SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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 $____________ 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.
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.
Global's facilities management and management service contracts are billed
monthly for the life of the contract term, generally, two to five years.
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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 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,
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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
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
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$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
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The Company's Common Stock trades in the over-the-counter market, NASDAQ
symbol GHSI. 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
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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
<CAPTION>
As at
December 31,
----------------------------------------------------------------------
1996 1995 1994 1993 1992
Balance Sheet
Data:
<S> <C> <C> <C> <C> <C>
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>
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.
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Results of Operations
1996 Compared to 1995
Total revenues declined 5% in 1996 to $4,232,000 from $4,445,000 in 1995. New
systems sales decreased 50% 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.
Total expenses increased 5% to $4,361,000 from $4,140,000 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. 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.
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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 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. This was due to an increase in operating expenses and a decrease in
gross profit on software systems. 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.
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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.
In 1995, 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 the NYU Gamma Knife.
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.
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.
18
<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 &
19
<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.
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
--------------------------
Annual Compensation
Name and -------------------
Principal Position Year Salary($)
- ------------------ ---- ---------
Alan Gold,
President & Director 1996 $150,000
1995 $150,000
1994 $144,400
The Company and Mr. Gold are parties to an employment agreement giving
either the Company or Mr. Gold the option to terminate the agreement by giving
the other party 6 months written notice.
Stock Option Plan
Effective March 7, 1986, and as amended June 18, 1987, the Company adopted
a 1986 Stock Option Plan (the "Plan") pursuant to which options to purchase up
to 750,000 shares of the Company's Common Stock may be granted to directors,
officers and other key employees of the Company. As of March 31, 1997, 360,000
options were outstanding under the Plan. The Plan is administered by the Board
of Directors. The options may be either incentive stock options conforming to
the provisions of Section 422A of the Internal Revenue Code, or non-qualified
options. The purchase price for shares under each option, incentive or
non-qualified, is determined by the Board but will
20
<PAGE>
not be less than 100% and 90%, respectively, of the fair market value of the
Common Stock at the time the option is granted. If an employee at the time the
option is proposed to be granted owns more than 10% of the voting stock of the
Company, the option price for incentive options will not be less than 110% of
the fair market value of the Common Stock on the date of grant and the option
will continue in effect for not more than five years. No options may be granted
under the Plan after 1996. The exercise price must be paid in full upon exercise
of an option, in cash or in shares of Common Stock of the Company. Options are
nontransferable except by will or by the laws of descent and distribution.
Aggregate Unexercised Options & Option Values at December 31, 1995
------------------------------------------------------------------
Value of Unexercised In-The
Number of Unexercised Options Money Options at December
at December 31, 1996 (#) 31, 1996 ($)
Name Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------------------- -------------------------
Alan Gold 137,000 / 12,000 $34,250/3,000 (1)
----------------
(1) Based on average of closing bid and asked prices of the Company's common
stock on December 31, 1996.
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%
21
<PAGE>
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.
(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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In September 1996 the Company exercised its option to purchase the 20%
interest in USN owned by A Hyman Kirshenbaum, M.D. and Jerry Brown, Ph.D..
Pursuant to an agreement with Messieurs. Kirshenbaum and Brown, the number of
GHS, Inc. shares to be issued to such individuals, as a result of the exercise
of such options, is 33,200.
22
<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
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).
23
<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
24
<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) Agreement dated November 26, 1996, between US NeuroSurgical,
Inc. and New York University on behalf of New York University
Medical Center.
(q) Agreement dated August 1, 1996, between US NeuroSurgical, Inc.
and DVI Financial Services, Inc.
(r) Asset Purchase Agreement dated March 10, 1997 between Health
Management Systems, Inc. and GHS, Inc..
25
<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: April 08, 1996
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.
April 08, 1996 /s/ Alan Gold
---------------------------------------------------
Alan Gold
President and Director
(Chief Executive, Financial Officer)
April 08, 1996 /s/ William F. Leimkuhler
---------------------------------------------------
William F. Leimkuhler
Director
April 08, 1996 ___________________________________________________
Jerry M. Brown, Ph.D.
Director
26
<PAGE>
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.
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
Year Ended December 31,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
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
=========== =========== ===========
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
Progress payments - Gamma Knife. . . . . . . . . . . . . . . . . . . . . . (1,450,000) (1,160,000)
Cost incurred with leasehold improvements. . . . . . . . . . . . . . . . . (520,000)
----------- ------------ ----------
Net cash (used in) investing activities. . . . . . . . . . . . . (1,517,000) (1,243,000) (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 . . . . . . . . . . . . . . . . . . . . . . . . 1,975,000 1,160,000
Release from escrow of proceeds from sale of common shares with put option 500,000
----------- ------------ ----------
Net cash provided by financing activities. . . . . . . . . . . . 1,333,000 850,000 280,000
----------- ------------ ----------
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
</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 investment in a computerized processing systems provider 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:
The cost of furniture and equipment is depreciated on the
straight-line method over the estimated useful lives of such assets. Leasehold
improvements are amortized over 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.
(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:
Year Ended December 31,
------------------------------------
1996 1995 1994
---------- ---------- ----------
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. . . . . . . . . . $ (463,000) $ (136,000) $ (327,000)
Gamma Knife. . . . . . . . . 491,000 441,000 (139,000)
---------- ---------- ----------
Operating income (loss). . . 28,000 305,000 (466,000)
---------- ---------- ----------
Interest (expense). . . . . . . (309,000) (504,000) (308,000)
Investment income . . . . . . . 2,000 1,000 23,000
---------- ---------- ----------
T o t a l . . . . . . (307,000) (503,000) (285,000)
---------- ---------- ----------
Loss before income tax benefit
and minority interest. . . . $ (279,000) $ (198,000) $ (751,000)
========== ========== ==========
December 31,
------------------------------------
1996 1995 1994
---------- ---------- ----------
Assets:
Computerized processing
systems. . . . . . . . . . $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
========== ========== ==========
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.
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
Balance (1) (2)
at Charged to Balance
beginning Charged to other at
of costs and accounts - Deductions - end of
Description period expenses describe (A) describe (B) period
Allowance for doubtful accounts:
<S> <C> <C> <C> <C>
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
GAMMA KNIFE NEURORADIOSURGERY EQUIPMENT AGREEMENT
THIS AGREEMENT is made and entered into this 26th of November, 1996 by and
between NEW YORK UNIVERSITY on behalf of NEW YORK UNIVERSITY MEDICAL CENTER
(hereinafter referred to as "NYU"), a New York education corporation, whose
Medical Center's principal offices are located at 550 First Avenue, New York,
New York, and U.S. NEUROSURGICAL, INC., a Delaware corporation with its
principal office at 1350 Piccard Drive, Suite 360, Rockville, Maryland 20850
(hereinafter referred to as "U.S. Neuro").
WITNESSETH:
WHEREAS, U.S. Neuro has entered into the LGK Purchase Agreement, dated as
of December 29, 1993 (the "Purchase Agreement"; all capitalized terms used
herein without definition shall have the respective meanings set forth in the
Purchase Agreement), pursuant to which U.S. Neuro has agreed to purchase from
Elekta Instruments, Inc. ("Elekta") a "Leksell Gamma Knife" (including the
cobalt supply therefor) which meets the specifications set forth in Exhibit A
attached hereto and made a part hereof and to otherwise provide the equipment
described on Exhibit A (hereinafter, collectively, referred to as the "Gamma
Knife Equipment");
WHEREAS, U.S. Neuro has assigned its right to purchase the Gamma Knife
Equipment under the Purchase Agreement to DVI Financial Services Inc. ("DVI")
and Elekta has consented to such assignment;
WHEREAS, U.S. Neuro and DVI have entered into the Master Equipment Lease
Agreement, dated as of August 1, 1996 (the "DVI Lease Agreement"), pursuant to
which (i) DVI has agreed to take title to the Gamma Knife Equipment and lease it
to U.S. Neuro and (ii) U.S. Neuro has agreed to lease the Gamma Knife Equipment
from DVI and make certain fixed rental payments therefor, all in accordance with
the terms and conditions of the DVI Lease Agreement;
WHEREAS, U.S. Neuro and NYU desire to provide for (i) the installation of
the Gamma Knife Equipment at NYU for use by NYU in the treatment of its
patients, (ii) maintenance, insurance and other matters with respect to U.S.
Neuro's leasehold interest in the Gamma Knife Equipment to be the responsibility
of U.S. Neuro and (iii) the fees payable by NYU for patient procedures
undertaken using the Gamma Knife Equipment;
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NOW, THEREFORE, in consideration of the mutual covenants and promises
herein contained and intending to be legally bound, the parties agree as
follows:
ARTICLE I
1.01 CON; Licenses. NYU and U.S. Neuro will work cooperatively to
prepare and file (i) with the Department of Health of the State of New York an
application for a Certificate of Need supporting the installation and use in
patient care of the Gamma Knife Equipment at NYU and any amendments or
supplements thereto that may be necessary (the "CON") and (ii) with New York
City an application for all necessary permits, licenses and/or permissions for
the use of radioactive materials for medical purposes in connection with the
Gamma Knife Equipment. The parties acknowledge that the preparation of such
applications is dependent upon the cooperation of Elekta and DVI and receipt of
all information and documentation necessary to complete such applications. The
costs associated with preparation and submission of such applications shall be
paid by U.S. Neuro.
1.02 Conditions Precedent; Preparation of Facility.
(a) Upon:
(i) obtaining the CON;
(ii) delivery to NYU of an agreement of Elekta (a) to provide
maintenance services for the Gamma Knife Equipment including, without
limitation, the replenishment of the cobalt installed in the Gamma Knife
Equipment at such time as is required in accordance with law and the
operating procedures in place with respect to the Gamma Knife Equipment
and the removal and disposal of any such cobalt and (b) consenting to the
assignment by U.S. Neuro to NYU of all of the warranties, licenses and
other rights with respect to the Gamma Knife Equipment and any related
software or documentation available to the "purchaser" under the Purchase
Agreement, all in form and substance reasonably satisfactory to NYU and
U.S. Neuro;
(iii) DVI having (A) taken title to the Gamma Knife Equipment and
leased such Equipment to U.S. Neuro under the DVI Lease Agreement and (B)
delivered to NYU an agreement of DVI consenting to the terms of this
Agreement and offering to NYU the right to assume the DVI Lease Agreement
upon the occurrence of an event of default on the part of U.S. Neuro, all
in form and substance reasonably satisfactory to NYU and U.S. Neuro;
(iv) U.S. Neuro and NYU obtaining all necessary permits, licenses
and approvals with respect to the use of the
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Gamma Knife Equipment as contemplated by this Agreement from New York City
and any other relevant governmental authority;
(v) U.S. Neuro providing to NYU, at the sole expense of U.S Neuro,
all necessary sublicenses and other rights necessary to enable NYU to
possess and operate the Gamma Knife Equipment including, without
limitation, all software licenses;
(vi) delivery to NYU of a copy of the Test Report delivered by
Elekta under the Purchase Agreement showing compliance of the Gamma Knife
Equipment with the Specifications;
(vii) compliance by U.S. Neuro with all of the conditions precedent
to delivery of the Gamma Knife Equipment under the Purchase Agreement;
(viii) U.S. Neuro causing to be established (x) an escrow account
with a bank satisfactory to NYU in the amount of $825,000 and (y) a firm
commitment on the part of DVI or other third party satisfactory to NYU to
fund an additional $100,000, in each case to fund the cost of constructing
the Neuroradiosurgery Facility in accordance with the terms of this
Agreement (including, without limitation, the infrastructure expenses
referred to in Section 1.02(b)), all on terms and conditions satisfactory
to NYU; and
(ix) delivery to NYU of the construction drawings and specifications
for the Neuroradiosurgery Facility (as defined below) issued by Albert
Schunkewitz & Partners ("Schunkewitz") on July 3, 1996;
U.S. Neuro shall take, or shall cause third persons to take, all steps which may
be necessary or requested by NYU to have prepared, constructed and made ready
NYU's facility located at 530 First Avenue, Cellar Level, New York, New York
(the "Neuroradiosurgery Facility") for installation of the Gamma Knife Equipment
in compliance with the terms of the Purchase Agreement, the drawings and
specifications delivered pursuant to Section 1.02(a)(ix) and all applicable law
and regulations including, without limitation, any construction or alteration of
the physical premises, wiring, working with NYU to prepare a safety plan,
providing any temporary and permanent shielding for the Charging of the Gamma
Knife Equipment and its use, building foundations for the Gamma Knife Equipment,
shielding, walls, alignment of the facility, installation of radiation
monitoring equipment, the performance of any testing required by applicable law
and regulations and any resulting modifications or alterations to the Gamma
Knife Equipment and the Neuroradiosurgery Facility. As between U.S Neuro and
NYU, U.S Neuro shall bear all costs and expenses of such preparation and any
liability
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associated therewith; provided that U.S. Neuro shall not bear liability for any
action or failure to act on the part of NYU which constitutes willful misconduct
or negligence.
(b) U.S. Neuro shall construct the Neuroradiosurgery Facility in a
timely manner and in accordance with applicable law and regulations, the
requirements of the Purchase Agreement and the drawings and specifications
issued by Schunkewitz on July 3, 1996. All construction, architecture,
engineering and other work conducted in connection with the construction of the
Neuroradiosurgery Facility shall be performed by third-party contractors
selected by U.S. Neuro and satisfactory to NYU. U.S. Neuro shall contract with
such third-party contractors pursuant to NYU's standard form contracts for such
services modified to reflect the relevant parties and appropriate insurance
coverage for NYU and, in each case, such contracts shall be satisfactory to NYU.
U.S. Neuro shall be solely responsible for payment of all amounts owing to the
third-party contractors under the contracts entered into by U.S. Neuro.
U.S. Neuro shall, at its sole cost, hire a contractor to work
on-site to supervise and administer the construction of the Neuroradiosurgery
Facility and coordinate such construction with other construction projects at
NYU. In addition to reporting to U.S. Neuro, the on-site contractor shall report
regularly to the Vice President for Facilities Management of NYU on the progress
of construction and any outstanding issues relating thereto, and shall consult
with such Vice President as to all decision-making with respect to the
construction.
U.S. Neuro shall deliver to NYU copies of all documentation relating
to the construction received by it or prepared by it and NYU shall at all times
retain final authority over all decision-making by U.S. Neuro with respect to
the construction.
U.S. Neuro shall reimburse NYU for a portion of the cost of certain
infrastructure work being undertaken by NYU to support the Neuroradiosurgery
Facility and other facilities of NYU located nearby consisting of the
installation of a new HVAC unit and related construction. The actual portion for
which U.S. Neuro shall be responsible shall be determined by Schunkewitz and
shall be binding upon both U.S. Neuro and NYU. Within five (5) business days
following delivery by Schunkewitz to U.S. Neuro and NYU of an allocation of such
costs between U.S. Neuro and NYU, U.S. Neuro shall pay the amount so allocated
to it in immediately available funds to NYU. In the event that U.S. Neuro does
not pay such amounts when due, such amounts shall accrue interest at the rate of
12% per annum from the date on which such payment was due to and including the
date on which such payment is actually made. NYU may in addition to other
remedies hereunder, but shall not be under any obligation to, offset such
amounts against any amounts then payable by NYU to U.S. Neuro under this
Agreement
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and apply such amounts to reimburse itself for the payment of such expenses.
(c) Notwithstanding the provisions of Section 1.02(a), in the event
that construction of the Neuroradiosurgery Facility is begun prior to all of the
conditions precedent to such construction having been satisfied in full, such
conditions shall not be deemed to have been waived or modified and U.S. Neuro
shall use its best efforts to satisfy each such condition in full on the
earliest possible date. In the event that (i) all conditions precedent set forth
in Section 1.02(a) shall not have been met by June 30, 1997 or (ii) construction
of the Neuroradiosurgery Facility shall not have been completed in accordance
with the terms of this Agreement, then in each case, this Agreement shall
automatically, without notice or other action, terminate and be of no further
force or effect and U.S. Neuro shall, subject to applicable law and regulations,
provide for any work performed on the Neuroradiosurgery Facility to be
dismantled, any Gamma Knife Equipment to be removed and the premises to be
restored to their original condition, in each case at the sole cost, expense and
liability of U.S. Neuro. In the event that applicable law and regulations
prevent the closing of the Neuroradiosurgery Facility, this Agreement shall
continue on the same terms and conditions until the earliest date upon which the
Facility may be closed in accordance with applicable law and regulations.
(d) In the event that NYU determines that amounts are (i) owed to
contractors employed by U.S. Neuro to construct the Neuroradiosurgery Facility
and such contractors are likely to either cease work on the Facility or impose a
lien or other encumbrance upon any property or asset of NYU or (ii) required to
be expended in order to complete the Neuroradiosurgery Facility in accordance
with Section 1.02(b) and U.S. Neuro has not made provision for such expenditures
in a manner that is reasonably satisfactory to NYU, then NYU may (but shall not
be under any obligation to), in addition to its other remedies hereunder, pay
such amounts itself and offset such amounts against any amounts then payable by
NYU to U.S. Neuro under this Agreement. If there are no payments owing under
this Agreement for NYU to offset against, upon written notice from NYU, U.S.
Neuro shall immediately reimburse NYU for the amount of such payment, together
with interest thereon at the rate of 12% per annum from the date on which NYU
made the payment to and including the date on which NYU is actually reimbursed
therefor.
1.03 Delivery; Installation. Upon completion of the
Neuroradiosurgery Facility to the extent necessary for installation of the Gamma
Knife Equipment, to the satisfaction of NYU, U.S. Neuro shall take all steps
necessary to deliver, or cause third persons to deliver, the Gamma Knife
Equipment, together with all related software and user manuals, to the NYU
facility
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and to undertake all procedures and tasks as are necessary to enable the Gamma
Knife Equipment to be properly subjected to the Acceptance Tests, including
Charging the Gamma Knife Equipment with its Cobalt Supply. As between U.S. Neuro
and NYU, U.S. Neuro shall bear all costs and expenses of such delivery and
installation and any liability associated therewith.
1.04 Acceptance Testing. (a) Promptly upon completion of the
installation of the Gamma Knife Equipment in accordance with the terms of this
Agreement and the Purchase Agreement, U.S. Neuro shall cause Elekta to perform
the Acceptance Tests in the presence of U.S. Neuro and NYU and under the
supervision of such radiation safety personnel as may be required by applicable
law. U.S. Neuro shall be deemed to have accepted the Gamma Knife Equipment under
the Purchase Agreement upon the completion of the Acceptance Tests and the
demonstration that the Gamma Knife Equipment complies with the Specification.
(b) NYU shall have the option of (but shall be under no obligation
to) performing an inspection or causing a third party to perform an inspection
on its behalf to confirm that the Gamma Knife Equipment and the
Neuroradiosurgery Facility satisfy NYU's requirements under this Agreement. Any
such inspection shall be fully supervised by U.S. Neuro and shall occur promptly
following the testing conducted by Elekta.
(c) Upon satisfactory completion of the inspection conducted by
Elekta and any inspection conducted by or on behalf of NYU, NYU shall accept the
Gamma Knife Equipment under this Agreement.
1.05 Documentation. U.S. Neuro shall promptly forward to NYU copies
of all reports, documentation, notices, certificates, diagrams and other
materials prepared by or on behalf of U.S. Neuro or Elekta relating to the
delivery, installation and testing of the Gamma Knife Equipment. Upon any
termination of this Agreement other than a termination resulting from NYU's
exercise of its right to purchase the Gamma Knife Equipment or its right to
terminate this Agreement pursuant to Section 8.01(b), NYU shall, upon written
request of U.S. Neuro, return to U.S. Neuro all such documentation.
ARTICLE II
2.01 Term. The term of NYU's possession and use of the Gamma Knife
Equipment under this Agreement (the "Term") shall begin on the date on which NYU
accepts the Gamma Knife Equipment pursuant to Section 1.04(c) and shall
terminate on the seventh anniversary of such date, unless earlier terminated
pursuant to this Agreement.
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2.02 Renewal Option. Upon the expiration of the Term in accordance
with Section 2.01 and upon the expiration of any Renewal Term (as defined
below), NYU shall have the option, exercisable by giving written notice to U.S.
Neuro within 90 days prior to the expiration of the Term, of extending the Term
for successive three year periods (each, a "Renewal Term").
2.03 Purchase Option. (a) At the end of the Term and at the end of
each Renewal Term, NYU shall have the option of purchasing the Gamma Knife
Equipment at a price equal to the then fair market value of the Gamma Knife
Equipment as established by an appraiser chosen by NYU and reasonably
satisfactory to U.S. Neuro. Any such sale shall be pursuant to instruments and
documentation satisfactory to NYU including, without limitation, an express
retention by U.S. Neuro of all liability for the installation, testing,
maintenance and operation of the Gamma Knife Equipment prior to such transfer,
other than liability in connection with the operation of the Gamma Knife
Equipment resulting from action or inaction on the part of NYU which constitutes
willful misconduct or negligence. NYU may exercise such option no later than 120
days prior to the end of the Term or any Renewal Term by notifying U.S. Neuro
thereof in writing.
(b) Notwithstanding clause (a) of this Section 2.03, within 10 days
after delivery to U.S. Neuro of an appraisal pursuant to clause (a), U.S. Neuro
may deliver written notice to NYU that it elects to in good faith negotiate the
purchase price with NYU. In such event, U.S. Neuro shall bear half of the costs
associated with the obtaining of the appraisal and the parties shall in good
faith negotiate a purchase price for the Gamma Knife Equipment. Upon failure of
the parties to agree to a purchase price prior to the end of the Term or such
Renewal Term, U.S. Neuro may request that the Neuroradiosurgery Facility be
closed. Upon receipt of a request of U.S. Neuro to close the Neuroradiosurgery
Facility, NYU and U.S. Neuro shall negotiate in good faith to close the Facility
subject to applicable law and regulations, provide for the Neuroradiosurgery
Facility to be dismantled, the Gamma Knife Equipment to be removed and the
premises to be restored to their original condition, in each case at the sole
cost, expense and liability of U.S. Neuro. In the event that applicable law and
regulations prevent the closing of the Neuroradiosurgery Facility, this
Agreement shall continue on the same terms and conditions until the earliest
date upon which the Facility may be closed in accordance with applicable law and
regulations.
ARTICLE III
3.01 The NYU Facility. The Neuroradiosurgery Facility shall be
available for patient care and staffed by NYU personnel during NYU's normal
hospital business hours. NYU acknowl-
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edges that the availability of the Gamma Knife Equipment for patient care is
subject to preventive maintenance work and unavoidable equipment failures. The
Neuroradiosurgery Facility shall at all times be under the sole control of NYU
and NYU may institute such policies and procedures concerning access to the
Facility or otherwise as it may deem necessary or appropriate.
3.02 Personnel; Training. The Neuroradiosurgery Facility shall be
staffed with physicists, nurses, technologists and clerical personnel as may be
deemed necessary by NYU for the operation of the Neuroradiosurgery Facility.
U.S. Neuro shall provide, or shall cause Elekta to provide, to the staff
designated on Exhibit B hereto the training necessary for the proper operation
of the Gamma Knife Equipment including, without limitation, all initial, upgrade
and refresher training which is provided by Elekta. Such training shall be at
the sole expense of U.S. Neuro except that U.S. Neuro shall not be responsible
for payment of the travel and living expenses of NYU personnel incurred in
connection with such training.
3.03 Physician and Physicist Training. U.S. Neuro shall provide, or
shall cause Elekta to provide, comprehensive training on the use of the Gamma
Knife Equipment for the physicians and physicists designated on Exhibit B
hereto. Such training shall be at the sole expense of U.S. Neuro, except that
U.S. Neuro shall not be responsible for payment of the travel and living
expenses of NYU personnel incurred in connection with such training, and shall
be provided at clinically operating sites which utilize equipment comparable to
the Gamma Knife Equipment.
3.04 Medical and Office Supplies. U.S. Neuro shall purchase and
maintain sufficient inventories of Gamma Knife Equipment supplies as may be
necessary to ensure continuous availability of the Gamma Knife Equipment during
the business hours of the Neuroradiosurgery Facility. U.S. Neuro shall not be
responsible hereunder for the purchase of expendable supplies used in the
operation of the Neuroradiosurgery Facility (e.g. sponges, office supplies,
medications and solutions).
3.05 Physician Relationships. NYU shall direct and administer all
physician services provided at the Neuroradiosurgery Facility. U.S. Neuro shall
have no oversight or other role in directing or administering such physician
services or the operation of the Neuroradiosurgery Facility. NYU shall provide
to U.S. Neuro a copy of the curriculum vitae of each physicist and physician
operating the Gamma Knife Equipment.
3.06 Information. U.S. Neuro and NYU shall cooperate in an effort to
provide information to the general public about the Gamma Knife Equipment and
the Neuroradiosurgery Facility. The cost of materials produced pursuant to this
Section 3.06 shall be shared equally by U.S. Neuro and NYU.
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ARTICLE IV
4.01 Maintenance of Gamma Knife Equipment. (a) U.S. Neuro shall, at
its sole cost and expense, be responsible for (i) the maintenance, repair and
insuring of the Gamma Knife Equipment in accordance with the terms of this
Agreement, the Purchase Agreement, the DVI Lease Agreement, applicable law and
regulations and any directives issued by Elekta, and otherwise in good, safe and
efficient operating repair, appearance and condition including, without
limitation, keeping all components properly calibrated and aligned and making
all required adjustments, replacements and repairs (except that (A) NYU shall
perform such daily and routine calibration, alignment and cleaning with respect
to which U.S. Neuro has provided training to the staff of the Neuroradiosurgery
Facility pursuant to Section 3.02 and 3.03 and (B) U.S. Neuro shall not bear the
cost of, but shall otherwise be responsible for, repairs resulting from action
on the part of NYU which constitutes willful misconduct or negligence), and (ii)
full compliance with all of the terms and conditions of the Purchase Agreement
and the DVI Lease Agreement, and, in each case, NYU hereby expressly disclaims
any such responsibility. At a minimum, U.S. Neuro shall purchase a preventive
maintenance contract from Elekta or from a vendor approved by Elekta, which
contract shall provide for a remote service diagnostic program, replenishment of
radioactive cobalt 60 as necessary for the proper operation of the Gamma Knife
Equipment and removal and disposal of such cobalt, and updating/upgrading of
computer software as new updates/upgrades which are clinically efficacious and
financially feasible become available.
(b) NYU shall have no duty to inspect the Gamma Knife Equipment or
perform any maintenance or other tasks described in Section 4.01(a) (except the
daily and routine calibration, alignment and cleaning referred to therein) and
U.S. Neuro shall perform such regular inspections of the Gamma Knife Equipment
as it shall deem necessary to comply with its obligations under Section 4.01(a).
However, in the event that a maintenance or other problem is brought to the
attention of NYU, NYU shall promptly notify U.S. Neuro thereof and U.S. Neuro
shall immediately take all steps which may be required to ensure compliance with
Section 4.01(a).
(c) All repairs and preventive maintenance will be performed during
regular business hours and pursuant to a schedule agreed upon by U.S. Neuro and
NYU to minimize delays, interruptions and disruptions of service to patients of
the Neuroradiosurgery Facility and its medical staff. Emergency maintenance and
repairs will be performed by U.S. Neuro at such times as U.S. Neuro and NYU may
agree.
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4.02 Updates, upgrades and enhancements. U.S. Neuro will purchase
and arrange for installation of all hardware and software updates to the Gamma
Knife Equipment at its sole cost and expense. U.S. Neuro shall notify NYU in
writing promptly upon receipt of notice from Elekta of the availability of any
optional and/or mandatory upgrades or enhancements of the Gamma Knife Equipment
(other than the hardware and software contained therein) and NYU and U.S. Neuro
shall mutually determine whether acquisition of such upgrade or enhancement is
necessary for the Neuroradiosurgery Facility to remain competitive with other
neuroradiosurgery facilities. If purchase and installation of such upgrade or
enhancement is determined to be necessary for the Neuroradiosurgery Facility to
remain competitive with other neuroradiosurgery facilities, then U.S. Neuro will
purchase and arrange for installation of such upgrade and/or enhancement. If any
such upgrade or enhancement is not determined to be necessary for the
Neuroradiosurgery Facility to continue to be competitive but NYU requests in
writing that U.S. Neuro acquire such upgrade or enhancement, then (a) U.S. Neuro
shall purchase and arrange for installation of such upgrade or enhancement and
such upgrade or enhancement shall, upon installation, become part of the Gamma
Knife Equipment covered by this Agreement and (b) the schedule of charges set
forth in Section 5.01 shall be increased by an amount sufficient for U.S. Neuro
to recover the cost of such upgrade or enhancement over a period of time
together with a reasonable profit, such increases and payment schedule to be
acceptable to NYU and U.S. Neuro.
4.03 Uptime. U.S. Neuro shall use its best efforts to obtain an
uptime guaranty for the benefit of U.S. Neuro and NYU from Elekta which assures
that the Gamma Knife Equipment will be fully operational for patient use at all
times except such times which, in the aggregate, do not exceed 5% of the total
business hours of the Neuroradiosurgery Facility in any calendar year.
4.04 Purchase Agreement. U.S. Neuro shall, at its sole expense,
exercise all rights as "purchaser" under the Purchase Agreement, or shall cause
DVI to exercise such rights, and obtain all benefits with respect to the Gamma
Knife Equipment thereunder, as may be required in order for U.S. Neuro to comply
with its obligations under this Agreement or as may be requested in writing by
NYU in connection with the operation of the Gamma Knife Equipment or the
Neuroradiosurgery Facility or the performance by NYU of its obligations under
this Agreement.
4.05 Risk of Loss. As between U.S. Neuro and NYU, U.S. Neuro shall
exclusively bear all risk of loss, requisition, damage, theft or destruction
with respect to the Gamma Knife Equipment, except that U.S. Neuro shall not bear
any such risks which result from any action or failure to act on the part of NYU
which constitutes willful misconduct or negligence.
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4.06 Removal of Equipment. If, for any reason other than an exercise
of remedies by NYU pursuant to Section 8.01(b), the Gamma Knife Equipment is to
be removed from the Neuroradiosurgery Facility, NYU shall be given at least 90
days advance written notice of such proposed removal, together with a written
plan describing the steps to be taken to remove the Equipment, to restore the
Neuroradiosurgery Facility to its original condition and to cover the costs of
such removal including, without limitation, appropriate insurance and
indemnification of NYU. NYU shall have the right to review and give its prior
approval (such approval not to be unreasonably withheld or delayed) of any such
plan and the work to be taken pursuant to such plan. Any removal of the Gamma
Knife Equipment from the Neuroradiosurgery Facility shall be (a) subject to
applicable law and regulations and (b) at the sole cost and liability of U.S.
Neuro. In the event that applicable law and regulations prevent the removal of
the Gamma Knife Equipment from the Neuroradiosurgery Facility, this Agreement
shall continue on the same terms and conditions until the earliest date upon
which the Equipment may be removed in accordance with applicable law and
regulations.
ARTICLE V
5.01 U.S. Neuro Compensation. As U.S. Neuro's sole compensation for
the provision of the Gamma Knife Equipment for the Neuroradiosurgery Facility
and all related services provided hereunder, NYU agrees to pay to U.S. Neuro a
fee based on the number of patient procedures performed with the Gamma Knife
Equipment in accordance with the following schedule:
Consecutive Number of Patient Procedures Fee per Procedure
- ---------------------------------------- -----------------
first through 150th (inclusive)
patient procedures $10,000
151st through 200th (inclusive)
patient procedures $ 8,000
200th and subsequent
patient procedures $ 7,000;
provided that (a) with respect to any patient procedure using the Gamma Knife
Equipment for which NYU is not reimbursed for the full DRG inpatient amount:
(i) because NYU and U.S. Neuro have both participated in an
agreement by NYU with a third-party or the New York State governmental
authorities that determine DRG reimburse-
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ment (the "Governmental Authorities") to a negotiated fee that is lower
than the full DRG inpatient reimbursement, NYU shall be required to pay to
U.S. Neuro the percentage of the actual amount received by NYU as payment
for such patient procedure agreed by NYU and U.S. Neuro;
(ii) because NYU has, without participation by U.S. Neuro, agreed
with a third-party or with the Governmental Authorities to a negotiated
fee that is lower than the full DRG inpatient reimbursement, NYU shall be
required to pay to U.S. Neuro the full fee set forth above;
(iii) because NYU has determined in its sole discretion to provide
charity care using the Gamma Knife Equipment to a patient, NYU shall be
required to pay to U.S. Neuro 50% of the actual amount received by NYU, if
any, as payment for such patient procedure; and
(iv) because a determination has been made by a third party or the
Governmental Authorities to reimburse NYU with respect to such patient
procedure at a rate applicable to ambulatory surgery procedures or
"short-stay" hospital procedures, NYU shall be required to pay to U.S.
Neuro 50% of the actual amount received by NYU as payment for such patient
procedure;
and (b) any patient procedure using the Gamma Knife Equipment for which NYU is
not reimbursed for the full DRG inpatient amount (other than pursuant to clause
(ii) of the proviso to this Section 5.01) shall not be counted for purposes of
calculating the consecutive number of patient procedures referenced above;
provided, further, that (x) in the event the number of patient procedures for
which NYU is not reimbursed for the full DRG inpatient amount for the reason
specified in clause (iii) of the immediately preceding proviso during any
calendar quarter exceeds 10% of all patient procedures performed using the Gamma
Knife Equipment during such calendar quarter, U.S. Neuro may request that U.S.
Neuro and NYU consult in good faith as to appropriate adjustments to the
provisions of Section 5.01 covering such procedures and (y) in the event the
number of patient procedures for which NYU is not reimbursed for the full DRG
inpatient amount for the reasons specified in clauses (iii) and (iv) of the
immediately preceding proviso during any calendar quarter exceeds 40% of all
patient procedures performed using the Gamma Knife Equipment during such
calendar quarter, U.S. Neuro shall have the option, exercisable upon delivery of
written notice to NYU, to request that the Neuroradiosurgery Facility be closed.
Upon receipt of a request of U.S. Neuro to close the Neuroradiosurgery Facility,
NYU and U.S. Neuro shall negotiate in good faith to either (I) substitute a
revised payment scheme taking into account the actual number of reduced-fee
patient procedures or (II) subject to applicable law and regulations, provide
for the
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Neuroradiosurgery Facility to be dismantled, the Gamma Knife Equipment to be
removed and the premises to be restored to their original condition, in each
case at the sole cost, expense and liability of U.S. Neuro. In the event that
applicable law and regulations prevent the closing of the Neuroradiosurgery
Facility, this Agreement shall continue on the same terms and conditions until
the earliest date upon which the Facility may be closed in accordance with
applicable law and regulations.
U.S. Neuro acknowledges and agrees that (a) its participation in any
negotiations with third parties or the Governmental Authorities as to
reimbursement for Gamma Knife procedures may occur indirectly through NYU and
U.S. Neuro agrees to use reasonable efforts to consult with NYU in a timely
manner with respect to any such negotiations and (b) ultimately, NYU shall have
the right to make agreements with such third parties and the Governmental
Authorities as NYU shall deem necessary or appropriate and if U.S. Neuro shall
not have participated in the negotiation of any such agreement, the fee payable
to U.S. Neuro shall be determined in accordance with clause (a) (ii) of the
first proviso to Section 5.01.
NYU and U.S. Neuro agree that, in the event the Governmental
Authorities implement changes to the DRG reimbursement scheme that materially
effect the reimbursement rates for patient procedures using the Gamma Knife
Equipment, NYU and U.S. Neuro will negotiate in good faith to substitute a
revised payment scheme corresponding to such changes and maintaining, to the
extent possible, the allocation of amounts received as reimbursement between NYU
and U.S. Neuro set forth in Section 5.01.
5.02 Billing and Collection. NYU shall be the only party entitled to
bill and collect from third party payors and patients for patient procedures
using the Gamma Knife Equipment and for the use of the Neuroradiosurgery
Facility. Physicians who perform patient procedures using the Gamma Knife
Equipment shall be responsible for billing and collection of fees for their
services to patients, and U.S. Neuro shall have no interest in such fees.
5.03 Payment Procedures.
(a) Payement Procedure. Within ten (10) days after the end of each
month in which patient procedures are performed by NYU using the Gamma Knife
Equipment in the Neuroradiosurgery Facility (the "Current Month"), NYU shall pay
to U.S. Neuro an amount equal to (i) the number of patient procedures performed
by NYU during the Current Month for which NYU expects to receive full DRG
reimbursement multiplied by the appropriate fee or fees stated in 5.01 above for
such procedures plus (ii) with respect to patient procedures performed by NYU
during the Current Month or prior months for which NYU did not receive the full
DRG
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inpatient reimbursement amount, the amount, if any, determined to be payable by
NYU pursuant to the first proviso to Section 5.01 (and which are not covered by
fees payable pursuant to clause (i) of this Section 5.03).
(b) Right of Set Off. Notwithstanding the provisions of Section
5.03(a) and in addition to any other offset rights contained in this Agreement,
in the event that NYU makes a payment to U.S. Neuro in error or based on a
reimbursement payment which is later denied, rescinded, revoked or in an amount
less than originally expected by NYU, NYU shall have the right to offset the
amount of such erroneous payments against any amounts due and payable to U.S.
Neuro under Section 5.03(a). If, for any reason, there are no payments under
Section 5.03(a) against which NYU may offset such amounts, U.S. Neuro will pay
such amounts to NYU in immediately available funds promptly upon receipt of a
written statement from NYU therefor.
5.04 Taxes. Any taxes or other similar charges with respect to the
Gamma Knife Equipment shall be payable by U.S. Neuro. Upon written request of
U.S. Neuro, NYU will provide to U.S. Neuro a copy of any applicable exemption
certificate for sales, use or similar taxes which may otherwise be assessable.
5.05 Patient Procedure Record; Inspection. (a) NYU shall maintain a
record in which NYU shall list the number of patient procedures at the
Neuroradiosurgery Facility using the Gamma Knife Equipment. Such record shall be
available for inspection by duly authorized representatives of U.S. Neuro during
normal business hours of the Neuroradiosurgery Facility upon advance written
notice to NYU delivered at least 5 business days prior to the proposed date of
inspection; provided that any such inspection shall not interfere with the
normal operations of the Neuroradiosurgery Facility.
(b) On no more than two occasions per calendar year, U.S. Neuro
shall have the right to perform an audit of NYU's books and records pertaining
to NYU's reimbursement for patient procedures performed using the Gamma Knife
Equipment to verify NYU's compliance with Article V of this Agreement. Any such
audit shall be conducted during NYU's normal business hours upon advance written
notice to NYU delivered at least 30 days prior to the proposed date of audit;
provided that any such audit shall not interfere with the normal operations of
the Neuroradiosurgery Facility or NYU.
(c) Any inspection or audit performed pursuant to this Section 5.05
shall be subject to such limitations and procedures as NYU shall deem necessary
or appropriate to protect the confidentiality of information concerning NYU's
patients and proprietary information of NYU in accordance with all applicable
laws and NYU policies.
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ARTICLE VI
INDEMNITY AND INSURANCE
6.01 Indemnification. (a) U.S. Neuro shall protect, indemnify,
defend and hold NYU, its employees and trustees harmless from and against any
and all cost, loss, damage, liability, obligation, penalty, claim, action, suit
and/or expense including, but not limited to, reasonable attorneys fees,
(whether or not on the basis of negligence, strict or absolute liability,
liability in tort or otherwise) in any way arising out of or resulting from (i)
the design and construction of the Neuroradiosurgery Facility, (ii) the design,
manufacture, maintenance, purchase, acceptance, condition or operation of the
Gamma Knife Equipment, (iii) this Agreement, the Purchase Agreement, the DVI
Lease Agreement or any other agreement entered into by U.S. Neuro, any affiliate
of U.S. Neuro, DVI and/or NYU relating to lease or other financing or
securitization arrangements made with respect to the Gamma Knife Equipment
and/or the construction of the Neuroradiosurgery Facility or (iv) any failure by
the Neuroradiosurgery Facility or the Gamma Knife Equipment to comply with
applicable laws and regulations.
(b) NYU shall protect, indemnify, defend and hold U.S. Neuro and its
employees harmless from and against any and all cost, loss, damage, liability,
obligation, penalty, claim, action, suit which is solely and directly the result
of (i) negligence on the part of NYU or (ii) a breach by NYU of its obligations
under this Agreement.
(c) The terms of this Section 6.01 shall survive the termination of
this Agreement.
6.02 General Liability. Throughout the term of this Agreement, U.S.
Neuro shall procure and maintain at its cost (and shall cause each subcontractor
to maintain) a policy or policies of insurance providing coverage against all
liability resulting from injury to persons or property attributable to the Gamma
Knife Equipment and/or U.S. Neuro personnel or agents on which U.S. Neuro and
NYU are named as additional insureds. Such insurance shall include
products/completed operations liability as well as broad form blanket
contractual liability coverage and professional liability coverage. Coverage
under such insurance shall be in the amount of $5,000,000 per
occurrence/$5,000,000 aggregate and shall be underwritten by insurance companies
reasonably acceptable to NYU's Director of Insurance.
6.03 Fire and Extended Coverage Insurance. Throughout the term of
this Agreement, U.S. Neuro shall procure and maintain at its cost (and shall
cause each subcontractor to maintain), fire and extended coverage insurance
underwritten by insurance
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companies authorized to do business in the State of New York on the Gamma Knife
Equipment to the extent of its full replacement value protecting against loss by
fire, the elements, and other casualties customarily covered by standard fire
and extended coverage insurance policies within the State of New York.
6.04 Automobile Liability Insurance. If U.S. Neuro will be using
automobiles (including vans, buses or similar vehicles) in connection with its
performance of services under this Agreement, U.S Neuro shall procure and
maintain at its cost (and shall cause each subcontractor to procure and
maintain), during the life of this Agreement, Automobile Liability Insurance in
an amount not less than $1,000,000 for bodily injury or death resulting
therefrom for each occurrence, and property damage in an amount not less than
$1,000,000 for each occurrence. This insurance shall apply to all owned,
non-owned, leased or hired vehicles.
6.05 Construction. The contracts covering the construction of the
Neuroradiosurgery Facility which are executed by U.S. Neuro shall require
certain types and amounts of insurance to be procured and maintained by U.S.
Neuro and the subcontractors thereunder at the cost of U.S. Neuro and/or such
subcontractor, including, without limitation, blanket explosion, collapse and
underground coverage, professional liability coverage, general and commercial
liability coverage (including, without limitation, premises operations
liability, occurrence bodily injury and broad form property damage liability,
broad form contractual liability and independent contractors liability
coverage). All such insurance shall be satisfactory to NYU in all respects.
6.06 Other Insurance. Throughout the term of this Agreement, U.S.
Neuro shall procure and maintain at its cost (and shall cause any subcontractor
to procure and maintain), insurance coverage mandated by law for worker's
compensation, occupational diseases, and employer's liability. Such insurance
shall be underwritten by companies authorized to do business in the State of New
York.
6.07 Insurance Policies; Certificates. All insurance policies
(except worker' compensation) shall be endorsed (i) to include NYU as an
additional insured, (ii) to provide that each underwriter thereof agrees that it
shall have no right of recovery or subrogation against NYU, (iii) to provide
that any "other insurance provisions" in any such policy shall not apply to NYU,
(iv) to provide that such insurance companies shall have no recourse against NYU
for payment of any premium or for assessments under any mutual form of policy
and (v) that any and all deductibles in such insurance policies shall be assumed
by, for the account of, and at the sole risk of U.S. Neuro (or the relevant
subcontractor). NYU shall be furnished on an annual
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basis upon renewal or expiration of each policy, and upon request at any time, a
current certificate evidencing each such policy or policies and all additions
and amendments thereto, and all policies shall bear endorsements to the effect
that the insurer will notify NYU not less than 60 days prior to any modification
or cancellation thereof. U.S. Neuro shall cause NYU to be furnished with
complete copies of any policies referred to in this Article upon request of NYU.
ARTICLE VII
7.01 Exclusive Rights. The Purchase Agreement contains a provision
for the benefit of U.S. Neuro which prevents Elekta, for a period of twelve
months following delivery of the Gamma Knife Equipment to the Neuroradiosurgery
Facility, from delivering any gamma knife equipment to any third person for
installation in any of the four following boroughs of New York City: Manhattan,
Bronx, Brooklyn and Queens; and Westchester County; without having first given
U.S. Neuro a right of first refusal to purchase such equipment. U.S. Neuro
acknowledges and agrees that NYU is intended to be a third-party beneficiary of
such agreement. In the event that Elekta offers to U.S. Neuro the right to
purchase a gamma knife (as described above), U.S. Neuro shall within twenty-four
hours thereafter notify NYU in writing thereof and shall provide to NYU such
details relating to the gamma knife, the proposed sale to a third person and the
terms of U.S. Neuro's right of first refusal as NYU may request. At the election
of NYU, U.S. Neuro and NYU shall negotiate in good faith to structure and
consummate a transaction involving the purchase or lease (and financing, if
applicable) of such gamma knife equipment by U.S. Neuro and an agreement for its
use at NYU or, if the demand for gamma knife procedures is significantly greater
at another location within such area, at such location as NYU and U.S. Neuro
shall agree; provided that in the event that NYU and U.S. Neuro shall have
negotiated in good faith during the period that is twenty days following
delivery of notice by U.S. Neuro to NYU hereunder and no agreement on the basic
terms of the transaction have been reached (x) U.S. Neuro shall request that
Elekta extend the period during which the right of first refusal may be
exercised and (y) if Elekta refuses such request or upon the expiration of
one-half of the period of any extension granted by Elekta beyond the original
thirty-day period offered by Elekta to U.S. Neuro under the purchase Agreement,
the parties shall have no further obligation to continue negotiating and U.S.
Neuro may proceed to effect such a transaction without involvement of NYU.
7.02 Representations and Warranties. U.S. Neuro represents and
warrants that (i) it is duly organized, validly existing and in good standing
under the laws of the jurisdiction
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of its organization, and is qualified and in good standing to do business
wherever necessary to carry on its present business and operations, including
New York State, (ii) it has the power to enter into the Purchase Agreement, the
DVI Lease Agreement and this Agreement and the other instruments and documents
executed by U.S. Neuro in connection therewith and herewith (the "Transactional
Documents") and to pay and perform its obligations under this Agreement and the
other Transactional Documents), (iii) this Agreement and the other Transactional
Documents have been duly authorized, executed and delivered by U.S. Neuro, and
constitute the valid, legal and binding obligations of U.S. Neuro enforceable in
accordance with their terms, (iv) no vote or consent of, or notice to, the
holders of any class of stock of U.S. Neuro is required, or if required, such
vote or consent has been obtained or given, to authorize the execution, delivery
and performance of this Agreement and the other Transactional Documents by U.S.
Neuro, (v) neither the execution and delivery by U.S. Neuro of this Agreement or
the other Transactional Documents, nor the consummation by U.S. Neuro of the
transactions contemplated hereby or thereby, nor compliance by U.S. Neuro with
the provisions hereof or thereof, conflicts with or results in a breach of any
of the provisions of any Certificate of Incorporation or By-law or partnership
or trust agreement or certificate of U.S. Neuro, or of any applicable law,
judgment, order, writ, injunction, decree, award, rule or regulation of any
court, administrative agency or other governmental authority, or of any
indenture, mortgage, deed of trust, lease, equipment purchase agreement or other
agreement or instrument of any nature to which U.S. Neuro is a party or by which
it or its property is bound or affected or pursuant to which it is constituted,
or constitutes a default under any thereof or will result in the creation of any
lien, charge, security interest or other encumbrance upon the Gamma Knife
Equipment other than the interests therein of DVI and Elekta, or upon any other
right or property of U.S. Neuro, (vi) no consent, approval, withholding of
objection or other authorization of or by any court, administrative agency,
other governmental authority or any other person is required, except such
consents, approvals or other authorizations which have been duly obtained and
are in full force and effect and copies of which have been furnished to NYU, in
connection with the execution, delivery or performance by U.S. Neuro, or the
consummation by U.S. Neuro, of the transactions contemplated by this Agreement
and the other Transactional Documents, (vii) there are no actions, suits or
proceedings pending, or, to the knowledge of U.S. Neuro, threatened, in any
court or before any administrative agency or other governmental authority
against or affecting U.S. Neuro, which, if adversely decided would or could,
individually or in the aggregate, materially and adversely affect the financial
or other condition, business, operations, properties, assets or prospects of
U.S. Neuro or the ability of U.S. Neuro to perform any of its obligations under
this Agreement or under the other Transactional Documents, except for any such
actions, suits
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or proceedings that U.S. Neuro has described in writing to NYU, (viii) no event
of default or event or condition which upon the passage of time, the giving of
notice, or both, would constitute an event of default hereunder or under any
Transactional Document, exists or is continuing, (x) there has been no material
adverse change or threatened change in U.S. Neuro's financial or other
condition, business, operations, properties, assets or prospects since the date
of U.S. Neuro's most recent financial statements reported on by an independent
public accounting firm prior to the date of this Agreement, or from the written
information that has been supplied to NYU by U.S. Neuro and (x) all information
supplied to NYU by U.S. Neuro is correct and does not omit any statement
necessary to make the information supplied not misleading.
ARTICLE VIII
8.01 Default by U.S. Neuro; Remedies.
(a) Event of Default Defined. If any of the following events occurs,
then such event shall be considered an "Event of Default" with respect to U.S.
Neuro under this Agreement:
(i) Failure to Perform. If (A) U.S. Neuro fails to observe or
perform any of the covenants, terms or conditions set forth in this Agreement or
(B) DVI or any bank or other third party fails to observe or perform its
obligations with respect to U.S. Neuro's lease or other financing of the Gamma
Knife Equipment or the construction of the Neuroradiosurgery Facility, and in
each case such failure continues for a period of thirty (30) days after written
notice thereof is given by NYU to U.S. Neuro (unless such failure cannot
reasonably be cured within such 30-day period and U.S. Neuro commences to cure
such failure within such 30-day period and continues diligently without
interruption to pursue the curing of the same until completed); or
(ii) Breach of Representations. If any representation or
warranty of U.S. Neuro contained in this Agreement shall be incorrect or false
in any material respect; or
(iii) Bankruptcy of U.S. Neuro. U.S. Neuro shall consent to
the appointment of or taking possession by a receiver, assignee, custodian,
sequestrator, trustee or liquidator (or other similar official) of itself or of
a substantial part of its property, or U.S. Neuro shall admit in writing its
inability to pay its debts generally as they come due or shall fail generally to
pay its debts as they become due or shall make a general assignment for the
benefit of its creditors, or U.S. Neuro shall file a voluntary petition in
bankruptcy or a voluntary petition or answer seeking or consenting to
liquidation, reorganization or
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other relief with respect to itself or its debts under the Federal bankruptcy
laws, as now or hereafter constituted or any other applicable Federal or State
bankruptcy, insolvency or other similar law, or shall consent to the entry of an
order for relief in an involuntary case under any such law or U.S. Neuro shall
file an answer admitting the material allegations of a petition filed against it
in any such proceeding, or otherwise seek relief or consent to the granting of
relief under the provisions of any existing or future Federal or State
bankruptcy, insolvency or other similar law providing for the reorganization or
winding-up of corporations, or providing for an arrangement, agreement,
composition, extension or adjustment with its creditors, or U.S. Neuro shall
take or publicly announce its intention to take corporate action in furtherance
of any of the foregoing; or
(iv) Default in Other Agreements. If a default occurs under
any agreement between U.S. Neuro and any third party providing equipment,
services or financing to U.S. Neuro in connection with the Gamma Knife
Equipment, which default is not cured within the applicable cure period set
forth under such agreement.
(b) Remedies. Upon the occurrence of an Event of Default as defined
in Section 8.01(a), NYU shall be entitled without any further notice to U.S.
Neuro, to elect to exercise one or more remedies then available including,
without limitation (i) exercising one or more of its options under any separate
agreement between DVI and NYU, (ii) terminating this Agreement and requiring
U.S. Neuro to remove the Gamma Knife Equipment from the Neuroradiosurgery
Facility, or (iii) exercising any remedies which may be available to NYU under
applicable law, and/or to seek any other remedies to which it may be entitled at
law or equity. Further, if the Event of Default is bankruptcy of U.S. Neuro,
then NYU shall be entitled to relief from any automatic stay imposed by Section
362 of Title 11 of the U.S. Code, as amended, or otherwise, on or against the
exercise of the rights and remedies otherwise available to NYU. In the event of
any bankruptcy filing by or against U.S. Neuro, U.S. Neuro agrees that neither
U.S. Neuro nor the debtor in possession nor the bankruptcy trustee shall seek to
assume nor shall any of them be entitled to assume this Agreement and in such
event NYU may immediately seek to exercise any of its rights and remedies under
this Agreement.
8.02 Default by NYU; Remedies.
(a) Event of Default Defined. If any of the following events occurs,
then such event shall be considered an "Event of Default" with respect to NYU
under this Agreement.
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(i) Nonpayment. If NYU fails to make any payment within
forty-five (45) days of the date such payment was due to U.S. Neuro hereunder,
and such failure of payment continues for more than fifteen (15) days following
written notice from U.S. Neuro; or
(ii) Failure to Perform. If NYU fails to observe or perform
any of the covenants, terms or conditions set forth in this Agreement and such
failure continues for a period of thirty (30) days after written notice thereof
is given by U.S. Neuro to NYU (unless such failure cannot reasonably be cured
within such 30-day period and NYU commences to cure such failure within such
30-day period and continues diligently without interruption to pursue the curing
of the same until completed); or
(iii) Bankruptcy of NYU. NYU shall consent to the appointment
of or taking possession by a receiver, assignee, custodian, sequestrator,
trustee or liquidator (or other similar official) of itself or of a substantial
part of its property, or NYU shall admit in writing its inability to pay its
debts generally as they come due or shall fail generally to pay its debts as
they become due or shall make a general assignment for the benefit of its
creditors, or NYU shall file a voluntary petition in bankruptcy or a voluntary
petition or answer seeking or consenting to liquidation, reorganization or other
relief with respect to itself or its debts under the Federal bankruptcy laws, as
now or hereafter constituted or any other applicable Federal or State
bankruptcy, insolvency or other similar law, or shall consent to the entry of an
order for relief in an involuntary case under any such law or NYU shall file an
answer admitting the material allegations of a petition filed against it in any
such proceeding, or otherwise seek relief or consent to the granting of relief
under the provisions of any existing or future Federal or State bankruptcy,
insolvency or other similar law providing for the reorganization or winding-up
of corporations, or providing for an arrangement, agreement, composition,
extension or adjustment with its creditors, or NYU shall take or publicly
announce its intention to take corporate action in furtherance of any of the
foregoing.
(b) Remedies. Upon the occurrence of an Event of Default as defined
in Section 8.02(a), U.S. Neuro shall be entitled, without any further notice to
NYU, to terminate this Agreement, to remove the Gamma Knife Equipment from the
Neuroradiosurgery Facility in accordance with Section 4.06, to exercise any
remedies which may be available to U.S. Neuro under this Agreement, and to seek
any other remedies to which it may be entitled at law or equity.
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ARTICLE IX
9.01 Notices. All notices under this Agreement shall be delivered in
hand or sent by registered mail or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to NYU:
New York University Medical Center
550 First Avenue
New York, NY 10016
Attn: Vice President for Finance
If to U.S. Neuro:
U.S. Neurosurgical, Inc.
Attn: President
1350 Piccard Drive
Suite 360
Rockville, MD 20850
or to such other addresses as may from time to time be designated by any party
by like notice.
ARTICLE X
10.01 Waiver. A waiver by either party of any breach or breaches,
default or defaults, of the other party hereunder shall not be deemed or
construed to be a continuing waiver of such breach or default, nor as a waiver
or permission, express or implied, of any subsequent breach or default, unless
such waiver be in writing.
10.02 Remedies Cumulative. NYU's and U.S. Neuro's rights and
remedies shall be cumulative and may be exercised and enforced concurrently. Any
right or remedy conferred upon either party under this Agreement shall not be
deemed to be exclusive of any other right or remedy it may have.
10.03 Compliance with Laws, Etc. Each party shall comply with all
laws and regulations applicable to the performance of its obligations hereunder
and U.S. Neuro shall make available to NYU requested data or information
necessary to comply with requirements of regulatory agencies (including, but not
limited to, Medicare, Medicaid, the Nuclear Regulatory Commission, and the New
York State Department of Health), and the Joint Commission on the Accreditation
of Health Care Organization and other accrediting bodies, as applicable.
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10.04 No Practice of Medicine by U.S. Neuro. Neither U.S. Neuro nor
any of its personnel shall in any way undertake the practice of medicine, render
medical opinions or services, or in any way deal with patients in connection
with the operation of the Gamma Knife Equipment or the Neuroradiosurgery
Facility hereunder, other than to provide those specific ancillary and technical
services required for proper operation of the Gamma Knife Equipment. Further,
U.S. Neuro covenants that it will not, directly or indirectly, employ or
contract for use or operation of the Gamma Knife Equipment by any physician,
group of physicians, physician organization or organization providing physician
services.
10.05 Assignment.
(a) By NYU. NYU may, without consent or approval by U.S. Neuro,
assign this Agreement to (i) a parent, subsidiary, affiliate or related entity
to NYU; (ii) an entity that acquires substantially all of the ownership
interests or assets of NYU or the NYU Medical Center (or any successor to the
foregoing) or (iii) an entity formed by NYU or NYU Medical Center (or any
successor to the foregoing) and other institutions, and upon delivering notice
of any such assignment, NYU shall be released from any further obligation to
U.S. Neuro hereunder, except for payment for services rendered through the date
of assignment. Except as provided in the preceding sentence, NYU may assign this
Agreement only with the prior written consent of U.S. Neuro, which consent will
not be unreasonably withheld or delayed. U.S. Neuro may condition its consent
upon reasonable assurances of performance received from NYU's assignee. Unless
U.S. Neuro's consent to assignment specifically releases NYU, no such assignment
shall release NYU from liability to U.S. Neuro under this Agreement for periods
prior to such assignment.
(b) By U.S. Neuro. U.S. Neuro may assign this Agreement only with
prior written consent of NYU.
(c) Subcontracts. U.S. Neuro may not assign, delegate or subcontract
any of its obligations under this Agreement to a third person without obtaining
the prior written consent of NYU.
10.06 HHS Requirements. Pursuant to the provisions of Section 952,
Section 1861(v) (1) of the United States Social Security Act as amended, U.S.
Neuro agrees for a period of up to four (4) years after furnishing service under
this Agreement, to make this Agreement and certain of its books, documents, and
records available, upon written request of the Secretary of the United States
Department of Health and Human Services, or upon the written request of the
United States Controller General, or their representatives, for the purpose of
determining the nature and extent of the reasonable cost under this Agreement.
U.S. Neuro further agrees that should it be permitted to subcontract
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any of the services it performs under this Agreement, U.S. Neuro will require
its subcontractors to agree to a similar provision to make available books,
documents and records until the expiration of four (4) years after furnishing
such services under this Agreement in the same manner as set forth above.
10.07 Partial Invalidity. If any term, covenant, condition or
provision of this Agreement or the application thereof to any person or
circumstance shall, to any extent, be invalid or unenforceable, all other
provisions of this Agreement, or the application of such terms or provisions to
persons or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and each and every other term,
covenant, condition and provision of this Agreement shall be valid and be
enforced to the fullest extent permitted by law.
10.08 Successors. All rights and liabilities herein given to or
imposed upon the respective parties hereto shall, except as may be otherwise
herein restricted, prohibited or provided, extend to and bind the respective
successors and permitted assigns of the parties.
10.09 No Partnership or Agency. In connection with the rights,
obligations and performance of this Agreement, NYU shall in no event be
construed or held to be a partner, associate, principal or agent of U.S. Neuro
in the conduct of U.S. Neuro's business or otherwise, or a joint venturer or a
member of a joint enterprise with U.S. Neuro, nor shall NYU be liable for any
debts incurred by U.S. Neuro in the conduct of U.S. Neuro's business, but it is
understood and agreed that the relationship between the parties hereto is and at
all times shall remain that of independent contractors.
10.10 Delay in Performance due to Force Majeure. In the event either
party hereto shall be delayed or hindered in or prevented from the performance
of any act required hereunder by reason of fire, catastrophe, acts of God or the
public enemy, government agency (including New York State Health Systems
Agency), prohibitions or delays in approval, strikes, lockouts, civil
commotions, inability to obtain materials or labor, governmental regulations or
prohibitions, failure of power or other utilities, or other reason of a like
nature not the fault of the party delayed in performing work or doing acts
required under the terms of this Agreement, then performance of such act shall
be excused for the period of the delay, and the period for the performance of
any such act shall be extended for a period equivalent to the period of such
delay.
10.11 Governing Law. This Agreement shall be governed exclusively by
the provisions hereof and by the laws of the State of New York, as the same may
from time to time exist. By its
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execution of this Agreement, U.S. Neuro subjects itself to the jurisdiction of,
and consents to be sued by NYU in, any court of the City or State of New York or
of the United States of America located in the Borough of Manhattan, City and
State of New York, with respect to any matter arising from this Agreement. U.S.
Neuro agrees that the filing in any such court of a true copy of this Agreement
by NYU shall constitute conclusive evidence of such consent, and that any
summons, complaint or other document required by NYU to commence any lawsuit in
any such court may be served upon it by messenger or mailed by prepaid
registered or certified first class mail, return receipt requested, to its
address set forth in Section 9.01.
10.12 Captions. The captions, section numbers and article numbers
appearing in this Agreement in no way define, limit, construe or describe the
scope or intent of such sections or articles of this Agreement.
10.13 Entire Agreement. This Agreement, together with all attached
exhibits, set forth all the covenants, promises, agreements, conditions and
understandings between NYU and U.S. Neuro concerning the subject matter hereof.
There are no oral agreements or understandings between the parties hereto
affecting this Agreement, and this Agreement supersedes and cancels any and all
previous negotiations, arrangements, agreements and understandings, if any,
between the parties hereto with respect to the subject matter hereof. Except as
herein otherwise expressly provided, no subsequent alteration, amendment, change
or addition to this Agreement shall be binding upon NYU or U.S. Neuro unless
reduced to writing and signed by them.
10.14 Confidentiality. Each of U.S. Neuro and NYU understands that
this Agreement and any information provided to or made available to the other
party which has been marked "confidential" and, with respect to U.S. Neuro, all
information and data concerning patients of NYU, any patient procedure using the
Gamma Knife Equipment and the business affairs of NYU, is considered by U.S.
Neuro and NYU to be privileged and confidential. Each of U.S. Neuro and NYU
agrees that it will treat this Agreement and any such information and data as
privileged and confidential and will not, without the prior written consent of
the other party, disclose or cause to be disclosed the terms hereof or thereof
to any person, except as may be required by applicable law or by the terms of
this Agreement.
<PAGE>
IN WITNESS WHEREOF, NYU and U.S. Neuro have caused this Agreement to be
duly executed in multiple counterpart copies, each of which shall be deemed an
original, but together shall constitute one and the same instrument, as of the
date first set forth above.
NEW YORK UNIVERSITY
By:_________________________
Title:______________________
U.S. NEUROSURGICAL, INC.
By:_________________________
Title:______________________
<PAGE>
EXHIBIT A
GAMMA KNIFE HARDWARD SPECIFICATIONS
TREATMENT PLANNING SYSTEM
- -------------------------
Leksell GammaPlan High End, 735/125
To Include: 1) 128 MB RAM
2) Codonics Printer in addition to
standard HP Laserjet 5MP printer
Back-Up Software $10,000.00
CALIBRATION EQUIPMENT
- ---------------------
a. Electrometer - CNMC Model 206 $4,000.00
b. Chamber - Capentec PR-05P (0.07cc) $1,188.00
c. Cable $260.00
d. Barometer-Thommen PB1 $375.00
e. Thermometer - T-1A $75.00
QUALITY CONTROL AND RADIATION SAFETY EQUIPMENT
- ----------------------------------------------
a. Thermoluminescence (prior to 11/1/96) $11,150.00
Dosimeter - Bicron Corp. (after to 11/1/96) $12,900.00
b. TLD oven $2,840.00
c. Survey Meter - Victoreen 450 $1,500.00
d. Area monitor - Primalert 10 $1,600.00
e. TLD measurement by Standards Laboratory $450.00 per year
<PAGE>
EXHIBIT B
TRAINING OF PERSONNEL
At a minimum, U.S. Neuro shall arrange for the following personnel
to be trained in use of the Gamma Knife in accordance with Section 3.02 and
3.03:
2 Neurosurgeons
3 Physicians
2 Physicists
2 Nurses.
Initial Off-Site Training
U.S. Neuro shall arrange for the personnel referred to above to receive
initial clinical training on use of the Gamma Knife at Karolinska Hospital in
Stockholm, Sweden, the University of Virginia Hospital in Charlottesville,
Virginia, or Presbyterian University Hospital in Pittsburgh, Pennsylvania. The
actual facility will be chosen by U.S. Neuro and NYU based on availability,
accessibility and cost.
Initial On-Site Training
U.S. Neuro shall provide or arrange for an aggregate of forty hours of
on-site training in the technical operation and maintenance of the Gamma Knife
for the personnel referred to above and at least two Registered Therapy
Technologists. Additional initial on-site training will be provided by U.S.
Neuro upon request of NYU at reasonable rates to be agreed by the parties.
<PAGE>
IN WITNESS WHEREOF, NYU and U.S. Neuro have caused this Agreement to be
duly executed in multiple counterpart copies, each of which shall be deemed an
original, but together shall constitute one and the same instrument, as of the
date first set forth above.
NEW YORK UNIVERSITY
By: /s/ [ILLEGIBLE]
----------------------------------------
Title: Vice President for Finance
-------------------------------------
New York University Medical Center
U.S. NEUROSURGICAL, INC.
By:_________________________________________
Title:______________________________________
<PAGE>
IN WITNESS WHEREOF, NYU and U.S. Neuro have caused this Agreement to be
duly executed in multiple counterpart copies, each of which shall be deemed an
original, but together shall constitute one and the same instrument, as of the
date first set forth above.
NEW YORK UNIVERSITY
By:_________________________________________
Title:______________________________________
U.S. NEUROSURGICAL, INC.
By: /s/ [ILLEGIBLE]
----------------------------------------
Title: Controller
-------------------------------------
DVI FINANCIAL SERVICES INC.
MASTER EQUIPMENT LEASE
("Master Lease")
LESSOR: LEASE NO. 0001342
DVI FINANCIAL SERVICES INC. DATE: August 1, 1996
500 Hyde Park
Doylestown, PA 18901
Telephone (215) 345-6600
LESSEE: U.S. NeuroSurgical, Inc.
BILLING ADDRESS: EQUIPMENT ADDRESS:
1350 Piccard Drive New York University Medical Center
Suite 360 550 1st. Avenue
Rockville, MD. 20850 New York, NY. 10016
- --------------------------------------------------------------------------------
TERMS AND CONDITIONS
1. LEASE.
Lessor leases to Lessee, and Lessee hires from Lessor, all of the tangible
personal property (with all present and future accessories, additions, upgrades,
attachments, repairs and replacement parts, collectively called "Equipment")
described in each equipment schedule executed from time to time pursuant to this
Master Lease ("Equipment Schedule "). Each Equipment Schedule shall (a) be on
Lessor's form, (b) incorporate all of the terms of this Master Lease, and (c)
contain additional terms as Lessor and Lessee agree.
2. TERM.
(a) The term of this Master Lease shall begin on the date set forth above
and shall continue in effect so long as any Equipment Schedule remains in
effect.
(b) The lease term for each Equipment Schedule shall begin on the date of
shipment to Lessee of the Equipment (or any part thereof) described in such
Equipment Schedule or such later date as Lessor may designate in writing (the
"Commencement Date"), and shall continue thereafter for the term set forth in
such Equipment Schedule. On the Commencement Date, Lessee shall execute and
deliver to Lessor a Delivery and Acceptance Certificate, in a form to be
specified by Lessor, which confirms the Commencement Date.
(c) THIS LEASE AND THE LEASE TERM FOR EACH EQUIPMENT SCHEDULE ARE NOT
CANCELABLE BY LESSEE.
3. RENT AND PAYMENT.
Lessee shall pay Lessor, as rental for the Equipment during each month of
the term of any Equipment Schedule, the monthly rent set forth in such Equipment
Schedule, together with any and all monthly rent payable pursuant to Section
8(a) hereof in connection with any accessions, additions, upgrades with
attendant maintenance contracts, and improvements to any of the Equipment, which
shall be payable in advance without notice or demand on the dates set forth in
such Equipment Schedule.
Lessee agrees to pay interim rent in an amount equal to the pro rata
periodic monthly rent from the Commencement Date to the first regular monthly
periodic rent payment date. Thereafter, the regular periodic rent shall be due
on the first day of each succeeding period commencing with the first day of the
month following the Commencement Date as set forth on the Equipment Schedule.
Lessee shall pay the monthly rent and all other money due under this Master
Lease or any Equipment Schedule by check or wire transfer so as to constitute
immediately available funds at Lessor's address set forth above or at such other
place as Lessor shall designate in writing, or if to an assignee of Lessor, at
such place as such assignee shall designate in writing, and Lessee shall make
such payments free and clear of all claims, demands or setoffs against Lessor or
such assignee. Whenever any payment (of rent or otherwise) is not made within
ten (10) business days from the date due hereunder, Lessee shall pay Lessor a
late charge of five percent (5%) of any payment not paid when due, plus the
lesser of eighteen percent (18%) interest per year or the highest lawful rates
on such payment until received, or such lesser maximum amount as is permitted by
applicable law. In addition, Lessor at its option may require at any time that
Lessee make all payments due hereunder or under any Equipment Schedule by
certified check or by wire transfer.
4. REQUEST FOR EQUIPMENT.
Lessee requests Lessor to order the Equipment described in any Equipment
Schedule executed by Lessee from the supplier named in such Equipment Schedule,
to arrange for delivery to Lessee at Lessee's expense, and to pay for the
Equipment as provided in such Equipment Schedule. Lessee acknowledges and agrees
that: (a) Lessee has independently selected the supplier and the Equipment, and
that Lessor will rely on specifications provided by Lessee in ordering the
Equipment; (b) Lessee shall be responsible for all costs and expenses relating
to the selection, shipment, delivery, assembly, installation, testing,
adjusting, servicing, operation and acceptance of the Equipment; (c) unless the
Equipment Schedule otherwise provides, Lessor's payment to the supplier will
occur only after Lessee has confirmed (on Lessor's Delivery and Acceptance
Certificate) satisfactory delivery, assembly, installation, inspection and
acceptance of the Equipment; (d) Lessor shall have no responsibility for any
delay, failure or refusal on the part of any supplier to accept or fill Lessor's
order; (e) upon Lessee's acceptance of Equipment, Lessee shall execute Lessor's
Delivery and Acceptance Certificate; (f) Lessor has the option to terminate any
Equipment Schedule and all obligations to Lessee under such Equipment Schedule,
and to recover from Lessee any deposit paid by Lessor to the supplier, if the
Equipment described in such Equipment Schedule has not been delivered,
assembled, installed and accepted by Lessee within 60 days from the date that
Lessor orders the Equipment; (g) no supplier is Lessor's agent, or authorized to
bind Lessor or waive or alter any provision of this Master Lease or any
Equipment Schedule; and (h) if Lessee cancels this Master Lease after execution
of such but prior to the Lessee's execution of the Delivery and Acceptance
Certificate, Lessor may withhold and keep any deposits or funds paid by Lessee
to Lessor.
5. EQUIPMENT SELECTION; DISCLAIMER OF WARRANTIES; WAIVERS.
(a) Lessee acknowledges, represents and warrants that Lessee has made the
selection of Equipment based on Lessee's own judgment, and expressly disclaims
any reliance upon statements made by Lessor or Lessor's agents, employees or
salespersons.
(b) LESSOR MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO
THE CAPACITY, CONDITION, DESIGN, DURABILITY, MATERIAL, MERCHANTABILITY,
PERFORMANCE, QUALITY, SUITABILITY, WORKMANSHIP OR VALUE OF THE EQUIPMENT OR ITS
FITNESS FOR ANY PARTICULAR PURPOSE OR THAT THE EQUIPMENT WILL SATISFY THE
REQUIREMENTS OF ANY LAW, RULE, REGULATION, SPECIFICATION OR CONTRACT, OR ANY
OTHER REPRESENTATION OR WARRANTY OF ANY KIND OR NATURE WHATSOEVER WITH RESPECT
TO THE EQUIPMENT OR ANY ASSOCIATED ITEM OR ANY ASPECT THEREOF. AS TO THE LESSOR,
LESSEE LEASES THE EQUIPMENT "AS IS".
(c) Lessee acknowledges that (i) Lessor is neither the manufacturer of the
Equipment nor a manufacturer's agent, supplier or dealer, and has no familiarity
with the Equipment; and (ii) Lessor shall have no obligation to assemble,
install, test, adjust or service the Equipment.
(d) Lessor shall not be liable, to Lessee or otherwise, to any extent
whatsoever, for the selection, quality, condition, merchantability, suitability,
fitness, operation or performance of the Equipment. Without limiting the
generality of the foregoing, Lessor shall not be liable, to Lessee or otherwise,
for any liability, claim, loss, damage or expense of any kind or nature
(including strict negligent liability in tort) caused, directly or indirectly,
by the Equipment or any inadequacy thereof for any purpose, or any deficiency or
defect therein, or the use or maintenance thereof, or any repairs, servicing or
adjustments thereto; or any delay in providing or failure to provide any part
thereof, or any interruption or loss of service thereof, or any loss of
business, or any damage whatsoever and howsoever caused.
(e) REGARDLESS OF CAUSE, LESSEE WILL NOT ASSERT ANY CLAIM WHATSOEVER
AGAINST LESSOR FOR LOSS OF ANTICIPATORY PROFITS OR ANY OTHER INDIRECT, SPECIAL
OR CONSEQUENTIAL DAMAGES. IT IS EXPRESSLY UNDERSTOOD AND AGREED THAT EACH AND
EVERY PROVISION OF THIS AGREEMENT WHICH PROVIDES FOR A LIMITATION OF LIABILITY,
DISCLAIMER OF WARRANTIES OR EXCLUSION OF DAMAGES, IS INTENDED BY THE PARTIES TO
BE SEVERABLE FROM ANY OTHER PROVISION AND IS A SEPARABLE AND INDEPENDENT ELEMENT
OF RISK ALLOCATION AND IS INTENDED TO BE ENFORCED AS SUCH.
(f) If the Equipment fails to comply with any representation or warranty
made by the supplier or manufacturer thereof, or is defective or improperly
assembled or installed or otherwise unsatisfactory for any reason, Lessee shall
make claim on account thereof against the supplier or manufacturer thereof, and
Lessee shall nevertheless pay all rent and perform all other obligations under
this Master Lease and all Equipment Schedules without asserting any claim
against Lessor. Lessor hereby assigns to Lessee, without recourse and solely for
the purpose of prosecuting such a claim, all rights that Lessor may have against
the supplier and manufacturer of Equipment for breach of warranty or other
representations with respect to the Equipment; provided, however, that this
assignment shall not preclude Lessor, in its sole discretion, from asserting and
prosecuting such a claim. Lessee shall indemnify and hold Lessor harmless from
and against any and all claims, costs, expenses, damages, losses and liabilities
incurred or suffered by Lessor as a result or incident to any such action by
Lessee for breach of warranty or other representations with respect to the
Equipment.
(g) Lessor makes no representation or warranty as to the treatment of this
Master Lease or any Equipment Schedule for tax or accounting purposes or
otherwise.
(h) Lessee hereby waives its rights and remedies under Pennsylvania
Commercial Code Section 10508 through 10522 with respect to Lessee's right to
cancel any Equipment Schedule, reject any of the Equipment, recover damages or
any other rights and remedies provided thereunder in connection with any default
by Lessor or any other circumstances therein provided.
6. TITLE AND ASSIGNMENT.
(a) Nothing contained in this Master Lease, or in any Equipment Schedule,
shall give or convey to Lessee any right, title or interest in or to the
Equipment or any additions, upgrades, accessions, or improvements thereto,
except as a Lessee as set
<PAGE>
forth in this Master Lease and such Equipment Schedule, and Lessee represents
and agrees that Lessee s________ hold the Equipment subject and subordinate to
the rights of the owner thereof. The Equipment is and at all times shall remain
the property of Lessor (or Lessor's successor in interest), and except as
expressly set forth in this Master Lease or any Equipment Schedule, Lessee shall
have no right, title, equity or interest in the Equipment and no right or option
to purchase or otherwise acquire title to or ownership of the Equipment. Lessee
shall, at Lessee's sole cost and expense: (i) defend and protect the ownership
of, title to, and interest in the Equipment of Lessor, Lessor's successors in
interest, and any assignee or secured party, against all parties claiming
against or through Lessee; (ii) keep the Equipment free and clear from any legal
process, liens, claims, demands and encumbrances (except those incurred by
Lessor); and (iii) give Lessor prompt written notice of any legal process,
liens, claims, demands and encumbrances made by any party (except Lessor) with
respect to the Equipment. Lessee shall, and Lessor may on behalf of Lessee, at
Lessee's expense, execute and file such financing statements, applications for
registration and other documentation as Lessor shall require for the purpose of
protecting or perfecting the interest of Lessor, or any assignee, transferee or
secured party, in the Equipment.
(b) Lessee shall, at Lessee's expense, affix to the Equipment such labels,
signs or other devices as Lessor may supply to identify Lessor as the owner and
Lessor of the Equipment. Lessee authorizes Lessor to insert in any Equipment
Schedule and in any financing statement or other documents the serial numbers
and other identification data of the Equipment when determined by Lessor. The
Equipment is and at all times shall remain personal property regardless of any
attachment or affixation of the Equipment to any real property or improvements
thereon.
(c) LESSEE SHALL NOT, WITHOUT LESSOR'S PRIOR WRITTEN CONSENT, (i) ASSIGN
THIS MASTER LEASE OR ANY EQUIPMENT SCHEDULE OR ANY INTEREST HEREIN OR THEREIN,
(ii) ENTER INTO ANY SUBLEASE, LOAN OR SIMILAR ARRANGEMENT WITH RESPECT TO THE
EQUIPMENT, OR (iii) TRANSFER, ASSIGN, CONVEY, ENCUMBER, PLEDGE OR OTHERWISE
DISPOSE OF ANY EQUIPMENT OR ANY INTEREST THEREIN; AND ANY ATTEMPT BY LESSEE TO
DO ANY OF THE FOREGOING WITHOUT LESSOR'S PRIOR WRITTEN CONSENT SHALL BE VOID.
(d) Lessee shall keep, maintain and use the Equipment only at the place
designated on the Equipment Schedule, and shall not move the Equipment to any
other location without the Lessor's prior written consent.
(e) This Master Lease and any rights of Lessor hereunder and under any
Equipment Schedule shall be assignable by Lessor without notice to or the
consent of Lessee. Lessee acknowledges and understands that the terms and
conditions of each Equipment Schedule have been fixed by Lessor in anticipation
of Lessor's ability to sell and assign its interest or grant a security interest
under each Equipment Schedule and the Equipment listed therein in whole or in
part to a security assignee (the "Secured Party") for the purpose of either
assigning: (i) Lessee's obligation to pay rent pursuant to such Equipment
Schedule (Lessor having transferred the right to receive such rent to the
Secured Party), or (ii) securing a loan to Lessor. Lessor may also sell and
assign its rights as owner and lessor of the Equipment under any Equipment
Schedule to an assignee (the "Assignee") which may be represented by a bank or a
trust company acting as a trustee (the "Owner Trustee") for the Assignee. After
such assignments the term Lessor shall mean, as the case may be, such Assignee
or Owner Trustee and any Secured Party (collectively "Lessor Transferee").
Lessee acknowledges and agrees that:
(1) Any such Lessor Transferee shall have and be entitled to exercise any and
all discretion, rights and powers of Lessor hereunder or under any
Equipment Schedule, but such Lessor Transferee shall not be obligated to
perform any of Lessor's obligations hereunder or under any Equipment
Schedule; provided, however, that such Lessor Transferee shall not disturb
Lessee's quiet and peaceful possession of the Equipment and use thereof
for its intended purpose during the terms hereof so long as Lessee is not
in default of any provision hereof and such Lessor Transferee continues to
timely receive all amounts of rent payable under such Equipment Schedule;
(2) Lessee will pay all rent and any and all other amounts payable by Lessee
under any Equipment Schedule to such Lessor Transferee, notwithstanding
and Lessee hereby waives any defense or claim of whatever nature, whether
by reason of breach of such Equipment Schedule or otherwise, which Lessee
may or might now or hereafter have as against Lessor or any prior Lessor
Transferee (Lessee reserving its right to have recourse directly against
Lessor on account of any such defense or claim); and
(3) Subject to and without impairment of Lessee's leasehold rights in and to
the Equipment, Lessee holds the Equipment for such Lessor Transferee to
the extent of such Lessor Transferee's rights therein.
7. NET LEASE, TAXES AND FEES.
(a) Lessor and Lessee acknowledge and agree that each Equipment Schedule
constitutes a net lease and that Lessee's obligation to pay all rent and any and
all amounts payable by Lessee under any Equipment Schedule shall be absolute and
unconditional, and shall not be subject to any abatement, reduction, setoff,
defense, counterclaim, interruption, deferment or recoupment for any reason
whatsoever; and that such payments shall be and continue to be payable in all
events.
(b) Lessee shall, at Lessee's sole cost and expense and in addition to the
rent due under any Equipment Schedule, promptly pay all taxes, assessments,
license fees, permit fees, registration fees, fines, interest, penalties and all
other governmental charges (including without limitation income, gross receipts,
sales, use, excise, personal property, ad valorem, stamp, documentary and other
taxes), whether levied, assessed or imposed on Lessee, Lessor, the Equipment or
otherwise, relating to the Equipment or the delivery, leasing, operations,
ownership, possession, purchase, registration, rental, sales or use thereof
during the term of any Equipment Schedule, or the interest of Lessee in the
Equipment or under any Equipment Schedule, or the rental or other payments
thereunder or earnings arising therefrom (excepting only taxes on Lessor's net
income). Lessee shall file all returns required in connection therewith and
shall promptly furnish copies to Lessor. Lessee shall reimburse Lessor for any
such taxes paid by Lessor within ten (10) days of receipt of Lessor's invoice
therefor. Any applicable sales tax will be paid to the manufacturer,
manufacturer's agent, supplier, dealer or appropriate taxing agency by Lessor.
Where applicable, Lessee acknowledges that such tax may have been included in
calculating lease payments.
8. CARE, USE, MAINTENANCE AND REPAIR, AND INSPECTION BY LESSOR.
(a) Lessee shall, at Lessee's sole expense, at all times during the term
of each Equipment Schedule and until return of the Equipment to Lessor, (i)
maintain the Equipment in good operating order, repair, condition, appearance
and protect the Equipment from deterioration, and provide all accessories,
upgrades, repairs, replacement parts and service required therefor; (ii) enter
into and maintain a maintenance contract with the manufacturer of the Equipment
or, with the prior written consent of Lessor, with such other party as shall be
acceptable to Lessor, and shall provide Lessor with a copy of such contract and
all supplements thereto; (iii) use the Equipment in a careful, proper and lawful
manner in accordance with standards, specifications or instructions issued by
the manufacturer, and provide necessary site preparation, supplies, energy and
personnel; (iv) comply with all the laws, ordinances, rules, regulations and
other requirements relating to the installation, possession, use or maintenance
of the Equipment, including the requirements of any applicable insurance policy
or warranty; (v) obtain and comply with the requirements of all permits,
licenses and agreements relating to the installation, possession, use or
maintenance of the Equipment; and (vi) purchase, or permit Lessor to purchase,
any and all additions, improvements, upgrades (as and when any upgrades may
become available) and maintenance contracts associated with such upgrades, or
accessions to any of the Equipment which Lessor may permit or require Lessee to
acquire or which Lessor may, at its option, elect to acquire, with the cost of
any and all such additions, improvements, upgrades, maintenance contracts or
accessions to be treated as additional original equipment cost with respect to
the applicable items of Equipment and which additional cost shall be amortized
as additional rental payments by increasing the monthly rental amount payable
under Section 3 hereof by the amount corresponding to the amount which would be
payable as monthly rent hereunder as if such additional cost constituted a
portion of the original equipment cost of the applicable Equipment for Equipment
to be leased under the applicable Equipment Schedule for a term equal to the
remaining lease term of the applicable Equipment Schedule.
(b) Unless Lessor otherwise consents in writing, Lessee shall not: (i)
part with possession of or control over the Equipment; (ii) permit any party
other than Lessee and Lessee's qualified employees to operate the Equipment;
(iii) permit any nonqualified party to repair or service the Equipment; (iv)
permit the Equipment to be used for personal, family, household or agricultural
purposes; or (v) make any additions, alterations or improvements to the
Equipment other than as required or permitted by the terms of this Master Lease.
All repairs, replacement parts, alterations, additions, improvements, upgrades
and accessions to any of the Equipment, whether or not any of the foregoing was
authorized, required, financed or purchased by Lessor, shall become the property
of Lessor.
(c) Upon the request of Lessor, Lessee shall at reasonable times during
business hours make the Equipment available to Lessor for inspection at the
place where it is normally located and shall make Lessee's log and maintenance
records pertaining to the Equipment available to Lessor for inspection.
9. LESSEE'S REPRESENTATIONS AND WARRANTIES.
Lessee hereby represents, warrants and agrees that, with respect to this
Master Lease and each Equipment Schedule:
(a) The execution, delivery and performance thereof by Lessee have been
duly authorized by all necessary corporate or partnership action.
(b) Each individual executing such was duly authorized to do so.
(c) This Master Lease and each Equipment Schedule constitute legal, valid
and binding agreements of Lessee enforceable in accordance with their terms.
(d) The Equipment is personal property and when subjected to use by Lessee
will not become fixtures under applicable law.
(e) During the lease term, Lessee shall deliver and shall cause all
obligors, guarantors and parties whose contracts with Lessee are used as
additional collateral under this Master Lease to deliver to Lessor audited or
reviewed financial statements for each of such party's most recent fiscal years
ended, tax returns and unaudited financial statements certified by such party
for the most recent quarter ended, consisting of at least a balance sheet,
income statements and statements of changes in financial position, and any other
information requested by Lessor from time to time, prepared in accordance with
generally accepted accounting principles.
(f) Lessee shall provide any and all monthly operating statistics or data
and shall use its best efforts to obtain from any party benefitting from the use
of the Equipment through services provided by the Lessee any and all operating
statistics, data, or information requested by Lessor from time to time.
(g) the execution, delivery and performance of this Master Lease and each
Equipment Schedule will not violate any law or
<PAGE>
regulation applicable to Lessee, or cause default under any agreement to which
Lessee is a party or is __________ ect.
10. DELIVERY AND RETURN OF EQUIPMENT.
Lessee hereby assumes the full expense of transportation and in-transit
insurance to Lessee's premises and installation thereat of the Equipment. Upon
termination (by expiration or otherwise) of each Equipment Schedule, Lessee
shall, pursuant to Lessor's instructions and at Lessee's expense (including
without limitation expenses of transportation and in-transit insurance), return
the Equipment to Lessor in the same operating order, repair, condition, and
appearance as when received, less normal depreciation and wear and tear. Lessee
shall have the Equipment deinstalled and removed from its location only by the
manufacturer of the Equipment or by such other party as shall have been
previously approved in writing by Lessor. The manufacturer or such other
preapproved party shall certify in writing to Lessor at the time of such
deinstallation that the Equipment includes all appropriate or required upgrades
and that it is in good working order. Lessee shall transport the Equipment by
means and return the Equipment to Lessor at such address all as shall be
directed by Lessor. Lessee shall bear all costs of deinstallation, removal and
return of the Equipment, including all costs as may be incurred by Lessee or
Lessor to acquire the upgrades required under the terms of this Master Lease, to
service and repair the Equipment and to otherwise put the Equipment in the
condition required under this Section 10.
11. INSURANCE.
During the term hereof and until return of the Equipment to Lessor, Lessee
shall, at Lessee's expense: (i) maintain insurance covering damage, destruction,
loss or theft of the Equipment from any cause whatsoever for not less than an
amount equal to the greater of the replacement value or the amount calculated
pursuant to clause (vi) of Section 15(b) hereof; (ii) maintain public liability
(including liability with respect to the use of the Equipment), professional
liability insurance (covering Lessee and its employees and any and all other
parties as may have possession of or as may operate any of the Equipment), and
property damage insurance in an amount satisfactory to Lessor; (iii) maintain,
if applicable as determined in the sole discretion of Lessor, business
interruption and automobile insurance (where the Equipment constitutes mobile
magnetic resonance imaging equipment or other mobile equipment); and (iv)
promptly notify Lessor of any actual or alleged damage, destruction, liability,
loss or theft relating to the Equipment or the use or operation thereof. All
insurance shall be in form, substance and amount satisfactory to Lessor and/or
Lessor's Transferee, shall contain a lender's form endorsement with waiver of
breach of warranty clause (form 438-BFU or its equivalent), and shall be issued
by insurers acceptable to Lessor, and shall name Lessor or any Lessor Transferee
as loss payee with respect to all policies of property insurance and as an
additional insured with respect to all other policies of insurance. Lessee shall
obtain endorsements to all such policies of insurance which shall provide that
any amendment or cancellation of any such policy shall not be effective unless
Lessor shall have been given thirty (30) days' prior written notice of any such
intended amendment or cancellation. Self-insurance is unacceptable unless Lessor
shall so provide upon its prior written consent. Lessee shall deliver to Lessor
originals or certified copies of such policies, certificates of coverage
thereunder and loss payee, additional insured, and notice of amendment or
cancellation endorsements. In addition, as collateral security for Lessee's
obligations hereunder and under the Equipment Schedules, Lessee hereby assigns,
transfers and conveys to Lessor all of Lessee's right, title and interest in and
to all of the foregoing policies of insurance and the insurance coverage
provided thereunder and Lessee shall deliver and cause each insurer under each
of such policies of insurance to deliver to Lessor assignments of such policies
and coverage which assignments shall be in form and substance satisfactory to
Lessor.
12. RISK OF LOSS.
During the term of each Equipment Schedule, and until return of the
Equipment to Lessor, Lessee shall bear all risk of damage, destruction, loss or
theft of the Equipment from any cause whatsoever. No damage, destruction, loss
or theft of the Equipment or delay in payment or deficiency or absence of
insurance proceeds, and no unavailability or delay in obtaining supplies, parts
or service for the Equipment or failure of the Equipment to function for any
cause whatsoever, and no change in laws or regulations governing or restricting
the use of the Equipment (including the future enactment of any laws or
regulations prohibiting the use of the Equipment), shall release Lessee of the
obligation to pay rent or any other obligation hereunder. Upon the occurrence of
any reparable damage, Lessee shall promptly make such repairs and restore the
Equipment to good repair, condition and working order. Upon the occurrence of
any irreparable damage, destruction or loss of the Equipment, Lessee shall, at
Lessor's option: (i) replace the Equipment with like equipment in good repair,
condition and working order with documentation creating clear title thereto in
Lessor; or (ii) pay Lessor the amounts required under Section 15 of this Master
Lease to the same extent as though a default had occurred hereunder. Subject to
such conditions as Lessor may require, any insurance proceeds paid to Lessor as
a result of any damage, destruction, loss or theft of the Equipment shall be
applied to Lessee's obligations hereunder, provided that if the Equipment is not
repaired or replaced as provided above, such insurance proceeds shall be applied
first to Lessor's expected residual interest in the Equipment. Lessor shall have
no obligation to collect or pursue any claim arising from any damage,
destruction, loss or theft of the Equipment, including any claim under any
applicable insurance policy.
13. INDEMNITY.
Lessee shall, at Lessee's sole cost and expense, indemnify, hold harmless
and defend Lessor and its agents, employees, officers and directors, and its
successors, in interest, from and against any and all claims, actions, suits,
proceedings, costs, expenses, damages and liabilities, including attorney's
fees, arising out of, connected, resulting from or relating to the Equipment or
the condition, delivery, leasing, location, maintenance, manufacture, operation,
ownership, possession, purchase, repair, repossession, return, sale, selection,
service or use thereof, including without limitation: (i) claims involving
latent or other defects (whether or not discoverable by Lessee or Lessor) (ii)
claims for trademark, patent or copyright infringement, and (iii) claims for
injury or death to persons or damage to property or loss of business or
anticipatory profits, whether resulting from acts or omissions of Lessee or
Lessor or otherwise. Lessee shall give Lessor prompt written notice of any claim
or liability covered by this section. The indemnities under this section shall
survive the satisfaction of all other obligations of Lessee herein and the
termination of this Master Lease or any Equipment Schedule.
14. SECURITY DEPOSIT.
For the purpose of securing all of Lessee's obligations under this Master
Lease and each Equipment Schedule, Lessee grants Lessor a security interest in
any security deposit described in any Equipment Schedule. Any such security
deposit may be commingled with other funds and shall be held without interest to
Lessee. Upon default under this Master Lease or any Equipment Schedule, Lessor
may, but shall not be obligated to, apply any such security deposit to any
obligation of Lessee under this Master Lease or any Equipment Schedule, in which
event Lessee shall promptly restore the amount thereof on demand. Upon
compliance by Lessee with all terms of this Master Lease and each Equipment
Schedule Lessor shall, at the end of the term of each Equipment Schedule and the
return of the Equipment to Lessor as provided herein, refund to Lessee the
balance of any security deposit pertaining to such Equipment Schedule.
15. DEFAULT AND REMEDIES.
(a) The occurrences of any one or more of the following events ("Events of
Default") shall constitute a default under this Master Lease and any Equipment
Schedule: (i) Lessee's failure to pay rent or any other amount required under an
Equipment Schedule when due; (ii) Lessee's failure to perform any other
obligation or observe any other term of this Master Lease or any Equipment
Schedule; (iii) any representation or warranty made to Lessor by Lessee or by
any guarantor proves to have been false in any material respect when made; (iv)
Lessee or any guarantor suffers a material adverse change in its financial
condition; (v) an event of default shall have occurred under and be continuing
under any other agreement involving the borrowing of money by Lessee or any
guarantor; (vi) levy, seizure or attachment of any Equipment; (vii) commencement
of proceedings under any bankruptcy, arrangement, reorganization or insolvency
law by or against, or appointment of a receiver or liquidator for any property
of, Lessee or any guarantor; (viii) any failure by Lessee, or any direct or
indirect subsidiary or affiliate of Lessee, or any direct or indirect owner or
party controlling, directly or indirectly, Lessee or any direct or indirect
subsidiary or affiliate of Lessee, to perform any obligation under any agreement
between Lessee or any such subsidiary, affiliate, owner or controlling party, on
the one hand, and Lessor, any Lessor Transferee, or any direct or indirect
subsidiary or affiliate of Lessor or any Lessor Transferee, on the other hand,
which agreement shall include, without limitation, any master lease, any
equipment schedule, any promissory note or other debt obligation of Lessee to
Lessor; (ix) assignment for the benefit of creditors or bulk transfer of assets
by, or insolvency, cessation of business, termination of existence, death or
dissolution of, Lessee or any guarantor; or (x) Lessee is prohibited from
repurchasing any Limited Partnership units without Lessor's prior written
consent. As used in this Master Lease, the term "guarantor" shall include any
guarantor of this Master Lease or any Equipment Schedule, and any owner of any
property given as security for Lessee's obligations hereunder or thereunder.
(b) Upon the occurrence of any one or more Events of Default, Lessor may
exercise any one or more of the following remedies without demand or notice to
Lessee and without terminating or otherwise affecting Lessee's obligations
hereunder: (i) declare the entire balance of rent for the remaining term of this
Lease to be immediately due and payable; (ii) require Lessee to assemble the
Equipment and make it available to Lessor at a place designated by Lessor; (iii)
take and hold possession of the Equipment and render the Equipment unusable, and
for this purpose enter and remove the Equipment from any premises where the same
may be located without liability to Lessor for any damage caused thereby; (iv)
sell or lease the Equipment or any part thereof at public or private sale for
cash, on credit or otherwise, with or without representations or warranties, and
upon such terms as shall be acceptable to Lessor; (v) use and occupy the
premises of Lessee for the purpose of taking, holding, reconditioning,
displaying, selling or leasing the Equipment, without cost to Lessor or
liability to Lessor; (vi) demand, sue for and recover from Lessee the sum of (A)
all rent and other amounts due hereunder, plus, as liquidated damages for loss
of a bargain and not as a penalty, and in lieu of any further payments of rent
for the Equipment, an amount equal to Lessor's Return for such Equipment
("Lessor's Return" shall mean, if the applicable Equipment Schedule provides for
Stipulated Loss Values, the applicable Stipulated Loss Value, and, otherwise,
the present value, discounted at five percent (5%), of all unpaid rent payments
to become due during the remaining lease term; (B) all late charges provided in
this Master Lease or any Equipment Schedule; (C) all expenses, including
attorney's fees, of Lessor or any Lessor Transferee incurred in enforcing any of
their rights under this Master Lease or any Equipment Schedule, including the
taking, holding, reconditioning, preparing for sale or lease, and selling or
leasing of the Equipment; (D) all other expenses, including attorney's fees,
incurred by Lessor or any Lessor Transferee incurred in enforcing any of their
rights under this Master Lease or any Equipment Schedule and including any and
all damages to real property arising from the removal of any of the Equipment,
and in the event any party holding an interest in any real property upon which
any of the Equipment is located shall
<PAGE>
demand a security deposit in connection with any such removal, Lessee shall
deliver and provide such deposit; (E) any actual or anticipated loss in tax
benefits to Lessor (as determined by Lessor) resulting from the default or
Lessor's repossession or disposition of the Equipment; and (F) any other amounts
payable by Lessee to Lessor under this Master Lease or any Equipment Schedule or
damages suffered by Lessor not otherwise compensated herein including, without
limitation, damages arising from Lessee's failure to maintain the Equipment as
provided herein. Any sale or lease of the Equipment by Lessor after default
shall be free and clear of any interest of Lessee.
(c) The rights and remedies of Lessor hereunder are in addition to all
other rights and remedies provided by law. All of Lessor's rights and remedies
are cumulative and not exclusive, and may be exercised separately or
concurrently and in such order and manner as Lessor may determine. The exercise
of any one remedy shall not be deemed to be an election of such remedy or to
preclude the exercise of any other remedy. No default by Lessee or action by
Lessor shall result in a termination of this Master Lease or any Equipment
Schedule unless Lessor so notifies Lessee in writing, and no termination of this
Master Lease or any Equipment Schedule shall release or impair any of Lessee's
obligations hereunder or thereunder.
16. PURCHASE OPTION
Notwithstanding anything to the contrary in the Master Lease and Equipment
Schedule, Lessor and Lessee hereby agree, provided no default has occurred and
is continuing under the Master Lease, at the end of the Equipment Schedule term,
Lessor will sell all, but not part of, the Equipment listed on the Equipment
Schedule AS IS, WHERE IS and transfer title to Lessee for the consideration of
One Dollar (1.00) and will execute such documentation as necessary to effect
such transfer of title to the extent title was conveyed to Lessor. Any
instrument of transfer shall contain the following:
THE EQUIPMENT TRANSFERRED HEREBY IS TRANSFERRED "AS IS" AND "WHERE IS". THE
SELLER MAKES NO EXPRESS OR IMPLIED WARRANTIES OR REPRESENTATIONS OF ANY KIND
WHATSOEVER IN REGARD TO SUCH EQUIPMENT. THE SELLER HEREBY DISCLAIMS ANY AND ALL
REPRESENTATIONS AND WARRANTIES IN REGARD TO SUCH EQUIPMENT, INCLUDING, WITHOUT
LIMITATION, THOSE OF MERCHANTABILITY OR FITNESS FOR USE OR FITNESS FOR ANY
PARTICULAR USE, OR OF QUALITY, DESIGN, CONDITION, CAPACITY, SUITABILITY OR
PERFORMANCE.
17. COSTS AND EXPENSES.
Lessee shall pay to Lessor, on demand, all costs and expenses incurred by
Lessor in connection with the execution, delivery, administration and
enforcement of this Master Lease, any Equipment Schedule, the transactions
contemplated hereby and thereby, and any costs and expenses related hereto or
thereto, including without limitation filing fees, registration fees, attorney's
fees and other out-of-pocket expenses.
18. PERFORMANCE BY LESSOR.
If Lessee shall fail to perform any obligation under this Master Lease or
any Equipment Schedule, Lessor shall have the right, but shall not be obligated,
with or without prior notice to Lessee, to perform the same (or, in the case of
Lessee's failure to maintain insurance, Lessor may obtain insurance protecting
the interest of Lessor only), and the costs thereof, together with interest at
the lesser of eighteen percent (18%) per year of the highest lawful rate, shall
be immediately payable by Lessee as additional rent for the Equipment.
19. FURTHER ASSURANCES.
Lessee shall, at its sole cost and expense, execute and deliver such
financial statements, certificates of title and other related documents and take
such action as Lessor or any Lessor Transferee may from time to time request for
the purpose of continuing and assuring the rights intended to be created by this
Lease or any Equipment Schedule, including without limitation, any
redocumentation of errors and omissions of this Master Lease and any Equipment
Schedule required by any Lessor Transferee or other successor to any interest of
Lessor.
20. NOTICES.
All notices, demands, requests and other communications under this Master
Lease and any Equipment Schedule: (a) shall be in writing; (b) shall be
delivered personally or by first class mail addressed to the party at its
respective address set forth herein or such other address as such party may
designate from time to time in writing; and (c) shall be effective when
personally delivered or deposited in the United States mail, duly addressed with
postage prepaid.
21. LAW GOVERNING - JURISDICTION, WAIVER OF JURY TRIAL.
LESSEE WARRANTS, REPRESENTS AND AGREES THAT: (a) THIS MASTER LEASE AND ANY
EQUIPMENT SCHEDULE HAVE BEEN MADE AND ENTERED INTO AS PENNSYLVANIA TRANSACTIONS;
(b) THIS MASTER LEASE AND ANY EQUIPMENT SCHEDULE SHALL BE CONSTRUED,
INTERPRETED, GOVERNED AND ENFORCED UNDER AND IN ACCORDANCE WITH THE SUBSTANTIVE
LAWS (WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS) OF PENNSYLVANIA; (c)
JURISDICTION TO HEAR AND DECIDE ANY CASE OR CONTROVERSY ARISING OUT OF, OR TO
ENFORCE OR CONSTRUE, THIS MASTER LEASE OR ANY EQUIPMENT SCHEDULE, SHALL
EXCLUSIVELY RESIDE AND VEST IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN
DISTRICT OF PENNSYLVANIA, OR IF THAT COURT DOES NOT HAVE JURISDICTION, THEN IN
THE COURT OF COMMON PLEAS OF THE COMMONWEALTH OF PENNSYLVANIA FOR THE COUNTY OF
BUCKS; AND (d) THIS SECTION 21 MAY BE ENFORCED BY INJUNCTION, SPECIFIC
PERFORMANCE OR ANY OTHER EXTRAORDINARY OR EQUITABLE REMEDY. LESSOR AND LESSEE
HEREBY WAIVE THE RIGHT TO TRIAL BY JURY OF ANY MATTERS ARISING OUT OF THIS LEASE
OR THE CONDUCT OF THE RELATIONSHIP BETWEEN LESSOR AND LESSEE.
22. MISCELLANEOUS.
This Master Lease, any Equipment Schedule, and any other documents
executed herewith or therewith constitute the entire agreement with respect to
the subject matter hereof. No oral agreement, representation or warranty shall
be binding. Any provision of this Master Lease which is invalid or unenforceable
under applicable law shall not affect the remaining provisions hereof, and to
this end the provisions hereof are declared to be severable. Section headings
are for convenience of reference only, and shall not affect the interpretation
hereof. If more than one Lessee is named herein, the liability of each shall be
joint and several. Where appropriate and the context permits, the singular shall
include the plural and vice versa. Upon assignment of this Master Lease or any
Equipment Schedule or Equipment (or any part hereof or thereof or any interest
herein or therein) by Lessor, the term "Lessor" shall include the Assignee.
Lessee waives notice and acceptance of this Master Lease and any Equipment
Schedule by Lessor. Time is of the essence of this Master Lease and any
Equipment Schedule.
23. WAIVER AND AMENDMENT.
No waiver or amendment of this Master Lease or any Equipment Schedule, or
any provision hereof or thereof, shall be effective unless in writing signed by
Lessor. No delay or failure to exercise any right, power or remedy accruing to
Lessor upon any default of Lessee shall impair any such right, power or remedy,
nor shall it be construed as a waiver of any such default, or an acquiescence
therein, or in any similar default thereafter occurring, nor shall any waiver of
any single default be deemed a waiver of any other default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of Lessor must be in writing and shall be effective only
to the extent specifically set forth therein.
LESSEE INITIAL /s/ H.S.
---------------
THIS MASTER LEASE, AND ANY EQUIPMENT SCHEDULE, ARE SUBJECT TO THE TERMS AND
CONDITIONS SET FORTH HEREIN
LESSEE ACKNOWLEDGES RECEIPT OF A COPY OF THIS MASTER LEASE
THIS MASTER LEASE, AND ANY EQUIPMENT SCHEDULE, SHALL BECOME EFFECTIVE ONLY
UPON WRITTEN ACCEPTANCE BY LESSOR
LESSOR: LESSEE:
DVI FINANCIAL SERVICES INC. U.S. NEUROSURGICAL, INC.
By: /s/ Joseph E. Malott By: /s/ Howard [ILLEGIBLE]
------------------------------ ------------------------------
Name: Joseph E. Malott Name: Howard [ILLEGIBLE]
----------------------------- -----------------------------
Title: Director Title: Controller
Credit/Documentation ----------------------------
----------------------------
No security interest in an Equipment Schedule may be created through the
transfer or possession of any counterpart of the original Equipment Schedule
other than that Equipment Schedule marked "Secured Party's Original" and a
certified copy of the Master Agreement.
================================================================================
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 collective
ly 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
1
<PAGE>
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 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;
2
<PAGE>
(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");
(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.
3
<PAGE>
(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 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
4
<PAGE>
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 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
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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' opera tion 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").
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
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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
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
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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, includ ing 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 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;
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(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 responsi ble 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 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'
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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.
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.
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(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 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
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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
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);
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(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;
(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
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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.
(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
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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 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
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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 other labor relations tribunal
relating to the Business. There
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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.
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(iv) Sellers do not maintain for the benefit of any of their
employees engaged in the operations of the 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
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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 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
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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 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
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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. 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.
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(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, 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,
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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.
(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:
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"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.
(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
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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 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
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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.
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
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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 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.
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(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,
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
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accordance with the Allocation Schedule. Buyers and Sellers each agree to
provide the other parties promptly with any other infor mation 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 transac tions 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
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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 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
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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.
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.
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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.
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
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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 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
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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
commit ments 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
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,
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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 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 certifi cate 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.
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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 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.
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(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.
(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.
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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 of any of the transactions contemplated hereby,
including reasonable legal fees and expenses incurred by any party hereto
and relating to such Taxes.
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(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
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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 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
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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 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);
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(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
termina tion);
(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'
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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 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).
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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
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
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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 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
47
<PAGE>
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 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
48
<PAGE>
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.
49
<PAGE>
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
50
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from GHS 10K and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 159,000
<SECURITIES> 0
<RECEIVABLES> 1,025,000
<ALLOWANCES> 164,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,270,000
<PP&E> 4,620,000
<DEPRECIATION> 1,016,000
<TOTAL-ASSETS> 8,635,000
<CURRENT-LIABILITIES> 2,094,000
<BONDS> 0
0
0
<COMMON> 65,000
<OTHER-SE> 2,097,000
<TOTAL-LIABILITY-AND-EQUITY> 8,635,000
<SALES> 4,232,000
<TOTAL-REVENUES> 4,232,000
<CGS> 2,790,000
<TOTAL-COSTS> 4,361,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 309,000
<INCOME-PRETAX> (279,000)
<INCOME-TAX> 463,000
<INCOME-CONTINUING> 168,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 168,000
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
