivers. Sellers, on the one hand, and Buyers, on the
other hand, may, by written notice to the other, (i) extend the time for the
performance of any of the obligations or other actions of the other under this
Agreement; (ii) waive any inaccuracies in the representations or warranties of
the other contained in this Agreement or in any document delivered pursuant to
this Agreement; (iii) waive compliance with any of
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the conditions or covenants of the other contained in this Agreement; or (iv)
waive performance of any of the obligations of the other under this Agreement.
Except as provided in the preceding sentence, no action taken pursuant to this
Agreement, including, without limitation, any investigation by or on behalf of
Sellers, on the one hand, and Buyers, on the other hand, shall be deemed to
constitute a waiver by the party taking such action of compliance with any
representations, warranties, covenants or agreements contained in this
Agreement. The waiver by Sellers, on the one hand, and Buyers, on the other
hand, of a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach.
SECTION 9.07 Amendments, Supplements, Etc. At any time this
Agreement may be amended or supplemented by such additional agreements, articles
or certificates as may be determined by the parties hereto to be necessary,
desirable or expedient to further the purposes of this Agreement, or to clarify
the intention of the parties hereto, or to add to or modify the covenants, terms
or conditions hereof or to effect or facilitate any governmental approval or
acceptance of this Agreement or to effect or facilitate the consummation of any
of the transactions contemplated hereby. Any such instrument must be in writing
and signed by the parties.
SECTION 9.08 Entire Agreement. This Agreement, its Exhibits and
Schedules including, without limitation, the Ancillary Agreements and the
documents executed on the Closing Date in connection herewith, constitute the
entire agreement among the parties hereto with respect to the subject matter
hereof and supersede all prior agreements and understandings, oral and written,
between the parties hereto with respect to the subject matter hereof. No
representation, warranty, promise, inducement or statement of intention has been
made by any party which is not embodied in this Agreement or such other
documents, and neither Sellers, on the one hand, nor Buyers, on the other hand,
shall be bound by, or be liable for, any alleged representation, warranty,
promise, inducement or statement of intention not embodied herein or therein.
SECTION 9.09 Applicable Law; Jurisdiction.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York applicable to contracts made and to be
performed entirely within the State of New York.
(b) Each Seller hereby irrevocably and unconditionally (i) submits
for itself and its property in any legal action or proceeding relating to this
Agreement and the Ancillary Agreements to the non-exclusive general jurisdiction
of the Courts of the State of New York, the courts of the United States
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of America for the Southern District of New York, and appellate courts from any
thereof; (ii) consents that any such action or proceeding may be brought in such
courts and waives any objection that it may now or hereafter have to the venue
of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same; and (iii) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or certified
mail (or any substantially similar form of mail), postage prepaid, to Seller at
its address set forth in Section 9.05 hereof or at such other address of which
the Agent shall have been notified pursuant thereto.
SECTION 9.10 Binding Effect; Benefits. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
successors and assigns. Notwithstanding anything contained in this Agreement to
the contrary, nothing in this Agreement, expressed or implied, is intended to
confer on any person other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations or liabilities under or
by reason of this Agreement.
SECTION 9.11 Assignability. Neither this Agreement nor any of the
parties' rights hereunder shall be assignable by any party hereto without the
prior written consent of the other parties hereto.
SECTION 9.12 Update to Schedules. The parties acknowledge that the
disclosure schedules of Sellers attached to this Agreement have been prepared
either as of the date of this Agreement or, at the request of the Buyers, as of
December 31, 1996. At least three days prior to the Closing Date, the Sellers
shall provide the Buyers with updated schedules as of the Closing Date in order
that such schedules shall be true and correct as of such Closing Date. The
changes in the updated schedules shall be limited solely to changes resulting
from Sellers conduct of the business in the usual, regular and ordinary manner
and shall not have a Material Adverse Effect.
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IN WITNESS WHEREOF, this Asset Purchase Agreement has been duly
executed and delivered by the parties hereto as of the date first above written.
GHS, INC.
By: /S/ ALAN GOLD
---------------------------------
Alan Gold, President
GLOBAL HEALTH SYSTEMS, INC.
By: /S/ ALAN GOLD
---------------------------------
Alan Gold, President
GHS MANAGEMENT SERVICES, INC.
By: /S/ ALAN GOLD
---------------------------------
Alan Gold, President
HEALTH MANAGEMENT SYSTEMS, INC.
By: /S/ PAUL J. KERZ
---------------------------------
Paul J. Kerz, President
GLOBAL HEALTH ACQUISITION CORP.
By: /S/ PHILLIP SIEGEL
---------------------------------
Phillip Siegel, Vice President
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EXHIBIT B
TO
INFORMATION STATMENT
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission File No.
December 31, 1996 0-15586
GHS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 52-1373960
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1350 Piccard Drive, Suite 360, Rockville, Maryland 20850
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (301) 417-9808
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
None Not Applicable
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed in Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (12) months (or for such shorter period that
the Registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days.
YES |X| NO |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this form 10-K. [ X ].
The aggregate market value of Registrant's Common Stock held by
non-affiliates was approximately $527,000 on April 1, 1997, based upon the
average of the bid and asked prices as reported on NASDAQ.
The number of shares of Registrant's Common Stock, par value $.01 per
share, outstanding as of March 14, 1997, was 6,947,828.
DOCUMENTS INCORPORATED BY REFERENCE
Certain exhibits (to this Annual Report on Form 10K for the Registrant's
fiscal year ended December 31, 1996) are incorporated by reference as listed on
the index of exhibits in Part IV, ITEM 14.
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Part I
ITEM 1. BUSINESS
GHS, Inc. (the Company) provides management services, computer systems,
technology, and management to the health care industry. The Company provides
these products and services primarily via its two operating subsidiaries, Global
Health Systems, Inc. and U.S. NeuroSurgical, Inc.(R). In addition the Company is
a minority partner in Florida Specialty Networks, Ltd. As used herein, unless
the context indicates otherwise, the term "Company", "Registrant" and "GHS,
Inc." means GHS, Inc. and its subsidiaries. The Company, a Delaware corporation,
was formed in December 1984 under the name "Global Health Systems, Inc." GHS,
Inc. was given its present name in October 1988, when it assigned substantially
all of its assets and liabilities to its wholly-owned subsidiary, Global Health
Systems, Inc., a Delaware corporation formed in September 1988 to continue the
business of the Company. The Company's executive offices are located at 1350
Piccard Drive, Suite 360, Rockville, Maryland 20850, and its telephone number is
(301) 417-9808.
Recent Events
On March 10, 1997, GHS, Inc. and Health Management Systems, Inc. (HMS),
announced that they entered into a definitive asset purchase agreement pursuant
to which HMS will acquire substantially all of the assets of GHS' subsidiaries,
Global Health Systems, Inc. and GHS Management Services. These subsidiaries
provide computerized record-based processing systems and services for managed
care, public health and ambulatory care facilities.
The purchase agreement calls for consideration to GHS by HMS of $2,100,000 in
cash, subject to certain closing adjustments. The closing is subject to certain
conditions, including the receipt of consents required for the assignment of
certain contracts and official notice to GHS' shareholders pursuant to federal
securities and state laws. Stockholders of GHS holding a majority of the
outstanding shares of GHS common stock have consented to this sale to HMS. GHS
will retain its subsidiary, US NeuroSurgical, Inc., a company that owns and
operates Gamma Knife Centers, as well as its interest in Florida Specialty
Networks, Ltd., a company that manages medical specialty networks. Upon the
closing of the sale, HMS will employ each of GHS' current employees,
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including Mr. Alan Gold. Mr. Gold will also remain as the Chairman and President
of GHS following the closing and run GHS's remaining operations.
Global Health Systems, Inc.
General
Global Health Systems, Inc. (Global), provides computerized integrated
patient record-based processing systems and services for managed care facilities
in the public and private sector. The Company currently supports more than 100
client sites in 15 states and the Republic of Iceland. Global offers systems
either as turnkey products or under facilities management agreements providing
hardware, implementation, training, maintenance, and in some cases, billing,
claims processing, and other operational support.
The Company has expanded its scope of services to provide executive
healthcare management services via long term contracts with health care plans
including HMOs and newly emerging health systems like PSNs (Provider Service
Networks), PHOs (Physician Hospital Organizations), and MSOs (Management Service
Organizations). These services include planning and development, executive
management, finance, information systems, membership services, claims
processing, utilization management, provider relations, and quality assurance.
Global Health Information System (GHiS)
Global's major product, the Global Health Information System (GHiS), is a
totally integrated, patient record-based information system designed, developed,
and continuously tailored to meet the needs of managed care organizations. The
system has evolved over more than a decade from an on-line ambulatory care
system supporting FFS billing and electronic medical records, into a
comprehensive information system for managed care organizations. The GHiS
automates the financial, medical, and administrative functions of the facility
in a single, integrated data base. The information in the data base is instantly
available for displaying, printing, and reporting to any authorized user, within
a facility or at geographically dispersed locations.
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The GHiS contains on-line real time, integrated modules which can be sold
as an integrated whole, or in some instances, as a separate stand-alone system.
System modules include Registration/Enrollment/Eligibility; Claims Processing;
Service Authorizations; Utilization Reports; Regimen Tracking/Protocols; Case
Management; Laboratory; Pharmacy; Medical Records; Report Generator; Member
Services; Billing/Capitation; Patient and Resource Scheduling; Credentialling;
and Provider Contracts.
Software Licensing and Product Protection
Global's license agreements with clients contain provisions designed to
prevent disclosure and unauthorized use of the Company's products. Because
software applications generally cannot be patented, the Company relies upon such
license agreements and confidentiality agreements to protect its proprietary
knowledge. Clients are required to sign contracts restricting use to their own
operations and prohibiting disclosure to third-parties. Further, clients are not
provided with the software source code. Despite these restrictions it may be
possible for competitors to obtain the Company's trade secrets, which could
adversely affect the Company's business.
Hardware
Global's systems are hardware independent and are offered on a variety of
hardware platforms from International Business Machines, Digital Equipment
Corporation, Hewlett Packard, Data General, and other hardware companies that
can support UNIX. The systems can operate on mini or mainframe computers.
Hardware support services are not included with the systems, but clients are
encouraged to obtain hardware maintenance coverage with the hardware vendor or
with third-party maintenance vendors.
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Implementation, Training, Warranty, Maintenance, Facilities Management, and
Management Services
Global offers systems either as turnkey products, facilities management
agreements, or as part of a contingent fee/service bureau structure. As part of
the turnkey system approach, Global provides customer support services from
pre-installation through post-implementation. Global works with the customer to
plan the implementation of the system and provides software modifications to
customer specifications. Technical specialists install the software and train
users on-site with a simulated training data base.
Global provides annual maintenance contracts for software support and
enhancements to maintain the integrity of the system after purchase. Under the
facilities management approach, Global provides the services described above
including claims processing and also employs one or more system managers who are
responsible for operating and maintaining the system for the facility.
Maintenance and facilities management contracts accounted for approximately 32%
of the Company's revenues for the year ended December 31, 1996.
Global provides management services to managed care organizations and
public health agencies. These services are an expansion of Global's facilities
management approach. Services are offered for a fixed price, a percentage of
capitation or revenues, a rate per member per month, or a rate per system user.
Product Development
Changing client needs as well as technological changes in hardware
necessitate constant software enhancement and/or expansion. In addition,
government regulatory changes such as reimbursement schemes require the
development of new software modules to support shifting needs of existing
clients and new clients. For example, under a managed care scenario it is
necessary to track costs, financial exposure, and utilization review. Product
development projects have been undertaken primarily in response to
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specific client requests and to satisfy needs of Global's management services
clients. In the fiscal years ended December 31, 1996, 1995, and 1994 the Company
expended approximately $231,000, $320,000, and $124,000, respectively, for
research, development, and enhancement of computer software systems.
Competition
There are several hundred companies involved in the national medical
information systems and services market. Many of these companies are
considerably larger and financially stronger than the Company. These companies
provide varying combinations of hardware, software and services. Major
competitors include Shared Medical, IDX, and Computer Sciences Corporation.
Marketing and Customers
Global markets products and services from its headquarters in Rockville,
Maryland, directly through a marketing staff and sales staff to large
municipalities and managed care providers. The marketing department responds to
Requests for Proposals (RFPs), exhibits at trade conventions, conducts direct
mail, telemarketing and public relations campaigns, and advertises occasionally
in health care computing publications.
Clients are currently distributed geographically through 15 states, the
District of Columbia and the Republic of Iceland. Systems are operating at more
than 100 locations nationwide with approximately 25% of such locations in
California. The Company has major contracts with the County of Los Angeles and
the City of Chicago. These contracts were responsible for 47% of the revenue
during fiscal 1996 from this segment.
Global's turnkey contracts cover both the system sale and the ongoing
maintenance. Revenue related to the system sale is generally recognized in
accordance with the Company's revenue recognition policy. However, billings are
made in installments based on milestones reached in accordance with the contract
provisions. The maintenance portion of the contract extends 2 to 5 years after
system installation with revenue recognized as billed, generally monthly.
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Global's facilities management and management service contracts are billed
monthly for the life of the contract term, generally, two to five years.
Backlog
As of December 31, 1996, Global's backlog was approximately $1,740,000 as
compared to approximately $1,320,000 as of December 31, 1995. These backlog
figures represent services deliverable under maintenance contracts. Maintenance
contracts generally end at various times during the year, and are expected to be
renewed for additional one year periods. Facilities management and management
services contracts generally extend for a period of five years.
Florida Specialty Networks
The Company has installed the GHiS in Florida as part of a joint venture
with Florida Specialty Networks (FSN). FSN is a managed care organization in the
business of providing capitated medical specialty and subspecialty services to
HMO patients. FSN processes claims for more than 3,000,000 patients of multiple
HMOs, for 25 medical specialties. The Network version of the GHiS provides FSN
the ability to segregate financial accounts by patient, by network, by HMO,
while simultaneously creating a fully integrated on-line patient record of all
data to facilitate Utilization Management and Quality Assurance. GHS has a 20%
ownership of FSN. In 1996, GHS received $146,000 from FSN.
FSN's business expanded in 1996 with new networks and contracts with a
national managed care organization. Under these contracts, FSN develops
specialty networks in cities where the organization has large enrollment. During
1996, FSN developed networks for this agreement in New York, New Jersey,
Tennessee and Oklahoma.
U. S. NeuroSurgical, Inc.
US NeuroSurgical, Inc.(R) (USN) of which the Company owns 100%, was
organized in July, 1993 to own and operate stereotactic radiosurgery centers,
utilizing the
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Gamma Knife technology. USN's business strategy is to provide a
mechanism whereby hospitals, physicians, and patients can have access to Gamma
Knife treatment capability, a high capital cost item. USN provides the Gamma
Knife to medical facilities on a "cost per treatment" basis. USN owns the Gamma
Knife units, and is reimbursed by the facility where it is housed, based on
utilization.
USN's principal target market is medical centers in major health care
catchment areas that have physicians experienced with and dedicated to the use
of the Gamma Knife. USN seeks cooperative ventures with these facilities. USN
believes that, as of December 31, 1996, there were approximately thirty Gamma
Knife treatment centers in the United States.
In July 1993, USN purchased its first Leksell Gamma Knife from Elekta
Instruments, Inc. (Elekta), for the purpose of installing it at the Research
Medical Center (RMC) in Kansas City, Missouri. USN paid approximately $3,000,000
for the Gamma Knife. In September 1993, USN entered into a lease/purchase
agreement with Financing for Science International, Inc. (FSI), a medical
equipment leasing company, to finance the Gamma Knife purchase. FSI was acquired
by FINOVA Capital Corporation in 1996 and they presently hold the lease.
USN opened its first Gamma Knife Center on the premises of RMC in
September 1994. RMC is part of Health Midwest, a consortium of eleven hospitals
and numerous affiliates. USN formed a cooperative venture with RMC in September,
1993. Per an agreement with RMC, GHS, Inc. sold 500,000 shares of its common
stock for $500,000 to RMC to secure additional working capital in order to
enable USN to develop and construct a Gamma Knife Facility. USN has installed
the Gamma Knife in the facility, where it is being utilized by neurosurgeons
credentialled by RMC. USN is reimbursed for use of the Gamma Knife by RMC based
on a percentage of the fees collected by RMC for Gamma Knife procedures.
Pursuant to a ground lease agreement, RMC leased to USN the land on which to
build the Gamma Knife facility.
USN plans to open a second treatment center on the campus of New York
University (NYU) Medical Center in New York, New York. The Company has secured a
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lease purchase agreement with DVI Financial Services, Inc.. In September 1996,
DVI made a progress payment in the amount of $1,160,000 to Elekta and refunded
the $290,000 to USN that was made as a deposit. As a result, USN is currently
paying interest only on $2,610,000. The Certificate of Need (CON) has been
obtained from New York State allowing construction and operation of the Gamma
Knife Center. The Company expects that the Center will open in the spring of
1997. The agreement with DVI provides for a $2,900,000 lease for the Gamma Knife
and up to $900,000 in construction financing. In November 1996, DVI placed
$825,000 in an escrow account to cover the estimated costs of completing the NYU
Center. Of the $825,000, $300,000 is a three year term loan to USN and $525,000
was advanced as an accounts receivables credit line.
Gamma Knife Technology
The Leksell Gamma Knife is a unique stereotactic radiosurgical device used
to treat brain tumors and other malformations of the brain without invasive
surgery. The Gamma Knife delivers a single, high dose of ionizing radiation
emanating from 201 cobalt-60 sources positioned about a hemispherical, precision
machined cavity. The lesion is first targeted with precision accuracy using
advanced imaging and three dimensional treatment planning techniques such as CT
Scans, MR Scans, conventional X-rays, or angiography. Each individual beam is
focused on a common target producing an intense concentration of radiation at
the target site, destroying the lesion while spreading the entry radiation dose
uniformly and harmlessly over the patient's skull . The mechanical precision at
the target site is +/- 0.1mm (1/10 of 1 millimeter). Because of the steep
fall-off in the radiation intensity surrounding the target, the lesion can be
destroyed, while sparing the surrounding tissue.
The procedure, performed in a single treatment, sharply reduces hospital
stay and eliminates post-surgical bleeding and infection. When compared with
conventional neurosurgery, Gamma Knife treatment is less expensive. However, not
all patients are candidates for radiosurgery since the decision to use the Gamma
Knife depends on the type, size, and location of the lesion.
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Regulatory Environment
The levels of revenues and profitability of companies involved in the
health services industry, such as USN, may be affected by the continuing efforts
of governmental and third party payors to contain or reduce the costs of health
care through various means. Although the Company does not believe that the
business activities of USN will be materially affected by changes in the
regulatory environment, it is uncertain what legislative proposals will be
adopted or what actions federal, state or private payors for healthcare goods
and services may take in response to any healthcare reform proposals or
legislation. The Company cannot predict the effects healthcare reform may have
on USN's business, and no assurance can be given that any such reforms will not
have a material effect on USN.
In addition, the provision of medical services in the United States is
dependent on the availability of reimbursement to consumers from third party
payors, such as government and private insurance companies. Although, patients
are ultimately responsible for services rendered, the Company expects that the
majority of USN's revenues will be derived from reimbursements by third party
payors. Medicare has authorized reimbursement for Gamma Knife treatment. Over
the last several years, such third party payors are increasingly challenging the
cost effectiveness of medical products and services and taking other
cost-containment measures. Therefore, although treatment costs using the Gamma
Knife compare favorably to traditional invasive brain surgery it is unclear how
this trend among third party payors and future regulatory reforms affecting
governmental reimbursement will affect procedures in the higher end of the cost
scale.
The Company is planning to establish future Gamma Knife centers.
Completion of future centers will require approvals and arrangements with
hospitals, health care organizations, or other third parties, including certain
regulatory authorities. The Food and Drug Administration has issued the
requisite pre-market approval for the Gamma Knife to be utilized by USN. In
addition, many states require hospitals to obtain a Certificate of Need (CON)
before they can acquire a significant piece of medical
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equipment. The Company plans to enter into future ventures in which that "need"
will be demonstrable, but it can have no assurance that Certificates of Need
will be granted in every case.
In addition, the Nuclear Regulatory Commission must issue a permit to USN
to permit loading the COBALT at each Gamma Knife site. While the Company
believes that it can obtain a NRC permit for each Gamma Knife machine, there is
no assurance that it will.
Liability Insurance
Although the Company does not directly provide medical services, it has
obtained professional medical liability insurance, and has general liability
insurance as well. The Company believes that its insurance is adequate for
providing treatment facilities and non-medical services although there can be no
assurance that the coverage limits of such insurance will be adequate or that
coverage will not be reduced or become unavailable in the future.
Competition
The health care industry, in general, is highly competitive and the
Company expects to have substantial competition from other independent
organizations, as well as from hospitals in establishing future Gamma Knife
centers. There are other companies that provide the Gamma Knife on a "cost per
treatment basis". In addition, larger hospitals may be expected to install Gamma
Knife technology as part of their regular inpatient services. Some of these
competitors have greater financial and other resources than the Company.
Principal competitive factors include quality and timeliness of test results,
ability to develop and maintain relationships with referring physicians,
facility location, convenience of scheduling and availability of patient
appointment times. The Company believes that cost containment measures will
encourage hospitals to seek companies that are providing the technology, instead
of incurring the capital cost of establishing their own Gamma Knife centers.
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Gamma Knife Supply and Servicing
Currently the only company that manufactures, sells, and services the
Gamma Knife is Elekta Instruments, Inc., a subsidiary of AB Elekta of Stockholm,
Sweden. Any interruption in the supply or services from Elekta would adversely
affect USN's plans to open additional Gamma Knife treatment centers as well as
to maintain those centers in existence.
Gamma Knife Financing
The Company secured financing from FSI for the first Gamma Knife
installation at the RMC site, and obtained a lease commitment from DVI Financial
Services for its second Gamma Knife installation planned for New York. The Gamma
Knife is an expensive piece of equipment presently costing approximately
$3,000,000. Therefore, the Company's development of new Gamma Knife centers is
dependent on its ability to secure favorable financing. The Company believes
that it will continue to be successful in obtaining financing but can give no
absolute assurance that it will.
New Technology/Possible Obsolescence
Gamma Knife technology may be subject to technological change.
Consequently, the Company will have to rely on the Gamma Knife's manufacturer,
Elekta, to introduce improvements or upgrades in order to keep pace with
technological change. Any such improvements or upgrades which the Company may be
required to introduce will require additional financing. In addition, newly
developed techniques and devices for performing brain surgery may render the
Gamma Knife less competitive or obsolete.
Employees
GHS, Inc. has twenty-one full-time employees and five part-time employees.
Of these employees, two are engaged in sales and marketing, eighteen in
technical and functional site support and/or development, four in administration
and office support, one
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in site development, and one is a medical director. Upon the closing of the sale
with HMS, all employees will be retained by HMS.
ITEM 2. PROPERTIES
The Company's base facility, from which it conducts substantially all of
its operations, are located in Rockville, Maryland, and occupy approximately
2,350 square feet which is currently leased on a month to month basis. The
current rent is approximately $34,000 per year. In December 1994, the Company
opened a second office in Sacramento, California. This office occupies 1,600
square feet, and the annual rent is approximately $28,000. USN occupies
approximately 1,600 square feet in its RMC facility. This facility is located on
the campus of RMC in Kansas City, Missouri. The ground rent is not material.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None
13
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED SECURITY HOLDER MATTERS
The Company's Common Stock traded in the over-the-counter market, NASDAQ
symbol GHSI until January 30, 1997 and has traded since on the OTC bulletin
board. The range of high and low bid quotations as reported by NASDAQ System for
the two years ended December 31, 1996 are set forth below.
Period High Bid Low Bid
------ -------- -------
January 1 - March 31, 1995 1.00 .75
April 1 - June 30, 1995 .75 .75
July 1 - September 30, 1995 .75 .75
October 1 - December 31, 1995 .625 .375
Period High Bid Low Bid
------ -------- -------
January 1 - March 31, 1996 $.625 $.50
April 1 - June 30, 1996 .625 .31
July 1 - September 30, 1996 .75 .375
October 1 - December 31, 1996 .56 .125
The quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commissions and may not necessarily represent actual transactions.
As of March 31, 1997, there were approximately 113 holders of record of the
Company's Common Stock.
To date the Company declared no dividends on its Common Stock and does not
anticipate declaring dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
Set forth below is the selected financial data pertaining to the financial
condition and operations of the Company for the years ended December 31, 1992
through 1996. The latest financial statements of the Company are included in
Item 14 in Part IV of this
14
<PAGE>
report. The information set forth should be read in conjunction with such
financial statements and the notes thereto.
<TABLE>
<CAPTION>
Year Ended
December 31,
---------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Revenue $4,232,000 $4,445,000 $2,335,000 $2,493,000 $2,062,000
Net income (loss) 168,000 (176,000) (666,000) 53,000 60,000
Net income (loss)
per share .02 (.03) (.10) .01 .01
Weighted Average
Common Shares 6,947,828 6,947,828 6,935,016 5,817,677 5,185,328
Outstanding
</TABLE>
<TABLE>
<CAPTION>
As at
December 31,
------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet
Data:
Working Capital ($824,000) 579,000 883,000 1,861,000 $1,105,000
Total Assets 8,635,000 7,339,000 5,885,000 6,991,000 $2,012,000
Long term debt 3,944,000 2,838,000 2,236,000 2,694,000 --
Common Stock issued
with put option 500,000 500,000 500,000 500,000 --
Total Stock-
holders equity $2,097,000 1,929,000 2,105,000 2,748,000 $1,456,000
</TABLE>
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Financial
Statements and Notes set forth elsewhere in this report.
Results of Operations
On March 10, 1997, GHS, Inc. and Health Management Systems, Inc. (HMS),
announced that they entered into a definitive asset purchase agreement pursuant
to which HMS will acquire substantially all of the assets of GHS' subsidiaries,
Global Health Systems, Inc. and GHS Management Services. These subsidiaries
provide computerized record-based processing systems and services for managed
care, public health and ambulatory care facilities. The purchase agreement calls
for consideration to GHS by HMS of $2,100,000 in cash, subject to certain
closing adjustments. The Company expects that the proposed transaction by virtue
of the sale of the Company's systems business, will cause a significant
reduction in revenue but a greater reduction in expenses that will increase the
possibilities for future profitability. This will happen because the Company
will no longer have any systems, maintenance, or claims processing costs and
75-80% of the sales, general and administrative costs will no longer be needed.
The savings which the Company expects to derive from the sales are also
evidenced by the fact that for the prior two fiscal years the Company has had
expenses that exceeded revenues for the systems business. In 1996 the revenues
from the systems business were $2,780,000 and expenses were $3,400,000. In 1995
revenues were $3,162,000 and expenses were $3,297,000. The Company will retain
its investment in Florida Specialty Networks, a company that manages specialty
networks.
1996 Compared to 1995
Total revenues declined 5% in 1996 to $4,232,000 from $4,445,000 in 1995. New
systems sales decreased 53% to $884,000 from $1,777,000 in 1995. The decrease
was attributable to lower hardware sales as the Company focused on services as
compared to turnkey systems sales. Maintenance revenue increased 27% to
$1,370,000 from $1,083,000 in 1995. This increase was attributable to the
Company's success in selling facilities management to clients to expand the
capability of the GHiS at their facilities. Claims processing increased by 74%
to $526,000. Revenues of the Company's other subsidiary, US NeuroSurgical, Inc.
(USN), grew 13% to $1,452,000 from $1,283,000 in 1995. The revenue growth
reflects the increased acceptance of the Center and the community. In fiscal
1996, the Company also received $157,000 in income from its investment in FSN as
compared to no such income in 1995. FSN's net income was substantially due to a
favorable settlement of litigation of $809,000. Without the settlement FSN would
have had a loss of $110,129.
16
<PAGE>
Total expenses decreased 6% to $4,361,000 from $4,644,000 1995. Systems costs
dropped to $1,047,000 from $1,651,000 a year earlier. This decrease was a result
of lower hardware purchases in 1996. Maintenance expense increased to $942,000
from $583,000 in 1995. This increase was caused by higher than anticipated
expenses associated with the start up of new services for clients. The Company
increased its reserve for doubtful accounts by $150,000. A substantial portion
of the revenue is for one account that has disputed the Company's charges. Due
to the uncertain status of this receivable the Company reserved 100% of the
balance. Selling, general and administrative expenses increased by 57% to
$1,571,000 from $999,000 a year earlier. The increase was caused by higher
insurance costs related to USN and increased reserves for doubtful Global Health
Systems, Inc. accounts receivable. Patient expenses associated with the
operation of the Kansas City Center were $574,000 for the year, down from
$751,000 in the prior year. The Company had interest expense of $309,000 in 1996
compared to $504,000 in 1995. An additional $249,000 of 1996 interest costs
attributable to the NYU construction costs were capitalized. The company
realized a deferred tax benefit from the pending HMS sale of $463,000 in 1996.
The effect of the capitalized interest costs and deferred tax benefit was net
income of $168,000 in 1996 against a $176,000 net loss in 1995.
1995 Compared to 1994
Total revenues increased 89% in 1995 to $4,445,000 from $2,335,000 in 1994. New
systems sales increased 39% to $1,777,000 from $1,282,000 in 1994. The increase
was attributable to a new contract with the Chicago Department of Health (CDOH)
to set up and manage public health information systems for the city. Maintenance
revenue increased 61% to $1,083,000 from $672,000 in 1994. This also was
attributable to the contract with CDOH. The company continues to focus on using
facilities management to expand the capability of the GHiS for its clients. The
Company's other subsidiary, US NeuroSurgical, Inc. (USN) had its first full year
of revenue from its center at the Research Medical Center in Kansas City,
Missouri. There were revenues of $1,283,000 in 1995 from USN.
Total expenses increased 47% to $4,140,000 from $2,801,000 in 1994. System
costs increased to $1,651,000 from $847,000 a year earlier. This increase was
caused by the large hardware order for CDOH. Maintenance expense increased to
$583,000 from $487,000 in 1994. This increase is not significant when it is
compared to the revenue
17
<PAGE>
increase in this area. Selling, general and administrative expense declined 14%
to $999,000 from $1,161,000 a year earlier. The decrease is attributable to cost
control measures implemented on travel, office expenses and some salary
reductions. The higher revenues were achieved without any additions to
administrative staff. Patient expenses associated with the operation of the
Kansas City Center were $751,000 for the year. The Company had interest expense
of $504,000 in 1995 compared to $308,000 in 1994. USN continued to pay down its
lease in Kansas City and began interest payments on its second Gamma Knife. As a
result of the increased interest payments the net loss was $176,000.
Liquidity and Capital Resources
The Company had a working capital ratio of .6 in 1996, as compared to 1.3
in 1995. As of December 31, 1996, net cash provided by operating activities was
$145,000, as compared to net cash provided of $438,000 in 1995. Depreciation and
amortization expense was $631,000 in 1996, as compared to $617,000 in 1995.
Accounts receivable decreased by $307,000 in 1996 from 1995. Unbilled accounts
receivable decreased $545,000 in 1996. The decreases reflect improved billing
and collections efforts. In 1995 unbilled accounts receivable increased by
$465,000 and billed accounts receivable increased by $251,000 from 1994.
In 1996, net cash used in investing activities was $1,517,000. The Company
made a $1,160,000 progress payment on its second Gamma Knife and received back
the $290,000 deposit on the NYU Gamma Knife from DVI. In 1995, net cash used in
investing activities was $1,243,000. The Company made a $1,160,000 progress
payment on the NYU Gamma Knife.
In 1996, net cash provided by financing activities was $1,333,000. The
Company paid $522,000 towards the lease obligations on its Kansas City Gamma
Knife and made a $1,160,000 progress payment for NYU. In addition, the Company
paid $825,000 into an escrow account to fund NYU construction. The Company also
is responsible for making interest payments on the progress payment on its
second Gamma Knife.
18
<PAGE>
In 1996, net cash provided by financing activities was $850,000. In 1995,
the Company paid $430,000 towards the Kansas City lease. The Company made a
$1,160,000 progress payment for NYU.
USN has a five year operating lease for Kansas City that began in
September 1994. The annual payments are $805,000. The Company is making interest
payments on progress payments for its NYU Gamma Knife and on the construction
loan for NYU. The progress payments have been for $2,610,000 plus $825,000 in
the construction escrow account. The interest rate is 10% annually. Assuming the
transaction with HMS closes the Company expects net cash proceeds of
approximately $1,900,000. On a long term basis the Company expects that the
proceeds will provide sufficient capital for the next 12-24 months. Nevertheless
the use of these funds could be accelerated if the Company opens additional
Gamma Knife Centers.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and Supplementary Data are listed under Item 14
in this Annual Report of Form 10-K and attached hereto.
19
<PAGE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT
The directors and executive officers of the Company are as follows:
Name Age Position
---- --- --------
Alan Gold 52 President & Chairman
Jerry M. Brown, Ph.D. 58 Director
William F. Leimkuhler 45 Director
Alan Gold has served as President and a director since the Company's
formation. He was one of the founders of Global Health Systems, the predecessor
of the Company, serving as its President since its formation in July 1983. From
1981 to 1983 he served as Executive Vice-President of Libra Group, a company
located in Rockville, Maryland, engaged in health care automation, where he was
President of Global Health Foundation and Libra Research and Executive Vice
President of Libra Technology.
Jerry M. Brown, Ph.D. He was elected to the GHS board in July, 1993, and
served as President of US NeuroSurgical, Inc. until August, 1995. From 1990 to
1993 he was an independent consultant to the health care industry. Dr. Brown
served in the US Army Medical Department from 1967 - 1990, retiring as a
Lieutenant Colonel.
William F. Leimkuhler has served as director of the Company since its
incorporation in 1984. Since January 1994, Mr. Leimkuhler has been the Vice
President of Allen & Company Incorporated, an investment banking firm. From 1984
to December, 1993, Mr. Leimkuhler was a partner with the law firm of Werbel
McMillin &
20
<PAGE>
Carnelutti, which has served as counsel to the Company on various matters since
the Company's formation.
Each director is elected for a one year period ending on the date of the
next annual meeting of shareholders of the Company, and until his or her
successor is duly elected and qualified. Officers serve at the will of the Board
of Directors. Upon closing of the transaction with HMS Alan Gold will retain his
titles of and duties as President and Chief Executive Officer of the Company.
The Company anticipates that there will be no conflict of interest as he
performs his duties. The employment offer made by HMS to Mr. Gold expressly
permits Mr. Gold to continue to fulfill his duties as President and Chief
Executive Officer of GHS.
ITEM 11 EXECUTIVE COMPENSATION
The information below sets forth the compensation for the year ended
December 31, 1995, for each executive officer of the Company:
Summary Compensation Table
Name and Annual Compensation
Principal Position Year Salary($)
- ------------------ ---- ---------
Alan Gold,
President & Director 1996 $150,000
1995 $150,000
1994 $144,400
The Company and Mr. Gold are parties to an employment agreement giving
either the Company or Mr. Gold the option to terminate the agreement by giving
the other party 6 months written notice.
Stock Option Plan
Effective March 7, 1986, and as amended June 18, 1987, the Company adopted
a 1986 Stock Option Plan (the "Plan") pursuant to which options to purchase up
to 750,000 shares of the Company's Common Stock may be granted to directors,
officers and other
21
<PAGE>
key employees of the Company. As of March 31, 1997, 360,000 options were
outstanding under the Plan. The Plan is administered by the Board of Directors.
The options may be either incentive stock options conforming to the provisions
of Section 422A of the Internal Revenue Code, or non-qualified options. The
purchase price for shares under each option, incentive or non-qualified, is
determined by the Board but will not be less than 100% and 90%, respectively, of
the fair market value of the Common Stock at the time the option is granted. If
an employee at the time the option is proposed to be granted owns more than 10%
of the voting stock of the Company, the option price for incentive options will
not be less than 110% of the fair market value of the Common Stock on the date
of grant and the option will continue in effect for not more than five years. No
options may be granted under the Plan after 1996. The exercise price must be
paid in full upon exercise of an option, in cash or in shares of Common Stock of
the Company. Options are nontransferable except by will or by the laws of
descent and distribution. During 1996, no new options were granted under the
Plan.
Aggregate Unexercised Options & Option Values at December 31, 1995
Value of Unexercised In-The
Number of Unexercised Options Money Options at December
at December 31, 1996 (#) 31, 1996 ($)
Name Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ----------------------------- ---------------------------
Alan Gold 124,000 / 25,000 $63,000/14,000(1)
(1) Based on average of closing bid and asked prices of the Company's common
stock on December 31, 1996.
22
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth, as of March 23, 1997 certain information
with respect to each beneficial owner of more than 5% of the Company's Common
Stock and each director and executive officer of the Company:
Number of Shares
Name and Address Beneficially Percent of
of Beneficial Owner Owned(1) Class
- ------------------- -------- -----
Alan Gold(2) 535,420 7.6%
1350 Piccard Drive
Rockville, MD 20850
William F. Leimkuhler -- --
711 Fifth Avenue
New York, NY 10022
Jerry M. Brown, Ph.D 28,500 0.4%
1205 Stratford Drive
Anderson, SC 29621
Stanley S. Shuman(3) 1,071,250 15.4%
711 Fifth Avenue
New York, NY 10022
Allen & Company Incorporated(4) 2,022,000 28.6%
711 Fifth Avenue
New York, NY 10022
Research Medical Center 500,000 7.2%
2316 East Meyer Blvd
Kansas City, MO 64132
Charles Elsner 400,000 5.8%
c/o The Forschner Group Inc.
151 Long Hill Crossroads
Shelton, CT 96484
All Directors and Officers 563,920 8.0%
as a group (three persons)(2)
- -------
(1) Unless otherwise indicated, all shares are beneficially owned and sole
voting and investment power is held by the person named above.
23
<PAGE>
(2) Includes 420,500 shares held jointly by Mr. Gold and his wife, Ms. Susan
Greenwald, as joint tenants with right of survivorship and 124,000
exercisable stock options.
(3) Includes 210,250 shares held in certain trusts for the benefit of Mr.
Shuman's children, of which shares Mr. Shuman disclaims beneficial
interest. Also includes warrants to purchase 20,000 shares of Common Stock
beneficially owned by Mr. Shuman.
(4) In addition to those shares beneficially owned by Allen & Company, certain
officers of Allen and their families, including Mr. Shuman, own 1,721,750
shares. Also includes warrants to purchase 120,000 shares of common stock.
24
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1993, the Company granted a 20% interest in US NeuroSurgical, Inc. to
A. Hyman Kirshenbaum, M.D. an officer of USN, and Jerry Brown, Ph.D., a director
of the Company ("related parties"). Under the terms of the agreement between GHS
and the related parties, GHS has the right to buy for cash or common stock the
20% interest owned by the related parties at any time during each of the third
through sixth full fiscal years of the agreement. The Company exercised its
right in September 1996. The number of shares for the purchase, has been
estimated to be 33,200 by the Company which valuation has been disputed by the
related parties.
In connection with the grant of the 20% interest, the Company entered into
an agreement with the related parties which provided for reimbursement to such
parties of their reasonable expenditures towards establishing US NeuroSurgical.
The Company agreed to repay up to $250,000 of such valid documented
expenses by issuing up to 125,000 shares of GHS, Inc. common stock and up to
$125,000 in US Neuro notes payable from pre-tax earnings of US Neuro. One of the
parties (Dr. Brown) claims that GHS, Inc. will owe 62,500 shares of GHS, Inc.
common stock and interest bearing notes totaling $62,500, when he provides
documentation to the Company. The Company has requested documentation of the
claimed expenses since August 1993. No documentation has been produced. However,
the Company acting in good faith issued 62,500 shares of GHS, Inc. common stock
during 1993 and 1994. Dr. Brown has not documented any valid expenses. The
Company paid $30,000 for legal fees incurred prior to September 1, 1993 by Dr.
Brown. The Company may take action to recover the 62,500 shares of GHS, Inc.
stock issued to Dr. Brown.
Dr. Brown entered into a three year employment contract with the Company
in September 1993. Dr. Brown claims that his contract was unilaterally modified
by the Company in November of 1994 and he was terminated without proper
authority in August 1995. Dr. Brown also claims that he has been denied
reimbursement of legitimate expenses of more that $20,000. The Company believes
that Dr. Brown's claims are completely without merit. Upon signing his
employment agreement Dr. Brown requested a $60,000 pay advance. The advance was
granted as a loan with monthly repayments culminating in December 1995. Dr.
Brown still owes the Company $6,900 on this loan. In November 1994, the Company
negotiated an incentive compensation plan with Dr. Brown whereby he was paid a
salary of $150,000 per annum with quarterly adjustments against his salary if
the Gamma Knife operation did not meet minimum performance standards. The
agreement guaranteed Dr. Brown a minimum salary of $100,000.
Dr. Brown was paid salary through August 1995 at which time he was
terminated as an employee and removed from the US Neuro Board of Directors.
During the term of his employment with US Neuro, Dr. Brown was fully reimbursed
for expenses which he submitted as incurred in connection with his
responsibilities at US Neuro; however, the Company did not reimburse him for
travel and expenses that he incurred which were for personal business or not
pre-authorized by the Company.
25
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) The following documents are filed
as part of this report:
Page No.
--------
Financial Statements of the Company
Report of Independent Auditors F-1
Balance Sheet as of December 31, 1996 and 1995 F-2
Statements of Operations for the years ended
December 31, 1996, 1995, and 1994. F-3
Statement of Changes in Stockholders' Equity
for the period January 1, 1994 through
December 31, 1996 F-4
Statements of Cash Flows for the year ended
December 31, 1996, 1995, and 1994. F-5
Notes to Financial Statements F-6
Report of Independent Auditors with respect
to Supplementary Schedules S-1
Valuation and Qualifying Accounts S-2
Financial statements for Florida Specialty
Networks, Ltd. for the periods ending
December 31, 1996 and 1995. B-1
Financial statements for Florida Specialty
Networks, Ltd. for the periods ending
December 31, 1995, 1994 and 1993. C-1
All other schedules have been omitted as the conditions requiring
their filing are not present or the information required therein has been
included in the notes to the financial statements.
(b) Reports on Form 8-K
During the three months ended December 31, 1996, the Company did not
file any reports on Form 8-K with the Securities and Exchange Commission.
(c) Exhibits
3 Articles of Incorporation and By-laws
(a) Restated Certificate of Incorporation and by-laws of the Company
(incorporated by reference to exhibits 3.1 and 3.2 of the Company's
Registration Statement No. 33-4532-W on Form S-18)
(b) Certificate of Amendment dated June 18, 1987 (incorporated by
reference to exhibit 3(b) of the Company's 1987 Annual Report on
Form 10-K).
(c) Certificate of Amendment dated November 17, 1989 (pursuant to
which the Company changed its name to GHS, Inc.) (incorporated by
reference to exhibit 3(c) of the Company's 1988 Annual Report on
Form 10-K).
26
<PAGE>
10 Material Contracts
(a) Office Lease dated November 1, 1990 (incorporated by reference
to Exhibit 10.2 of the Company's Registration Statement No.
33-4532-W on form S-18).
(b) Employment Agreement dated December 14, 1984 between the Company
and Alan Gold, as amended March 7, 1986 (incorporated by reference
to Exhibit 10.3 of the Company's Registration Statement No.
33-4532-W on form S-18).
(c) Stock Option Plan dated March 7, 1986 (incorporated by reference
to Exhibit 10.4 of the Company's Registration Statement No.
33-4532-W on form S-18).
(d) Asset Purchase Agreement dated as of December 13, 1984 between
GHS Acquisition Corp., Datalab, Inc., Global Health Systems, Inc.
and GHS, Inc. (pursuant to which the Company acquired substantially
all the assets, and assumed certain liabilities, of Global Health
Systems MD) (incorporated by reference to Exhibit 10.5 of the
Company's Registration Statement No.
33-4532-W on form S-18).
(e) Assignment and Assumption Agreement dated as of November 22,
1988 between Global Health Systems, Inc. and Global Health Computer
Systems, Inc. (pursuant to which the parent transferred assets,
liabilities and current operations to the subsidiary) (Incorporated
by reference to exhibit 10(j) of the Company's 1988 Annual Report on
Form 10K)
(f) Gamma Knife Neuroradiosurgery Equipment Agreement dated August,
1993 between Research Medical Center and US NeuroSurgical
(incorporated by reference to Exhibit 10h to the Company's Quarterly
Report or Form 10-Q for the quarter ended September 30, 1993).
(g) Agreement for Issuance and Sale of Stock dated August, 1993
between Research Medical Center and GHS, Inc. (incorporated by
reference to Exhibit 10i to the Company's Quarterly Report or Form
10-Q for the quarter ended September 30, 1993).
(h) Ground Lease Agreement dated August, 1993 between Research
Medical Center and US NeuroSurgical (incorporated by reference to
Exhibit 10j to the Company's Quarterly Report or Form 10-Q for the
quarter ended September 30, 1993).
(i) LGK Agreement dated July 12, 1993 between Elekta Instruments,
Inc. and US NeuroSurgical (incorporated by reference to Exhibit 10k
to
27
<PAGE>
the Company's Quarterly Report or Form 10-Q for the quarter ended
September 30, 1993).
(j) Financing for Science International Commitment dated August 16,
1993 between Financing for Science International, Inc. and US
NeuroSurgical (incorporated by reference to Exhibit 10l to the
Company's Quarterly Report or Form 10-Q for the quarter ended
September 30, 1993.)
(k) Employment Agreement dated September 1, 1993 between US
NeuroSurgical and Jerry M. Brown, Ph.D. (incorporated by reference
to Exhibit 10m to the Company's Quarterly Report or Form 10-Q for
the quarter ended September 30, 1993.)
(l) Agreement dated July 23, 1993 between GHS, Inc., and A. Hyman
Kirshenbaum, M.D., and Jerry M. Brown, Ph.D., (incorporated by
reference to Exhibit 10n to the Company's Quarterly Report or Form
10-Q/A for the quarter ended September 31, 1993.)
(m) Amendment dated October 27, 1994 to Employment Agreement between
U.S. NeuroSurgical and Jerry Brown, Ph.D. (incorporated by reference
to Exhibit 10m to the Company's 1994 Annual Report on Form 10-K).
(n) Agreement dated October 28, 1994 between U.S. NeuroSurgical,
Inc. and Financing for Science and Industry, Inc. (incorporated by
reference 10n to the Company's 1994 Annual Report on Form 10-K).
(o) Agreement dated December 29, 1993, between U.S. NeuroSurgical,
Inc. and Elekta Instruments, Inc. (incorporated by reference 10o to
the Company's 1994 Annual Report on Form 10-K).
(p) Asset Purchase Agreement dated March 10, 1997 between Health
Management Systems, Inc. and GHS, Inc. (incorporated by reference
10P to the Company's 1994 Annual Report on Form 10-K).
28
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: May 07, 1997
GHS, Inc.
(Registrant)
By /s/ Alan Gold
-------------------------------------------------
Alan Gold
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
May 07, 1997 /s/ Alan Gold
-------------------------------------------------
Alan Gold
President and Director
(Chief Executive, Financial Officer)
May 07, 1997 /s/ William F. Leimkuhler
-------------------------------------------------
William F. Leimkuhler
Director
May 07, 1997
-------------------------------------------------
Jerry M. Brown, Ph.D.
Director
29
<PAGE>
[Letterhead for Richard A. Eisner & Company, LLP]
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
GHS, Inc.
Rockville, Maryland
We have audited the accompanying consolidated balance sheets of GHS,
Inc. and subsidiaries as at December 31, 1996 and December 31, 1995, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the years in the three-year period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present
fairly, in all material respects, the consolidated financial position of GHS,
Inc. and subsidiaries at December 31, 1996 and December 31, 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996 in conformity with generally accepted
accounting principles.
/s/ Richard A. Eisner & Company LLP
New York, New York
March 13, 1997
F-1
<PAGE>
GHS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------
A S S E T S 1996 1995
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................................ $ 159,000 $ 198,000
Accounts receivable (net of allowance for doubtful
accounts of $164,000 in 1996 and $14,000 in 1995) ...................... 994,000 1,451,000
Unbilled accounts receivable ............................................. 31,000 576,000
Contract installments receivable ......................................... 15,000
Inventory ................................................................ 12,000
Refundable deposits ...................................................... 290,000
Other current assets ..................................................... 86,000 91,000
----------- -----------
Total current assets .............................................. 1,270,000 2,633,000
Furniture and equipment ..................................................... 77,000 56,000
Software development costs .................................................. 180,000 291,000
Other assets ................................................................ 198,000 98,000
Deferred tax asset .......................................................... 463,000
Gamma Knife Venture assets:
Gamma Knife .............................................................. 1,933,000 2,348,000
Progress payments - Gamma Knife .......................................... 2,610,000 1,160,000
Unamortized leasehold costs .............................................. 954,000 661,000
Deposits ................................................................. 43,000 65,000
Cash held in escrow ...................................................... 907,000 27,000
----------- -----------
T O T A L ......................................................... $ 8,635,000 $ 7,339,000
=========== ===========
L I A B I L I T I E S
Current liabilities:
Accounts payable and accrued expenses .................................... $ 845,000 $ 1,337,000
Loans payable - officer .................................................. 20,000
Notes payable - other .................................................... 100,000
Accrued costs to complete contracts ...................................... 25,000
Loan payable - Gamma Knife - current portion ............................. 63,000 55,000
Obligation under capital lease - current portion:
Demand loan ............................................................ 525,000
Gamma Knife Venture .................................................... 592,000 512,000
Equipment .............................................................. 69,000 5,000
----------- -----------
Total current liabilities ......................................... 2,094,000 2,054,000
----------- -----------
Obligation under capital lease:
Gamma Knife .............................................................. 1,132,000 1,724,000
Equipment ................................................................ 265,000 9,000
----------- -----------
1,397,000 1,733,000
----------- -----------
Loan payable - Gamma Knife .................................................. 2,547,000 1,105,000
----------- -----------
Minority interest ........................................................... 18,000
-----------
Common stock - par value $.01; 500,000 shares issued with
put option ............................................................... 500,000 500,000
----------- -----------
Commitments and other matters
STOCKHOLDERS' EQUITY
Preferred stock - 1,000,000 shares authorized; none issued Common stock - par
value $.01; 25,000,000 shares
authorized; 6,447,828 issued and outstanding in
1996 and 1995 ............................................................ 65,000 65,000
Additional paid-in capital .................................................. 3,082,000 3,082,000
(Deficit) .................................................................. (1,050,000) (1,218,000)
----------- -----------
Total stockholders' equity ........................................ 2,097,000 1,929,000
----------- -----------
T O T A L ......................................................... $ 8,635,000 $ 7,339,000
=========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part hereof.
F-2
<PAGE>
GHS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Software systems ............................................ $ 884,000 $ 1,777,000 $ 1,282,000
Maintenance ................................................. 1,370,000 1,083,000 672,000
Claims processing ........................................... 526,000 302,000
Patient revenue ............................................. 1,452,000 1,283,000 381,000
----------- ----------- -----------
T o t a l ............................................ 4,232,000 4,445,000 2,335,000
----------- ----------- -----------
Costs and expenses:
Software systems ............................................ 1,047,000 1,651,000 847,000
Maintenance ................................................. 942,000 583,000 487,000
Claims processing expense ................................... 227,000 156,000
Patient expenses ............................................ 574,000 751,000 306,000
Selling, general and
administrative ............................................ 1,571,000 999,000 1,161,000
----------- ----------- -----------
T o t a l ............................................ 4,361,000 4,140,000 2,801,000
----------- ----------- -----------
Income (loss) from operations
before items below .......................................... (129,000) 305,000 (466,000)
----------- ----------- -----------
Interest expense ............................................... (309,000) (504,000) (308,000)
Interest income ................................................ 2,000 1,000 23,000
Income from equity investee .................................... 157,000
----------- ----------- -----------
(150,000) (503,000) (285,000)
----------- ----------- -----------
(Loss) before income tax benefit
and minority interest ....................................... (279,000) (198,000) (751,000)
Deferred income tax benefit .................................... 463,000
----------- ----------- -----------
Income (loss) before minority
interest .................................................... 184,000 (198,000) (751,000)
Minority interest .............................................. (16,000) 22,000 85,000
----------- ----------- -----------
NET INCOME (LOSS) ............................................. $ 168,000 $ (176,000) $ (666,000)
=========== =========== ===========
Net income (loss) per share .................................... $ .02 $ (.03) $ (.10)
=========== =========== ===========
Weighted average common shares
outstanding ................................................. 6,947,828 6,947,828 6,935,016
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part hereof.
F-3
<PAGE>
GHS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock *
------------------
Number Additional
of Paid-in
Shares Amount Capital (Deficit) Total
------ ------ ------- --------- -----
<S> <C> <C> <C> <C> <C>
Balance - January 1,
1994 ............. 6,424,328 $ 65,000 $3,059,000 $ (376,000) $2,748,000
Issuance of common
stock for services
rendered .......... 23,500 23,000 23,000
Net (loss) for the
year ended
December 31, 1994 . (666,000) (666,000)
---------- --------- ---------- ----------- ----------
Balance - December 31,
1994 ............. 6,447,828 65,000 3,082,000 (1,042,000) 2,105,000
Net (loss) for the
year ended
December 31, 1995 . (176,000) (176,000)
---------- --------- ---------- ----------- ----------
Balance - December 31,
1995 ............. 6,447,828 65,000 3,082,000 (1,218,000) 1,929,000
Net income for the
year ended
December 31, 1996 . 168,000 168,000
---------- --------- ---------- ----------- ----------
BALANCE - DECEMBER 31,
1996 ............. 6,447,828 $ 65,000 $3,082,000 $(1,050,000) $2,097,000
========== ========= ========== =========== ==========
</TABLE>
* Excluding shares with put option
The accompanying notes to financial statements
are an integral part hereof.
F-4
<PAGE>
GHS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ....................................................... $ 168,000 $ (176,000) $(666,000)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization ........................................ 631,000 617,000 341,000
Provision for bad debts .............................................. 150,000
Gain from equity investee ............................................ (157,000)
Minority interest in net income (loss) of consolidated subsidiary .... 16,000 (22,000) (85,000)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable ......................... 307,000 (251,000) 84,000
(Increase) decrease in unbilled accounts receivable ................ 545,000 (465,000) 315,000
Decrease in contract installments receivable ....................... 15,000 19,000 15,000
Decrease in inventory .............................................. 12,000
Decrease in other current assets ................................... 5,000
Decrease in refundable deposits .................................... 290,000
Deferred tax assets ................................................ (463,000)
(Increase) in cash held in escrow .................................. (880,000)
(Increase) decrease in other assets ................................ 57,000 (86,000) 62,000
(Decrease) increase in accounts payable and accrued expenses and
accrued costs to complete contracts .............................. (551,000) 802,000 (159,000)
----------- ----------- ---------
Net cash provided by (used in) operating activities ............ 145,000 438,000 (93,000)
----------- ----------- ---------
Cash flows from investing activities:
Furniture and equipment purchases ........................................ (39,000) (33,000) (24,000)
Software development costs ............................................... (50,000) (50,000) (350,000)
Investment in joint venture .............................................. (4,000)
Refunds on Gamma Knife ................................................... 22,000 148,000
Cost incurred with leasehold improvements ................................ (520,000)
----------- ----------- ---------
Net cash (used in) investing activities ........................ (67,000) (83,000) (750,000)
----------- ----------- ---------
Cash flows from financing activities:
Payments of capital lease obligations .................................... (522,000) (430,000) (220,000)
Loan payable - officer ................................................... (20,000) 20,000
Notes payable - other .................................................... (100,000) 100,000
Loan payable - Gamma Knife ............................................... 525,000
Release from escrow of proceeds from sale of common shares with put option 500,000
----------- ----------- ---------
Net cash provided by (used in) financing activities ............ (117,000) (310,000) 280,000
----------- ----------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........................ (39,000) 45,000 (563,000)
Cash and cash equivalents - beginning of period ............................. 198,000 153,000 716,000
----------- ----------- ---------
CASH AND CASH EQUIVALENTS - END OF PERIOD ................................... $ 159,000 $ 198,000 $ 153,000
=========== =========== =========
Supplemental disclosures of cash flow information: Cash paid for:
Interest ............................................................... $ 316,000 $ 510,000 $ 275,000
Income taxes ........................................................... 13,000 3,000 3,000
Supplemental disclosures of noncash financing activities:
Property acquired under capital lease obligations ........................ 330,000 14,000
Issuance of common stock for services rendered ........................... 23,000
Progress payments - Gamma Knife .......................................... 1,450,000 1,160,000
Loan payable - Gamma Knife ............................................... 1,450,000 1,160,000
</TABLE>
The accompanying notes to financial statements
are an integral part hereof.
F-5
<PAGE>
GHS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - The Company and its Significant Accounting Policies:
[1] Basis of preparation:
GHS, Inc. (the "Company") through its subsidiaries, Global Health
Systems, Inc. and GHS Management Services Inc. develops, installs and maintains
computerized processing systems for managed care, public health and ambulatory
care facilities.
The Company's subsidiary, U.S. Neuro Surgical, Inc. ("U.S. Neuro")
owns and operates stereotactic radiosurgery centers, utilizing the Gamma Knife
technology, which commenced operations in September 1994.
During 1995, the Company formed a new subsidiary, U.S. Neurosurgical
Physics, Inc. ("USNP") to administer the billing and collection of the
Physicist's fee for operating the Gamma Knife.
The consolidated financial statements include the accounts of GHS,
Inc., its wholly owned subsidiaries, Global Health Systems, Inc., GHS Management
Services, Inc., U.S. Neurosurgical Physics, Inc., and U.S. Neuro. The Company
accounts for its 20% investment in Florida Specialty Network ("FSN"), a
computerized processing systems provider which operates in the United States on
the equity method.
During March 1997 the Company entered into an asset purchase agreement
pursuant to which Health Management Systems, Inc. will acquire substantially all
of the assets, except for accounts receivable, of the Company's subsidiaries,
Global Health Systems, Inc. and GHS Management Services, Inc. The purchase price
is $2,100,000 subject to certain closing adjustments. The Company will retain
its subsidiaries, US Neuro, which owns and operates the Gamma Knife Center, and
USNP.
The financial statements include the following, as at and for the year
ended December 31, 1996, applicable to the assets to be sold:
Assets $ 264,000
Revenue 2,780,000
(Loss) before taxes (620,000)
[2] Revenue recognition:
Revenue from sales of software systems is recognized when the product
is delivered and obligations remaining after delivery are not considered to be
significant. Estimated costs in connection with installing the systems are
accrued when the revenue is recognized. Income from software maintenance
agreements is recognized ratably over
(continued)
F-6
<PAGE>
GHS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - The Company and its Significant Accounting Policies:
(continued)
[2] Revenue recognition: (continued)
the periods covered by such agreements. Contract installments receivable arising
from sales of systems with extended payment terms are discounted to present
value. Finance charges representing the discount to present value of the
contract amount are credited to income over the term of the contract.
Unbilled accounts receivable represent revenues which have been
recognized, on delivery of the product, and will become billable at future dates
in accordance with contract provisions.
Patient revenue is recognized when the Gamma Knife procedure is
rendered.
[3] Inventories:
Inventories are stated at the lower of cost (on the first-in,
first-out method) or market and consist of computer equipment and peripheral
devices.
[4] Depreciation and amortization:
The cost of furniture and equipment is depreciated on the
straight-line method over the estimated useful lives of such assets. Leasehold
costs are amortized on the straight-line method over 20 years, the life of the
lease.
[5] Software development:
Costs associated with product development subsequent to establishment
of technological feasibility including enhancements to software products, are
capitalized and amortized as required by Statement of Financial Accounting
Standards No. 86. Costs incurred prior to achieving technological feasibility
are expensed as incurred. Amortization is generally provided on the
straight-line method over two to five years commencing when the product is
available for general release to customers.
[6] Earnings per share:
Earnings per share is based on the net income divided by the weighted
average number of common shares outstanding during the year. Common stock
equivalents consisting of stock options and warrants are included when dilutive.
(continued)
F-7
<PAGE>
GHS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - The Company and its Significant Accounting Policies:
(continued)
[7] Statement of cash flows:
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
[8] Estimates and assumptions:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
[9] Fair values of financial instruments:
The estimated fair value of financial instruments has been determined
based on available market information and appropriate valuation methodologies.
The carrying amounts of cash, accounts receivable, unbilled accounts receivable,
other current assets and accounts payable approximate fair value at December 31,
1996 and December 31, 1995 because of the short maturity of these financial
instruments. The estimated carrying value of the obligations under capital lease
and loans payable approximate fair value because the interest rates on these
instruments approximate the market prices at December 31, 1996 and December 31,
1995. The fair value estimates were based on information available to management
as of December 31, 1996 and December 31, 1995.
[10] Stock-based compensation:
The Company accounts for employee stock option grants under the basis
of Accounting Principles Board Opinion No. 25. In fiscal 1996 the Company
adopted the "disclosures only" alternative available under Financial Accounting
Standards Board No. 123 ("FASB 123") for its employee stock option grants. The
pro forma net income and net earnings per share disclosure required by FASB 123
is not disclosed as there were no stock options granted during 1996 or 1995.
(continued)
F-8
<PAGE>
GHS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE B) - Agreements With Research Medical Center ("RMC"):
[1] Gamma Knife neuroradiosurgery equipment agreement:
U.S. Neuro entered into a neuroradiosurgery equipment agreement (the
"equipment agreement") with RMC for a period of 21 years which commenced with
the completion of the neuroradiosurgery facility (the "facility") in September
1994. The equipment agreement, among other matters, requires U.S. Neuro to
provide (i) the exclusive use of the Gamma Knife equipment (the "equipment") to
RMC, (ii) the necessary technical personnel for the proper operation of the
equipment, (iii) sufficient supplies for the equipment, (iv) the operation,
maintenance and repair of the equipment, (v) all basic hardware and software
updates to the equipment and, (vi) an uptime guarantee. In return, RMC will pay
U.S. Neuro 80% of RMC's fees for the use of the equipment and the facility. The
equipment agreement terminates automatically upon termination of the ground
lease agreement (see Note B[2]) and may be terminated by mutual agreement in the
sixth year of the ground lease term.
[2] Ground Lease Agreement:
U.S. Neuro entered into a lease with RMC for the premises, defined as
land situated in Kansas City, Missouri together with the facility which the
Company was required to construct thereon. The lease term is for a period of 21
years commencing September 1994. Rent at $2.25 per square foot is payable
annually in advance. The terms of the lease include escalation clauses for
increases in certain operating expenses and for payment of real estate taxes and
utilities. Title to all improvements upon the land vest in RMC.
(NOTE C) - Furniture and Equipment:
Furniture and equipment is stated at cost and is summarized as
follows:
December 31,
-------------------
1996 1995
-------- ---------
Equipment .................... $125,000 $181,000
Furniture .................... 38,000 41,000
-------- --------
T o t a l .......... 163,000 222,000
Less accumulated depreciation 86,000 166,000
-------- --------
B a l a n c e ...... $ 77,000 $ 56,000
======== ========
(continued)
F-9
<PAGE>
GHS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE C) - Furniture and Equipment: (continued)
Equipment, under a capital lease, and leasehold interest, is stated at
cost and is summarized as follows:
December 31,
--------------------------------------------
1996 1995
--------------------- ---------------------
Leasehold Leasehold
Interest Equipment Interest Equipment
---------- --------- ---------- ---------
Cost ........................ $1,036,000 $2,900,000 $708,000 $2,900,000
Accumulated depreciation and
amortization ............. 82,000 967,000 47,000 552,000
---------- ---------- -------- ----------
T o t a l ......... $ 954,000 $1,933,000 $661,000 $2,348,000
========== ========== ======== ==========
Depreciation aggregated approximately $433,000, $467,000 and $168,000 for
the years ended December 31, 1996, December 31, 1995 and December 31, 1994,
respectively.
Included in the above depreciation expense is approximately $415,000,
$414,000 and $138,000 for the years ended December 31, 1996, December 31, 1995
and December 31, 1994 for assets acquired under capital leases.
During the year ended December 31, 1996, the Company capitalized interest
cost amounting to $249,000 relating to the construction of a Gamma Knife
project.
(NOTE D) - Software Development Costs:
Software development costs are summarized as follows:
Year Ended December 31,
----------------------------------
1996 1995 1994
--------- --------- ----------
Balance - beginning of
period. . . . . . . . . $ 291,000 $ 389,000 $ 210,000
Additions for the period . 50,000 50,000 350,000
Amortization . . . . . . . (161,000) (148,000) (171,000)
---------- ---------- ----------
Balance - end of period. . $ 180,000 $ 291,000 $ 389,000
========== ========== =========
Research and development expense, exclusive of amortization of capitalized
software development costs, was approximately $231,000, $320,000 and $124,000
for the years ended December 31, 1996, December 31, 1995 and December 31, 1994,
respectively, and is included in software systems costs.
(continued)
F-10
<PAGE>
GHS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE E) - Costs Incurred In Connection With Leasehold Interest:
In a prior year, the Company granted a 20% interest in U.S. Neuro to two
related parties ("related parties") for services rendered in connection with the
leasehold interest, which it valued at $125,000 and credited to minority
interest. Under the terms of the agreement between GHS and the related parties,
GHS has the right to buy for cash or common stock the 20% interest owned by the
related parties at any time during each of the third through sixth full fiscal
years of the agreement. In September 1996, GHS decided to buy the minority
interest for common stock. The number of shares for the purchase, has been
estimated to be 33,200 by the Company which is subject to review by the related
parties. The value of such shares approximated the minority interest and
accordingly no adjustment was made to the basis of the Company's investment in
U.S. Neuro. In 1996, the subsidiary earned $80,000 through September 30, 1996 of
which $16,000 was allocated to the 20% interest. Such earnings are net of a
management fee of $119,000 charged by GHS. In 1995, the subsidiary incurred a
loss of $115,000 of which $22,000 was allocated to the 20% interest.
In July 1994, the Company issued 24,000 shares of its common stock to an
employee in consideration for services rendered in connection with the leasehold
interest. The Company valued the shares at a fair value of $24,000 which it has
included in leasehold cost.
In connection with the grant of the 20% interest, the Company entered into
an agreement with the related parties which provided for reimbursement to such
parties of their reasonable expenditures towards establishing U.S. Neuro.
The Company agreed to repay up to $250,000 of such valid, documented
expenses by issuing up to 125,000 shares of GHS, Inc. common stock and up to
$125,000 in U.S. Neuro notes payable from pre-tax earnings of U.S. Neuro. One of
the parties (Dr. Brown) claims that GHS, Inc. will owe 62,500 shares of GHS,
Inc. stock and interest bearing notes totaling $62,500, when he provides
documentation to the Company. The Company has requested documentation of the
claimed expenses since August 1993. No documentation has been produced. However,
the Company acting in good faith issued 62,500 shares of GHS, Inc. common stock
during 1993 and 1994. Dr. Brown has not documented any valid expenses. The
Company has paid $30,000 for legal fees incurred prior to September 1, 1993 by
Dr. Brown. The Company may take action to recover the 62,500 shares of GHS, Inc.
stock issued to Dr. Brown.
(continued)
F-11
<PAGE>
GHS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE E) - Costs Incurred In Connection With Leasehold Interest:
(continued)
Dr. Brown entered into a three year employment contract with the Company
in September 1993. Dr. Brown claims that his contract was unilaterally modified
by the Company in November of 1994 and he was terminated without proper
authority in August 1995. Dr. Brown also claims that he has been denied
reimbursement of legitimate expenses of more than $20,000. The Company believes
that Dr. Brown's claims are completely without merit. Upon signing his
employment agreement Dr. Brown requested a $60,000 pay advance. The advance was
granted as a loan with monthly repayments culminating in December 1995. Dr.
Brown still owes the Company $6,900 on this loan. In November 1994, the Company
negotiated an incentive compensation plan with Dr. Brown whereby he was paid a
salary of $150,000 per annum with quarterly adjustments against his salary if
the Gamma Knife operation did not meet minimum performance standards. The
agreement guaranteed Dr. Brown a minimum salary of $100,000 per annum.
Dr. Brown was paid salary through August 1995 at which time he was
terminated as an employee and removed from the U.S. Neuro Board of Directors.
During the terms of his employment with U.S. Neuro, Dr. Brown was fully
reimbursed for expenses which he submitted as incurred in connection with his
responsibilities at U.S. Neuro; however, the Company did not reimburse him for
travel and expenses that he incurred which were for personal business or not
pre-authorized by the Company.
(NOTE F) - Obligation Under Capital Lease and Loans Payable:
Gamma Knife Venture:
U.S. Neuro purchased a Gamma Knife ("Knife 1") from Elekta Instruments
("Elekta") for $2,900,000. The purchase was financed by Financing for Science
International ("FFSI") under a 5 year capital lease bearing interest at
approximately 12.7% per annum. During September 1996, Finova Capital Corp.
bought out FFSI and became the lien holder. The lease is guaranteed by GHS, Inc.
and Global Health Systems, Inc.
On December 6, 1994, U.S. Neuro entered into an additional purchase
agreement with Elekta to buy a second Gamma Knife ("Knife 2") for $2,900,000 for
which it made a deposit of $290,000 in 1994. The knife initially was financed by
Financing for Science, however, during 1996 the Company refinanced this knife
with DVI Financial Services Inc. ("DVI") at which time the Company's deposit was
returned. This equipment lease provides for the funding of the Gamma Knife of
(continued)
F-12
<PAGE>
GHS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE F) - Obligation Under Capital Lease and Loans Payable:
(continued)
Gamma Knife Venture: (continued)
$2,900,000. Interest to be charged on the equipment lease will be the higher of
12.7% or that rate adjusted for any increase in the thirty month Treasury Note
rate. At December 31, 1996 the Company had a liability of $2,610,000 for
progress payments for the Gamma Knife. In addition, the Company has entered into
a three year loan with DVI for $300,000 and a demand loan of $535,000, both of
which bear interest at approximately 13.7% per annum. These loans are secured by
the accounts receivable of the Company and its subsidiaries. The two loans are
to fund the leasehold improvements required to install the Gamma Knife at New
York University Medical Center and are currently in an interest bearing escrow
account.
In November 1996 U.S. Neuro entered into an agreement to provide Knife 2
to a hospital for a fee based on the number of patient procedures performed. The
agreement is for seven years.
The Company anticipates the second Knife to be installed by June 1997 at
which time the final payment of $290,000 will be made.
In addition, the Company has two leases for computer equipment which bear
interest at between 9% and 13%.
Future lease payments on the equipment leases are as follows:
<TABLE>
<CAPTION>
Year Ending Three Year Computer
December 31, Knife 1 Knife 2 Loan Equipment Total
-------------- --------- --------- ------ --------- ------
<S> <C> <C> <C> <C> <C>
1997 ..... $ 805,000 $ 263,000 $ 84,000 $ 16,000 $1,168,000
1998 ..... 805,000 731,000 143,000 15,000 1,694,000
1999 ..... 472,000 731,000 143,000 10,000 1,356,000
2000 ..... 731,000 731,000
2001 ..... 731,000 731,000
2002 ..... 731,000 731,000
Thereafter 245,000 245,000
---------- ---------- -------- ---------- ----------
2,082,000 4,163,000 370,000 41,000 6,656,000
Less interest 358,000 1,263,000 70,000 7,000 1,698,000
Less: final
payment ... 290,000 290,000
---------- ---------- -------- ---------- ----------
Present value
of net
minimum
obligation $1,724,000 $2,610,000 $300,000 $ 34,000 $4,668,000
========== ========== ======== ========== ==========
</TABLE>
(continued)
F-13
<PAGE>
GHS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE G) - Common Stock Issued With Put Option:
In a prior year the Company issued 500,000 shares of its common stock for
$1.00 per share to RMC. If the fair market value ("FMV") of the shares is equal
to or less than $1.25 per share, RMC has the right to resell the shares to GHS,
Inc. at $1.00 per share. If the FMV exceeds $1.25, GHS, Inc. has the right of
first refusal to repurchase the shares at a price equal to 80% of the FMV
("Transaction Price"). If GHS, Inc. elects not to exercise its right of first
refusal and RMC is unable to obtain a buyer for the shares at the Transaction
Price, RMC has the right to resell the shares to GHS, Inc. at a purchase price
equal to the greater of $1.00 per share or the Transaction Price.
However, in no event shall the Company be required to purchase shares of
stock after the earlier of 2003 or such time as U.S. Neuro, Inc. no longer
occupies the premises (the "facility").
(NOTE H) - Stockholders' Equity:
[1] Stock options:
The Company has a stock option plan (the "Plan") for officers and
other key personnel of the Company. The Plan authorizes the granting of
incentive and nonqualified stock options to purchase up to 750,000 shares of the
Company's common stock at a price not less than 100% (90% as to nonqualified) of
the fair market value of the common stock on the date of grant.
All options outstanding were granted to employees of the Company and
shall terminate immediately upon the termination of employment of the employee
by the Company or its subsidiaries or its parent.
No part of any option granted under the Plan will be exercisable less
than one year or more than ten years after the date of grant.
Listed below is information as to options granted and exercisable. As
of December 31, 1996 no options have been exercised.
Number of Shares
-------------------------- Exercisable
1996 1995 1994 Price
-------- -------- -------- -----------
Outstanding January 1. . 430,000 430,000 430,000 $1.00
Options expired. . . . . 70,000 1.00
-------- -------- --------
Options outstanding. . . 360,000 430,000 430,000 1.00
======== ======== ========
Options exercisable. . . 338,375 364,875 307,750
======== ======== =======
(continued)
F-14
<PAGE>
GHS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE H) - Stockholders' Equity:
[2] Preferred stock:
The Company has authorized 1,000,000 shares of preferred stock, none
of which is issued. The rights and preferences of preferred stock are
established at the discretion of the Board of Directors upon issuance.
[3] Issuance of warrants:
On November 30, 1993, the Company granted warrants to a stockholder to
purchase 200,000 shares of the Company's common stock at a purchase price of
$1.00 per share, which equaled fair value at the date of grant. Such warrants
were granted as consideration for services rendered in connection with a private
placement of securities. The warrants contain registration and certain
anti-dilution rights and are exercisable through November 30, 1998.
(NOTE I) - Commitments and Other Matters:
[1] In 1995 the Company entered into a lease for office premises which
expires in 2000. The terms of the lease include escalation clauses for increases
in certain operating expenses.
The Company has a three year lease for an office facility in
Sacramento, California at a yearly rental of approximately $27,000.
Minimum future obligations under operating leases as described above
are as follows:
Year Ending
December 31,
------------
1997. . . . . . . . . . $ 68,000
1998. . . . . . . . . . 36,000
1999. . . . . . . . . . 34,000
2000. . . . . . . . . . 33,000
--------
$171,000
Total rent expense aggregated $62,000, $61,000 and $33,000 for the
years ended December 31, 1996, December 31, 1995, and December 31, 1994,
respectively.
[2] The Company maintains the majority of its cash at one bank.
[3] The Company was contingently liable on an equipment lease of a
customer which provided for an annual rental of approximately $95,000 per year.
This lien was removed during February 1996.
(continued)
F-15
<PAGE>
GHS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE J) - Taxes:
Income tax (benefit) is comprised of the following:
Year Ended December 31,
--------------------------
1996 1995 1994
---------- ------ ------
Current:
Federal. . . . . . . . $ - 0 - $- 0 - $- 0 -
State. . . . . . . . . - 0 - - 0 - - 0 -
---------- ------ ------
- 0 - - 0 - - 0 -
---------- ------ ------
Deferred:
Federal. . . . . . . . (404,000) - 0 - - 0 -
State. . . . . . . . . (59,000) - 0 - - 0 -
---------- ------ ------
(463,000) - 0 - - 0 -
---------- ------ ------
Income tax benefit. . . . $(463,000) $- 0 - $- 0 -
========== ====== ======
The difference between income tax benefit at the statutory federal income
tax rate and income tax benefit reported in the statement of operations is as
follows:
Year Ended December 31,
--------------------------------
1996 1995 1994
---------- --------- ---------
Income tax (benefit) at the
federal statutory rate. . . $(100,000) $(67,000) $(255,000)
State income tax (benefit),
net of federal taxes. . . . (15,000) (10,000) (38,000)
Change in valuation allowance. (348,000) 77,000 293,000
--------- -------- ---------
$(463,000) $ - 0 - $ - 0 -
========= ========= =========
Temporary differences which give rise to deferred tax asset are as
follows:
Year Ended December 31,
---------------------------------
1996 1995 1994
---------- --------- ---------
Net operating loss
carryforwards . . . . . . . $1,013,000 $ 730,000 $ 570,000
Allowance for doubtful
accounts. . . . . . . . . . 64,000 6,000 6,000
Unbilled accounts receivable . 77,000 37,000
Excess of tax depreciation
over book depreciation. . . (344,000) (195,000) (72,000)
Valuation allowance. . . . . . (270,000) (618,000) (541,000)
---------- --------- ---------
Deferred tax asset - net . . . $ 463,000 $ - 0 - $ - 0 -
========== ========= =========
(continued)
F-16
<PAGE>
GHS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE J) - Taxes: (continued)
In 1996 the Company reevaluated its deferred income tax asset and reversed
part of the valuation allowance related to this asset of $348,000. The
reevaluation was based on the fact that the Company entered into a contract in
March 1997 (see Note A) which, if closed, will result in a substantial gain.
Accordingly, management has concluded that it is more likely than not that part
of the deferred tax asset will be realized.
At December 31, 1996, the Company has net operating loss carryforwards for
income tax purposes aggregating approximately $2,708,000, which expire in the
years 2008 through 2011.
(NOTE K) - Major Customers:
For the year ended December 31, 1996, the Company earned revenues from a
municipality which accounted for 23% of revenues. Two customers represent 15%
and 48% of receivables at December 31, 1996. These sales and receivables are
from the computerized processing systems.
For the year ended December 31, 1995, the Company earned revenues from a
municipality which accounted for 43% of revenues. Two customers represent 35%
and 27% of receivables at December 31, 1995. These sales and receivables are
from the computerized processing system segment. Also, one customer represents
72% of the unbilled accounts receivable.
For the year ended December 31, 1994, the Company earned revenues from one
customer which accounted for 21% of revenues. Two customers represent 42% and
15% of receivables at December 31, 1994. These sales and receivables are from
the computerized processing system segment.
(continued)
F-17
<PAGE>
GHS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE L) - Business Segments:
The Company's business segments are the development, installation and
maintenance of computerized integrated processing systems and the operation of
stereotactic radiosurgery centers, utilizing the Gamma Knife technology.
Corporate assets are principally cash and cash equivalents. The following is the
Company's business segment data:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Computerized processing systems ............. $ 2,780,000 $ 3,162,000 $ 1,954,000
Gamma Knife ................................. 1,452,000 1,283,000 381,000
----------- ----------- -----------
T o t a l ............................ $ 4,232,000 $ 4,445,000 $ 2,335,000
=========== =========== ===========
Operating income (loss):
Computerized processing systems ............. $ (620,000) $ (136,000) $ (327,000)
Gamma Knife ................................. 491,000 441,000 (139,000)
----------- ----------- -----------
Operating income (loss) .................... (129,000) 305,000 (466,000)
----------- ----------- -----------
Interest (expense) ............................ (309,000) (504,000) (308,000)
Investment income .............................. 2,000 1,000 23,000
Gain from equity investee(1) ................... 157,000
----------- ----------- -----------
T o t a l ............................ (150,000) (503,000) (285,000)
----------- ----------- -----------
Loss before income tax benefit and
minority interest ........................... $ (279,000) $ (198,000) $ (751,000)
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Assets:
Computerized processing systems(2) .......... $ 1,307,000 $ 2,505,000 $ 1,966,000
Gamma Knife ................................. 6,623,000 4,834,000 3,889,000
Corporate assets ............................ 705,000 30,000
----------- ----------- -----------
T o t a l ............................ $ 8,635,000 $ 7,339,000 $ 5,885,000
=========== =========== ===========
Capital expenditures:
Computerized processing systems ............. $ 89,000 $ 80,000 $ 367,000
Gamma Knife ................................. 330,000 3,000 544,000
----------- ----------- -----------
T o t a l ............................ $ 419,000 $ 83,000 $ 911,000
=========== =========== ===========
Depreciation and amortization:
Computerized processing systems ............. $ 179,000 $ 168,000 $ 191,000
Gamma Knife ................................. 452,000 449,000 150,000
----------- ----------- -----------
T o t a l ............................ $ 631,000 $ 617,000 $ 341,000
=========== =========== ===========
</TABLE>
(1) Substantially all the gain from investee is due to the settlement of
litigation in 1996.
(2) Investment in the net assets of FSN amounted to approximately $187,000,
$83,000 and $83,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
F-18
<PAGE>
REPORT OF INDEPENDENT AUDITORS WITH RESPECT TO
SUPPLEMENTARY SCHEDULES
Board of Directors and Stockholders
GHS, Inc.
Rockville, Maryland
The audits referred to in our report dated March 13, 1997 includes
Schedule II. In our opinion, this schedule presents fairly the information set
forth therein in relation to the financial statements taken as a whole and in
compliance with the applicable accounting regulation of the Securities and
Exchange Commission.
/s/ Richard A. Eisner & Company LLP
New York, New York
March 13, 1997
S-1
<PAGE>
SCHEDULE II
GHS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions
--------------------------------
(1) (2)
Balance ---------------- --------------
at Charged to Balance
beginning Charged to other at
of costs and accounts - Deductions - end of
Description period expenses describe(A) describe(B) period
- ------------------------------------------- ------------------ ---------------- -------------- ------------------ -------------
<S> <C> <C> <C>
Allowance for doubtful accounts:
1996 . . . . . . . . . . . . . . . . . $14,000 $150,000 $164,000
======== ========= ========
1995 . . . . . . . . . . . . . . . . . $14,000 $ 14,000
======== ========
1994 . . . . . . . . . . . . . . . . . $14,000 $ 14,000
======== ========
Reserve for inventory obsolescence:
1996 . . . . . . . . . . . . . . . . . $15,000 $15,000 (B) $ - 0 -
======== =======
1995 . . . . . . . . . . . . . . . . . $15,000 $ 15,000
======== ========
1994 . . . . . . . . . . . . . . . . . $15,000 $ 15,000
======== ========
</TABLE>
(B) Liquidation of obsolete inventory.
The accompanying notes to financial statements
are an integral part hereof.
S-2
<PAGE>
================================================================================
FLORIDA SPECIALTY NETWORK, LTD.
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
================================================================================
<PAGE>
FLORIDA SPECIALTY NETWORK, LTD.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Operations and Partners' Equity 3
Statements of Cash Flows 4
Notes to Financial Statements 5-9
SUPPLEMENTARY INFORMATION
General and Administrative Expenses 10
<PAGE>
[LETTERHEAD OF RACHLIN COHEN & HOLTZ]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Florida Specialty Network, Ltd.
Miramar, Florida
We have audited the accompanying balance sheets of Florida Specialty Network,
Ltd. as of December 31, 1996 and 1995 and the related statements of operations
and partners' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Florida Specialty Network, Ltd.
as of December 31, 1996 and 1995, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplementary
information is presented for the purpose of additional analysis and is not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
/s/ Rachlin Cohen & Holtz
Miami, Florida
March 14, 1997
B-1
<PAGE>
FLORIDA SPECIALTY NETWORK, LTD.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS 1996 1995
---------- --------
Current Assets:
Cash and cash equivalents $ 58,245 $ 67,588
Accounts receivable, net 56,790 34,282
Other receivables 400,105 --
Prepaid expenses and other 25,162 16,034
---------- --------
Total current assets 540,302 117,904
Property and Equipment 1,044,990 235,384
Other Assets 67,283 22,622
---------- --------
$1,652,575 $375,910
========== ========
LIABILITIES AND PARTNERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 374,181 $ 94,683
Due to affiliates 181,675 122,817
Current maturities of long-term debt and
capital lease obligations 86,331 39,528
---------- --------
Total current liabilities 642,187 257,028
Long-Term Debt and Capital Lease Obligations,
Net of Current Maturities 231,703 38,737
Commitments, Contingencies and Other Matters -- --
Partners' Equity 778,685 80,145
---------- --------
$1,652,575 $375,910
========== ========
See notes to financial statements.
B-2
<PAGE>
FLORIDA SPECIALTY NETWORK, LTD.
STATEMENTS OF OPERATIONS AND PARTNERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
----------- -----------
Revenue $ 4,325,468 $ 1,277,154
----------- -----------
Operating Expenses:
Salaries and benefits 1,506,963 609,780
Depreciation 115,470 34,109
General and administrative expenses 2,797,308 608,518
----------- -----------
4,419,741 1,252,407
----------- -----------
Income (Loss) from Operations (94,273) 24,747
----------- -----------
Other Income (Expense):
Litigation settlement, net 808,669 --
Interest income 5,784 1,574
Interest expense (16,815) (5,225)
Loss on sale of property and equipment (4,825) --
----------- -----------
792,813 (3,651)
----------- -----------
Net Income 698,540 21,096
Partners' Equity, Beginning 80,145 59,049
----------- -----------
Partners' Equity, Ending $ 778,685 $ 80,145
=========== ===========
See notes to financial statements.
B-3
<PAGE>
FLORIDA SPECIALTY NETWORK, LTD.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 698,540 $ 21,096
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 115,470 34,109
Loss on sale of property and equipment 4,825 --
Changes in operating assets and liabilities:
Increase (decrease) in:
Accounts receivable (22,508) (2,057)
Prepaid expenses and other (9,128) 3,429
Other assets (44,661) (5,773)
Increase in:
Accounts payable and accrued expenses 279,498 56,745
----------- ---------
Net cash provided by operating activities 1,022,036 107,549
----------- ---------
Cash Flows from Investing Activities:
Expenditures for property and equipment (566,403) (98,713)
Other receivables (400,105) --
Proceeds from sale of property and equipment 630 --
----------- ---------
Net cash used in investing activities (965,878) (98,713)
----------- ---------
Cash Flows from Financing Activities:
Repayment of long-term debt and capital lease obligations (124,359) (35,728)
Borrowings from affiliates, net 58,858 63,418
----------- ---------
Net cash provided by financing activities (65,501) 27,690
----------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents (9,343) 36,526
Cash and Cash Equivalents, Beginning 67,588 31,062
----------- ---------
Cash and Cash Equivalents, Ending $ 58,245 $ 67,588
=========== =========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 16,815 $ 5,225
=========== =========
Supplemental Disclosure of Non-Cash Investing and
Financing Activities:
Purchase of new equipment through installment
loans and capital leases $ 364,128 $ 68,870
=========== =========
</TABLE>
See notes to financial statements.
B-4
<PAGE>
FLORIDA SPECIALTY NETWORK, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 and 1995
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Florida Specialty Network, Ltd. (the "Company") is a limited
partnership organized on January 19, 1993 under the laws of the
State of Florida.
The Agreement and Certificate of Limited Partnership provides,
among other things, that profits, losses and distributions are
based upon the respective interests of the general and limited
partners, and that the General Partner shall have the exclusive
authority to manage the partnership.
Business
The Company provides data processing services to and for managed
care and medical networks.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are recorded at cost and depreciated
using accelerated methods, over the estimated useful lives of the
assets. Gain or loss on disposition of assets is recognized
currently. Repairs and maintenance are charged to expense as
incurred. Major replacements and betterments are capitalized and
depreciated over the remaining useful lives of the assets.
Income Taxes
The Company has elected to be taxed as a partnership under the
applicable sections of the Internal Revenue Code; accordingly,
the partners' share of income or loss is included in their
individual tax returns. Therefore, no provision or credit for
income taxes has been included in these financial statements.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash balances
at financial institutions that, at certain times during the year,
exceed federally insured limits. The Company believes that such
risks are minimized as a result of the size and stature of the
financial institutions in which the Company maintains its
accounts.
Other Receivables
Other receivables at December 31, 1996 are primarily comprised of
amounts due for reimbursement of expenditures by the Company on
behalf of the landlord for tenant improvements. Such amount was
subsequently collected.
B-5
<PAGE>
FLORIDA SPECIALTY NETWORK, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Reclassifications
Certain amounts in 1995 have been reclassified to conform to 1996
presentation.
NOTE 2. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Estimated
Useful Lives
(Years) 1996 1995
------- ---- ----
<S> <C> <C> <C>
Computer equipment 5 $762,458 $211,783
Machinery and equipment 5 133,000 38,126
Office furniture and equipment 5-7 122,348 30,271
Leasehold improvements 2-5 184,173 6,901
---------- --------
1,201,979 287,081
Less accumulated depreciation 156,989 51,697
---------- --------
$1,044,990 $235,384
========== ========
</TABLE>
NOTE 3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
The Company has an equipment obligation payable to a financial
institution. The outstanding balance at December 31, 1996 and 1995 was
$2,250 and $11,250, respectively. Payments are due in monthly
principal installments of $750, plus interest at 9.5%, with the final
payment in March l997. The note is secured by the equipment.
The Company also has capital lease obligations with varying monthly
payments totaling approximately $8,400, at varying rates of imputed
interest ranging from 11.9% to 16.3%. The obligations are secured by
leased equipment with an amortized cost of approximately $327,000 as
of December 31, 1996.
Maturities of the note payable and capital lease obligations at
December 31, 1996 are due as follows:
B-6
<PAGE>
FLORIDA SPECIALTY NETWORK, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Note Capital Lease
Payable Obligations
------- -----------
1997 $ 2,250 $100,967
1998 -- 89,548
1999 -- 73,374
2000 -- 73,374
2001 -- 41,061
------- --------
2,250 378,324
Less amount representing interest -- 62,540
------- --------
2,250 315,784
Less current maturity 2,250 84,081
------- --------
$ -- $231,703
======= ========
NOTE 4. RELATED PARTY TRANSACTIONS
Facilities Rental
The Company receives a monthly fee from an affiliated entity for use
of the Company's facilities. The total fees received for 1996 and 1995
were $190,677 and $26,613, respectively.
Due From Affiliate
Accounts receivable due from related companies totaled $22,681 and
$33,334 at December 31, 1996 and 1995.
Loans from Affiliates
The Company has unsecured loans payable to affiliated companies of
$181,675 and $122,818 at December 31, 1996 and 1995. Certain of these
loans bear interest at 8%, with no scheduled repayment plan.
Data Processing Agreements with Affiliates
A significant portion of the Company's revenues are derived from
several affiliated companies. Approximately $3,789,000 (88%),
$1,081,000 (85%) of revenue was attributed to these companies for
years ended December 31, 1996 and 1995.
Consulting Fees
The Company paid consulting fees to a partner and other related
entities in the amount of approximately $727,000 during 1996.
B-7
<PAGE>
FLORIDA SPECIALTY NETWORK, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 4. RELATED PARTY TRANSACTIONS (Continued)
Construction Contract with Related Party
The Company contracted with an entity owned by an individual related
to one of the partners of the Company to contruct the leasehold
improvements at the Company's new offices. The total amount of the
contract, approximately $520,000, was incurred during 1996.
NOTE 5. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
Lease Commitment
The Company leases office facilities under several operating leases
which expire between 1997 and 2002 and provide for a base rent and
additional rent equal to the Company's percentage of direct operating
expenses of the building, subject to certain limitations. The
aggregate monthly obligation is approximately $39,000. One of the
operating leases has been assigned to the Company by an affiliated
entity. The approximate future minimum base lease payments under
leases expiring subsequent to December 31, 1996 are as follows:
1997 $ 480,000
1998 470,000
1999 351,000
2000 237,000
2001 246,000
2002 41,000
----------
$1,825,000
Rent expense relating to operating leases amounted to approximately
$274,000 and $85,000 for 1996 and 1995, respectively.
Consulting/Marketing Agreement
In accordance with the terms of an agreement as amended on June 1,
1996, the Company, together with another company affilated by means of
common control (the "Companies"), is committed to pay compensation to
certain consultants for consulting and marketing services. The term
of the agreement is for one year and is automatically renewed for
successive one year terms until terminated in accordance with the
provisions of the agreement.
The agreement provides, among other things, for compensation in the
form of a marketing fee to be paid by the Companies equal to 10% of
the management fees (as defined) attributable to certain specified
clients with whom the Companies contracted due to the efforts of the
consultants.
B-8
<PAGE>
FLORIDA SPECIALTY NETWORK, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 5. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
Data Processing Agreements with Health Care Providers
The Company generally enters into data processing agreements with
health care providers to provide the Company's computerized claims
processing services. These agreements generally are limited to a
particular medical specialty for a specified geographic area; may be
terminated for default by either party upon thirty days written
notice; and provide, as compensation to the Company for the services,
a monthly fee based upon a percentage of the provider's aggregate
monthly capitation and/or fee-for-service, at specified rates and
ranges.
Letters of Credit
In October 1996, the Company negotiated an irrevocable letter of
credit in the amount of $50,000 in connection with a lease for office
space. The letter of credit expires April 1997.
In January 1997, the Company negotiated an irrevocable letter of
credit in the amount of $400,000 in connection with a security
deposit for a lease of office space. This letter of credit
automatically renews at lesser amounts pursuant to the following
schedule:
February 15, 1998 $320,000
February 15, 1999 240,000
February 15, 2000 160,000
February 15, 2001 80,000
February 15, 2002 Expiration Date
NOTE 6. LITIGATION SETTLEMENT
During 1996 the Company settled litigation in which it was seeking
damages relating to non-performance on the part of the other party to
a certain contract. The total damages received was $1,300,000. The
Company incurred legal fees and other costs of $491,331 resulting in
net proceeds of $808,669.
B-9
<PAGE>
FLORIDA SPECIALTY NETWORK, LTD.
SUPPLEMENTARY INFORMATION
DECEMBER 31, 1996 AND 1995
<PAGE>
FLORIDA SPECIALTY NETWORK, LTD
GENERAL AND ADMINISTRATIVE EXPENSES
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
---------- --------
Consulting $ 727,802 $ 13,000
Commissions 323,715 55,327
Rent 274,358 85,389
Telephone 197,465 45,203
Professional fees 192,015 81,720
Insurance 172,058 41,424
Taxes and licenses 152,149 1,594
Casual labor 139,524 8,818
Employment agency costs 124,016 18,400
Office expense 112,842 57,876
Travel and entertainment 92,833 77,692
Computer 79,470 25,128
Repairs and maintenance 75,201 8,215
Courier services 52,376 17,316
Advertising 26,877 21,289
Auto 26,577 9,267
Postage 21,687 8,189
Data processing 2,035 4,327
Meetings and seminars 1,989 2,308
Contributions 1,350 3,475
Dues and subscriptions 969 4,687
Equipment rental -- 12,098
Physicians services -- 5,776
---------- --------
$2,797,308 $608,518
---------- --------
B-10
<PAGE>
================================================================================
FLORIDA SPECIALTY NETWORK, LTD
FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
================================================================================
<PAGE>
FLORIDA SPECIALTY NETWORK, LTD.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Operations 3
Statements of Partners' Equity 4
Statements of Cash Flows 5
Notes to Financial Statements 6-9
SUPPLEMENTARY INFORMATION
General and Administrative Expenses 10
<PAGE>
[LETTERHEAD OF RACHLIN COHEN & HOLTZ]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Florida Specialty Network, Ltd.
Pembroke Pines, Florida
We have audited the accompanying balance sheets of Florida Specialty Network,
Ltd. as of December 31, 1995, 1994, and 1993, and the related statements of
operations, partners' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Florida Specialty Network, Ltd.
as of December 31, 1995, 1994 and 1993 and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
Our audit was conducted for the purpose of forming an opinion of the basic
financial statements taken as a whole. The accompanying supplementary
information is presented for the purpose of additional analysis and is not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
/s/ Rachlin Cohen & Holtz
Miami, Florida
August 16, 1996
C-1
<PAGE>
FLORIDA SPECIALTY NETWORK, LTD.
BALANCE SHEETS
DECEMBER 31, 1995, 1994 AND 1993
ASSETS 1995 1994 1993
---- ---- ----
Current Assets:
Cash and cash equivalents $ 67,588 $ 31,062 $ 30,367
Accounts receivable, net 34,282 32,225 36,519
Prepaid expenses and other 16,034 19,463 1,710
-------- -------- --------
Total current assets 117,904 82,750 68,596
Property and Equipment 235,384 101,910 35,532
Other Assets 22,622 16,849 2,210
-------- -------- --------
$375,910 $201,509 $106,338
======== ======== ========
LIABILITIES AND PARTNERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses 94,683 37,937 16,082
Due to affiliates 122,817 59,400 --
Current maturities of long-term debt and
capital lease obligations 39,528 20,091 9,000
-------- -------- --------
Total current liabilities 257,028 117,428 25,082
Long-Term Debt and Capital Lease Obligations,
Net of Current Maturities 38,737 25,032 20,250
Commitments, Contingencies and Other Matters -- -- --
Partners' Equity 80,145 59,049 61,006
-------- -------- --------
$375,910 $201,509 $106,338
======== ======== ========
See notes to financial statements.
C-2
<PAGE>
FLORIDA SPECIALTY NETWORK, LTD.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
---- ---- ----
Revenue $ 1,277,154 $ 955,667 $ 293,113
----------- --------- ---------
Operating Expenses:
Salaries and benefits 609,780 437,371 50,849
Depreciation 34,109 17,370 3,368
General and administrative expenses 608,518 506,731 207,700
----------- --------- ---------
1,252,407 961,472 261,917
----------- --------- ---------
Income (Loss) from Operations 24,747 (5,805) 31,196
----------- --------- ---------
Other Income (Expense):
Interest income 1,574 304 566
Interest expense (5,225) (4,381) (757)
----------- --------- ---------
(3,651) (4,077) (191)
----------- --------- ---------
Net Income (Loss) $ 21,096 $ (9,882) $ 31,005
=========== ========= =========
See notes to financial statements.
C-3
<PAGE>
FLORIDA SPECIALTY NETWORK, LTD.
STATEMENTS OF PARTNERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
---- ---- ----
Partners' Equity, Beginning $59,049 $ 61,006 $ --
Net Income (Loss) 21,096 (9,882) 31,005
Capital Contributions -- 7,925 30,001
------- -------- -------
Partners' Equity, Ending $80,145 $ 59,049 $61,006
======= ======== =======
See notes to financial statements.
C-4
<PAGE>
FLORIDA SPECIALTY NETWORK, LTD.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 21,096 $ (9,882) $ 31,005
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation 34,109 17,370 3,368
Donated services -- 300 --
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (2,057) 4,294 (36,519)
Prepaid expenses and other 3,429 (17,753) (1,710)
Other assets (5,773) (14,639) (2,210)
Increase in:
Accounts payable and accrued expenses 56,745 21,855 16,082
--------- -------- --------
Net cash provided by operating activities 107,549 1,545 10,016
--------- -------- --------
Cash Flows from Investing Activities:
Expenditures for property and equipment (98,713) (42,837) (7,400)
--------- -------- --------
Cash Flows from Financing Activities:
Repayment of long-term debt and capital lease obligations (35,728) (17,413) (2,250)
Borrowings from affiliates 63,418 59,400 --
Capital contributions -- -- 30,001
--------- -------- --------
Net cash provided by financing activities 27,690 41,987 27,751
--------- -------- --------
Net Increase in Cash and Cash Equivalents 36,526 695 30,367
Cash arid Cash Equivalents, Beginning 31,062 30,367 --
--------- -------- --------
Cash and Cash Equivalents, Ending $ 67,588 $ 31,062 $ 30,367
========= ======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest $ 5,225 $ 4,381 $ 757
========= ======== ========
Supplemental Disclosure of Non-Cash Investing and
Financing Activities:
Purchase of new equipment through installment
loans and capital leases $ 68,870 $ 33,286 $ 31,500
========= ======== ========
Acquisitions of new equipment through capital contributions $ -- $ 7,625 $ --
========= ======== ========
</TABLE>
See notes to financial statements.
C-5
<PAGE>
FLORIDA SPECIALTY NETWORK, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Florida Specialty Network, Ltd. (the "Company") is a limited
partnership organized on January 19, 1993 under the laws of the
State of Florida.
The Agreement and Certificate of Limited Partnership provides,
among other things, that profits, losses and distributions are
based upon the respective interests of the general and limited
partners, and that the General Partner shall have the exclusive
authority to manage the partnership.
In 1993, the Company's operations were conducted together with a
Delaware corporation, Network Data Systems, Inc. ("NDS"), that
was affiliated by means of common ownership. The financial
statements for 1993 combine the financial position and results of
operations of NDS with those of the Company. In 1994, the net
assets and operations of NDS were effectively combined with those
of the Company.
Business
The Company provides data processing services to and for managed
care and medical networks.
Cash and Cash Equivalents
The Company considers all highly liquid debt securities with
original maturities of three months or less to be cash
equivalents.
Property and Equipment
Property and equipment are recorded at cost and depreciation
using accelerated methods, over the estimated useful lives of the
assets. Gain or loss on disposition of assets is recognized
currently. Repairs and maintenance are charged to expense as
incurred. Major replacements and betterments are capitalized and
depreciated over the remaining useful lives of the assets.
Income Taxes
The Company has elected to be taxed as a partnership under the
applicable sections of the Internal Revenue Code; accordingly,
the partners' share of income or loss is included in their
individual tax returns. Therefore, no provision or credit for
income taxes has been included in these financial statements.
C-6
<PAGE>
FLORIDA SPECIALTY NETWORK, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash balances
at financial institutions that, at certain times during the year,
exceed federally insured limits. The Company believes that such
risks are minimized as a result of the size and stature of the
financial institutions in which the Company maintains its
accounts.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
NOTE 2. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Estimated
Useful Lives
(Years) 1995 1994 1993
------- ---- ---- ----
<S> <C> <C> <C> <C>
Machinery and equipment 5 $ 38,126 $ 37,804 $ 38,900
Computer equipment 5 211,783 66,105
Office furniture and equipment 5-7 30,271 8,688 --
Leasehold improvements 2-5 6,901 6,901 --
-------- -------- --------
287,081 119,498 38,900
Less accumulated depreciation 51,697 17,588 3,368
-------- -------- --------
$235,384 $101,910 $ 35,532
======== ======== ========
</TABLE>
NOTE 3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
The Company has an equipment obligation payable to a financial
institution. The outstanding balance at December 1995 was $11,250.
Payments are due in monthly principal installments of $750, plus
interest at 9.5%, with the final payment in March l997. The note is
secured by the equipment
The Company also has capital lease obligations with varying monthly
payments, at varying rates of imputed interest ranging from 11.9% to
16.3%. The obligations are secured by leased equipment with an
amortized cost of approximately $82,000 at December 31, 1995.
C-7
<PAGE>
FLORIDA SPECIALTY NETWORK, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Maturities of the note payable and capital lease obligations at
December 31, 1995 are due as follows:
Note Capital Lease
Payable Obligations
------- -----------
1996 $ 9,000 $37,956
1997 2,250 27,592
1998 -- 16,174
------- -------
11,250 81,722
Less amount representing interest -- 14,707
------- -------
11,250 67,015
Less current maturities 9,000 30,528
------- -------
$ 2,250 $36,487
======= =======
NOTE 4. RELATED PARTY TRANSACTIONS
Beginning in March 1995, the Company received a monthly fee from an
affiliated entity for use of the Company's facilities. The total fees
received for 1995 were $26,613.
Accounts receivable for all related companies total $33,344, $25,914
and $35,440 at December 31, 1995, 1994 and 1993, respectively.
The Company has unsecured loans payable to affiliated companies of
$122,818 and $59,400 at December 31, 1995 and 1994, respectively.
Certain of these loans bear interest at 8%, with no scheduled
repayment plan.
A significant portion of the Company's revenues are derived from
several affiliated companies. Approximately $1,081,000 (85%), $664,000
(69%), and $185,000 (63%) of revenue was attributed to these companies
for 1995, 1994 and 1993, respectively.
NOTE 5. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
Leases
The Company leases office facilities under several operating
leases which expire principally through September 1996, and which
provide for a base rent and additional rent equal to the
Company's percentage of direct operating expenses of the
building, subject to certain limitations. One of the operating
leases has been assigned to the Company by an affiliated entity.
The approximate total future minimum base lease commitment
pursuant to the lease for the year ended December 31, 1996 is
$80,000.
Rent expense relating to operating leases amounted to
approximately $85,000, $48,000 and $6,000 for 1995, 1994 and
1993, respectively.
C-8
<PAGE>
FLORIDA SPECIALTY NETWORK, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 5. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
Consulting/Marketing Agreement
Effective July 15, 1994, the Company entered into a certain
agreement for consulting services related to the Company's
computerized claims processing business.
This agreement expires on December 31, 1996, subject to extending
the terms by mutual agreement; provided for compensation based
upon a percentage of net profits, as defined, earned and
collected; and provided that, at commencement, the Company give
the consultant a 1% limited partnership interest, and an
additional 1% limited partnership interest for every $1,500,000
of net profits received by the Company.
This agreement was replaced with a Consulting/Marketing Agreement
made on June 1, 1996.
Data Processing Agreements with Health Care Providers
The Company generally enters into data processing agreements with
health care providers to provide the Company's computerized
claims processing services. These agreements generally are
limited to a particular medical specialty for a specified
geographic area; may be terminated for default by either party
upon thirty days written notice; and provide, as compensation to
the Company for the services, a monthly fee based upon a
percentage of the provider's aggregate monthly capitation and/or
fee-for-service, at specified rates and ranges.
NOTE 6. SUBSEQUENT EVENT
Subsequent to December 31, 1995, the Company entered into a letter of
intent to sell substantially all of its operating assets. The expected
closing date for the transaction is February 1997.
C-9
<PAGE>
FLORIDA SPECIALTY NETWORK, LTD.
SUPPLEMENTARY INFORMATION
DECEMBER 31, 1995, 1994 AND 1993
<PAGE>
FLORIDA SPECIALTY NETWORK, LTD
GENERAL AND ADMINISTRATIVE EXPENSES
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
---- ---- ----
Rent $ 85,389 $ 48,313 $ 5,988
Professional fees 81,720 60,320 36,483
Travel and entertainment 77,692 60,267 11,226
Office expense 57,876 32,543 16,207
Commissions 55,327 12,824 --
Telephone 45,203 28,147 4,410
Insurance 41,424 23,984 2,825
Casual labor 27,218 48,700 7,019
Computer 25,128 18,036 1,747
Advertising 21,289 7,003 12,460
Courier services 17,316 10,431 180
Consulting 13,000 124,100 --
Equipment rental 12,098 11,870 4,495
Auto 9,267 2,491 129
Repairs and maintenance 8,215 5,193 5,637
Postage 8,189 7,195 841
Physicians services 5,776 -- --
Dues and subscriptions 4,687 1,235 673
Data processing 4,327 -- 94,775
Contributions 3,475 625 --
Meetings and seminars 2,308 2,033 255
Taxes and licenses 1,594 1,421 2,350
-------- -------- --------
$608,518 $506,731 $207,700
======== ======== ========
C-10
<PAGE>
EXHIBIT C
TO
INFORMATION STATMENT
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended Commission file number
March 31, 1997 0-15586
GHS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 52-1373960
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
1350 Piccard Drive Suite 360, Rockville, Maryland 20850
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (301) 417-9808
Not Applicable
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES |X| NO |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 07, 1997
----- ---------------------------
Common Stock, $.01 par value 6,947,828 Shares
<PAGE>
PART I
FINANCIAL INFORMATION
GHS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
1997 1996
---- ----
Current assets:
Cash $ 136,000 $ 159,000
Accounts receivable, net of allowance 1,286,000 994,000
for doubtful accounts of $164,000 in
1997 and 1996
Unbilled accounts receivable 9,000 31,000
Other current assets 84,000 86,000
----------- -----------
Total current assets $ 1,515,000 $ 1,270,000
Furniture and equipment, net 78,000 77,000
Software development costs 139,000 180,000
Other assets 198,000 198,000
Deferred tax asset 463,000 463,000
Gamma Knife venture assets:
Gamma Knife 1,830,000 1,933,000
Progress payment- Gamma Knife 2,610,000 2,610,000
Costs incurred in connection with
unamortized leasehold interest 1,391,000 954,000
Deposits -- 43,000
Cash held in escrow 496,000 907,000
TOTAL $ 8,720,000 $ 8,635,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 877,000 $ 845,000
Loan payable-Gamma Knife-current portion 63,000 63,000
Obligation under capital lease -Gamma Knife-
current portion 565,000 592,000
Demand loan -- 525,000
Equipment 88,000 69,000
----------- -----------
Total current liabilities 1,593,000 2,094,000
Obligation under capital lease
Gamma Knife 1,707,000 1,132,000
Equipment 241,000 265,000
Loan payable - Gamma Knife 2,547,000 2,547,000
Common stock - par value $ 01: 500,000
shares issued with put option 500,000 500,000
Stockholders' equity:
Common stock - $ 01 par value -
25,000,000 shares authorized;
6,447,828 issued and outstanding
in 1997 and 1996 65,000 65,000
Additional paid-in capital 3,082,000 3,082,000
(Deficit) (1,015,000) (1,050,000)
----------- -----------
Total stockholders' equity $ 2,132,000 $ 2,097,000
----------- -----------
TOTAL $ 8,720,000 $ 8,635,000
=========== ===========
The accompanying notes to financial statements are an integral part hereof
2
<PAGE>
GHS, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
March 31,
---------
1997 1996
---- ----
Revenue:
Software Systems $ 258,000 $ 490,000
Maintenance 428,000 307,000
Claims Processing 134,000 167,000
Patient Revenue 388,000 314,000
----------- -----------
Total 1,208,000 1,278,000
Expenses:
Software Systems 368,000 384,000
Maintenance 242,000 211,000
Claims Processing 88,000 102,000
Patient Expenses 189,000 181,000
Selling, General and Administrative 198,000 187,000
----------- -----------
Total 1,085,000 1,065,000
Income before items listed below $ 123,000 $ 213,000
Interest expense (101,000) (128,000)
Interest income 13,000 --
Net Income 35,000 85,000
----------- -----------
Net Income per share $ .01 $ .01
=========== ===========
Weighted average shares outstanding 6,947,828 6,947,828
=========== ===========
The accompanying notes to financial statements are an integral part hereof.
3
<PAGE>
GHS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 35,000 $ 85,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization: 161,000 156,000
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable - net (292,000) 299,000
Decrease in unbilled accounts receivable 22,000 50,000
Decrease in inventory -- 4,000
(Increase) decrease in other assets 2,000 (65,000)
Decrease in cash held in escrow 411,000 --
Decrease in deposits 43,000 --
(Decrease) in accounts payable and
accrued expenses (32,000) (352,000)
--------- ---------
Net cash provided by operating activities 350,000 177,000
Cash flows from investing activities :
Furniture and equipment purchases (8,000) (9,000)
Software development costs -- (50,000)
Cost incurred with leasehold improvements (383,000) (30,000)
--------- ---------
Net cash (used in) investing activities (391,000) ($ 89,000)
Cash flows from financing activities:
Payment of capital lease obligations (82,000) (122,000)
Lease payable - Gamma Knife 100,000 --
Payment of loan to officer -- (20,000)
--------- ---------
Net cash provided by (used in) financing activities 18,000 (142,000)
Net (decrease) in cash and cash equivalents (23,000) (54,000)
Cash and cash equivalents - beginning of period 159,000 198,000
--------- ---------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 136,000 $ 144,000
========= =========
Supplemental disclosures of noncash financing activities:
Loan payable - Gamma Knife (525,000) --
Lease payable - Gamma Knife 525,000 --
The accompanying notes to financial statements are an integral part hereof
</TABLE>
4
<PAGE>
GHS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Note A - Basis of Preparation
The accompanying financial statements at March 31, 1997, for the three
months ended March 31, 1997 and 1996, are unaudited. However, in the opinion of
management, such statements include all adjustments necessary to a fair
statement of the information presented therein. The balance sheet at December
31, 1996 has been derived from the audited financial statements at that date
appearing in the Company's Annual report on Form 10-K.
Pursuant to accounting requirements of the Securities and Exchange
Commission applicable to quarterly reports on Form 10-Q, the accompanying
financial statements and these notes do not include all disclosures required by
generally accepted accounting principles for complete financial statements.
Accordingly, these statements should be read in conjunction with the Company's
most recent annual financial statements.
Results of operations for interim periods are not necessarily indicative of
those to be achieved for full fiscal years.
5
<PAGE>
GHS, INC. AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND
ANALYSIS OF OPERATIONS
AND FINANCIAL CONDITION
First Fiscal Quarter 1997 Compared to First Fiscal Quarter 1996
Results of Operations
Total revenue declined 5% to $1,208,000 for the quarter ended March 31,
1997 as compared to $1,278,000 for the same period in 1996. System sales from
Global Health Systems, Inc. declined 47% to $258,000 from $490,000 a year ago.
The decline is due to two factors, which are a change in revenue strategy and
the consummation of the sale of the systems business. Maintenance revenue
increased 39% to $428,000 from $307,000 in the previous year. Claims processing
declined by 20% to $134,000 from $167,000 a year earlier. In the first quarter
the Company entered into a definitive asset purchase agreement with Health
Management Systems, Inc. pursuant to which Health Management Systems will
acquire substantially all of the assets of the Company's subsidiaries Global
Health Systems, Inc. and GHS Management Services for $2,100,000 in cash, subject
to certain closing adjustments.
US NeuroSurgical, Inc. (USN) which manages sterotactic radiosurgery centers
using the Gamma Knife, had an increase in revenue of 24% to $388,000 from
$314,000 for the same period in 1996. The increase is due to greater acceptance
by the medical community. USN is scheduled to open its second Gamma Knife Center
in New York City during the Spring of 1997.
Total expenses increased 2% to $1,085,000 from $1,065,000 for the same
period, a year earlier. System costs declined 4% to $368,000 from $384,000 in
the previous year, however as a percentage of revenues the costs were 143% in
1997 and 78% in 1996. This was caused by certain fixed costs that could not be
reduced despite a 47% decrease in systems revenue. Maintenance costs increased
to $242,000 from $211,000 in the previous year. Claims processing costs declined
to $88,000 from $102,000 a year earlier. Patient expenses increased to $189,000
from $181,000 in 1996. Maintenence and patient expenses decreased as a
percentage of revenue due to fixed costs being offset by increased revenues.
Selling, general and administrative expense increased to $198,000 from $187,000
a year earlier. Interest expense declined to $101,000 from $128,000 in the
previous year. The decrease was due to capitalization of $60,000 of interest
costs related to the New York Gamma Knife. As a result the Company had income of
$35,000 compared to $85,000 for the same period, a year earlier.
Liquidity and Capital Resources
For the three months ended March 31, 1997, net cash provided by operating
activities was $350,000 as compared to $177,000 in 1996. Depreciation and
amortization expense was $161,000 as compared to $156,000 for the same period in
1996. Accounts receivable increased by $292,000 as compared to a decrease of
$299,000 a year earlier.
The Company had net cash used in investing activities of $391,000 as
compared to $89,000 for the same period a year earlier. The Company is in the
process of completing the site for the NYU Gamma Knife. There were $383,000 of
leasehold improvements made during the quarter.
6
<PAGE>
Net cash provided by financing activities was $18,000 as compared to net cash
used of $142,000 in the same period in 1996. The Company refinanced the lease in
the Kansas City Gamma Knife. In the process the Company financed an additional
$625,000 to complete construction of the New York facility. The leasing company
for both projects is DVI Financial Services. The interest rate on the new lease
us 9.9% as compared to 131/2 % on the original lease. The term is 39 months and
the payments are $827,000 per annum.
7
<PAGE>
PART II
OTHER INFORMATION
GHS, INC. AND SUBSIDIARIES
Item 6. Exhibits and Reports on Form 8-K
(a) None
(b) On March 10, 1997 the Company filed a form 8-K. GHS, Inc. announced
that it entered into a definitive asset purchase agreement with Health
Management Systems, Inc. (HMSY) pursuant to which HMSY will acquire
substantially all of the assets of GHSI's subsidiaries, Global Health
Systems, Inc. and GHS Management Services.
8
<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.
GHS, INC.
Date May 07, 1997 By /s/ Alan Gold
---------------------------------
Alan Gold
Director and President
Chief Executive Officer
