<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1998, or
[ ] Transition report pursuant to Section 13 OR 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
------------------------------
COMMISSION FILE NUMBER 1-13340
------------------------------
MID ATLANTIC MEDICAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
52-1481661
(IRS Employer Identification Number)
4 TAFT COURT, ROCKVILLE, MARYLAND
(Address of principal executive offices)
20850
(Zip code)
(301) 294-5140
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
The number of shares outstanding of each of the issuer's classes of common stock
was 49,634,162 shares of common stock, par value $.01, outstanding as of
September 30, 1998.
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<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MID ATLANTIC MEDICAL SERVICES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (Note 1)
(in thousands except share amounts)
<TABLE>
<CAPTION>
(Unaudited) (Note)
September 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,399 $ 3,570
Short-term investments 153,509 152,080
Accounts receivable, net of allowance of $4,782 and $5,180 78,406 84,719
Prepaid expenses, advances and other 29,545 19,294
Deferred income taxes 2,711 303
----------- -----------
Total current assets 268,570 259,966
Property and equipment, net of accumulated
depreciation of $30,082 and $31,103 44,964 56,964
Statutory deposits 14,918 14,854
Other assets 9,341 10,427
Deferred income taxes 1,087 612
---------- -----------
Total assets $ 338,880 $ 342,823
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 60 $ 60
Short-term borrowings 2,444 2,249
Accounts payable 17,889 16,878
Medical claims payable 115,237 98,328
Deferred premium revenue 16,439 12,586
Deferred income taxes 264 1,800
----------- -----------
Total current liabilities 152,333 131,901
Notes payable 29 74
Deferred income taxes 3,747 2,541
----------- -----------
Total liabilities 156,109 134,516
----------- -----------
Stockholders' equity
Common stock, $.01 par, 100,000,000 shares authorized; 56,772,502 issued and
49,634,162 outstanding at September 30, 1998; 56,772,502 issued and
54,677,862 outstanding at December 31, 1997 567 567
Additional paid-in capital 112,585 162,892
Stock compensation trust (common stock held in trust) (43,283) (101,482)
Treasury stock, 7,138,340 shares at September 30, 1998; 2,094,640 shares
at December 31, 1997 (75,623) (41,211)
Accumulated other comprehensive income (Note 2) (1,602) 946
Retained earnings 190,127 186,595
----------- -----------
Total stockholders' equity 182,771 208,307
----------- -----------
Total liabilities and stockholders' equity $ 338,880 $ 342,823
=========== ===========
</TABLE>
Note: The balance sheet at December 31, 1997 has been extracted from the
audited financial statements at that date.
See accompanying notes to these financial statements.
<PAGE> 3
MID ATLANTIC MEDICAL SERVICES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(in thousands except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ending
September 30, September 30,
1998 1997
------------ ------------
<S> <C> <C>
Revenue
Health premium $ 281,777 $ 253,297
Fee and other 5,006 4,631
Life and short-term disability premium 1,751 1,421
Home health services 5,171 5,233
Investment 944 5,293
Gain on sale of real estate 4,897
------------ ------------
Total revenue 299,546 269,875
------------ ------------
Expense
Medical 250,997 225,328
Life and short-term disability claims 930 640
Home health patient services 4,397 4,769
Administrative (including interest expense of $96 and $106) 33,257 31,948
Loss on retirement of computer equipment 4,604
Federal Employees' Health Benefits Program potential settlement (Note 5) 16,500
------------ ------------
Total expense 310,685 262,685
------------ ------------
Income (loss) before income taxes (11,139) 7,190
Income tax benefit (expense) 4,396 (2,464)
------------ ------------
Net income (loss) $ (6,743) $ 4,726
============ ============
Basic earnings per common share (Note 3) $ (.15) $ .10
============ ============
Diluted earnings per common share (Note 3) $ (.15) $ .10
============ ============
</TABLE>
See accompanying notes to these financial statements.
<PAGE> 4
MID ATLANTIC MEDICAL SERVICES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(in thousands except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, September 30,
1998 1997
------------ ------------
<S> <C> <C>
Revenue
Health premium $ 833,872 $ 792,535
Fee and other 15,405 13,289
Life and short-term disability premium 5,051 3,856
Home health services 15,606 15,584
Investment 7,647 10,219
Gain on sale of real estate 5,692
------------ ------------
Total revenue 883,273 835,483
------------ ------------
Expense
Medical 741,844 710,107
Life and short-term disability claims 2,742 2,050
Home health patient services 12,718 12,490
Administrative (including interest expense of $361 and $310) 99,616 97,908
Loss on retirement of computer equipment 4,604
Federal Employees' Health Benefits Program potential settlement (Note 5) 16,500
------------ ------------
Total expense 878,024 822,555
------------ ------------
Income before income taxes 5,249 12,928
Income tax expense (1,717) (4,608)
------------ ------------
Net income $ 3,532 $ 8,320
============ ============
Basic earnings per common share (Note 3): $ .08 $ .18
============ ============
Diluted earnings per common share (Note 3): $ .08 $ .18
============ ============
</TABLE>
See accompanying notes to these financial statements.
<PAGE> 5
MID ATLANTIC MEDICAL SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ending
September 30,
1998
------------
<S> <C> <C>
Cash flows provided by operating activities:
Net income $ 3,532
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization $ 8,604
Provision for bad debts 65
Provision for deferred income taxes (759)
Gain on sale and disposal of assets (982)
Decrease in accounts receivable 6,248
Increase in prepaid expenses, advances, and other (10,251)
Increase in accounts payable 1,011
Increase in medical claims payable 16,909
Increase in deferred premium revenue 3,853
------------
Total adjustments 24,698
------------
Net cash provided by operating activities 28,230
Cash flows used in investing activities:
Purchases of short-term investments (262,172)
Sales of short-term investments 256,528
Purchases of property and equipment (6,842)
Purchases of statutory deposits (100)
Reduction in other assets (778)
Proceeds from sale of assets 12,333
------------
Net cash used in investing activities (1,031)
Cash flows used in financing activities:
Principal payments on notes payable (45)
Increase in short-term borrowings 195
Exercise of stock options 5,417
Stock option tax benefit 2,475
Purchase of Treasury Stock (34,412)
------------
Net cash used in financing activities (26,370)
------------
Net increase in cash and cash equivalents 829
Cash and cash equivalents at beginning of period 3,570
------------
Cash and cash equivalents at end of period $ 4,399
============
</TABLE>
See accompanying notes to these financial statements.
<PAGE> 6
MID ATLANTIC MEDICAL SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ending
September 30,
1997
-------------
<S> <C> <C>
Cash flows provided by operating activities:
Net income $ 8,320
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization $ 7,430
Provision for bad debts 35
Provision for deferred income taxes 6,628
Loss on sale and disposal of assets 1
Decrease in accounts receivable 4,126
Decrease in prepaid expenses, advances, and other 14,639
Increase in accounts payable 139
Decrease in medical claims payable (21,805)
Decrease in deferred premium revenue (251)
------------
Total adjustments 10,942
-------------
Net cash provided by operating activities 19,262
Cash flows used in investing activities:
Purchases of short-term investments (195,820)
Sales of short-term investments 193,088
Purchases of property and equipment (18,430)
Purchases of statutory deposits (15)
Maturities of statutory deposits 25
Purchases of other assets (332)
Proceeds from sale of assets 65
------------
Net cash used in investing activities (21,419)
Cash flows provided by financing activities:
Principal payments on notes payable (44)
Increase in short-term borrowings 319
Exercise of stock options 3,900
Stock option tax benefit 3,385
-----------
Net cash provided by financing activities 7,560
------------
Net increase in cash and cash equivalents 5,403
Cash and cash equivalents at beginning of period 4,065
------------
Cash and cash equivalents at end of period $ 9,468
============
</TABLE>
See accompanying notes to these financial statements.
<PAGE> 7
MID ATLANTIC MEDICAL SERVICES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
INTRODUCTION
Mid Atlantic Medical Services, Inc. ("MAMSI") is a holding company whose
subsidiaries are active in managed health care and other life and health
insurance related activities. MAMSI's principal markets currently include
Maryland, Virginia, the District of Columbia, Delaware, West Virginia, North
Carolina and Pennsylvania. MAMSI and its subsidiaries (collectively referred to
as the "Company") have developed a broad range of managed health care and
related ancillary products and deliver these services through health maintenance
organizations ("HMOs"), preferred provider organizations ("PPOs"), a life and
health insurance company, home health care and home infusion services companies,
a hospice company, a mail-order pharmacy, and part ownership in an outpatient
surgery center.
MAMSI delivers managed health care services principally through its HMOs.
The HMOs, MD-Individual Practice Association, Inc. ("M.D. IPA"), Optimum
Choice, Inc. ("OCI"), Optimum Choice of the Carolinas, Inc. ("OCCI") and
Optimum Choice, Inc. of Pennsylvania ("OCIPA") arrange for health care
services to be provided to an enrolled population for a predetermined,
prepaid fee, regardless of the extent or nature of services provided to
the enrollees. The HMOs offer a full complement of health benefits,
including physician, hospital and prescription drug services.
Other MAMSI subsidiaries include Alliance PPO, Inc., which provides a delivery
network of physicians (called a preferred provider organization or "PPO") to
employers and insurance companies in association with various health plans, and
Mid Atlantic Psychiatric Services, Inc., which provides psychiatric services to
third party payors or self-insured employer groups. MAMSI Life and Health
Insurance Company develops and markets indemnity health products in addition to
life and short-term disability insurance. HomeCall, Inc., FirstCall, Inc., and
HomeCall Pharmaceutical Services, Inc. provide in-home medical care (including
skilled nursing and infusion therapy) and mail-order pharmacy services to
MAMSI's HMO members and other payors. HomeCall Hospice Services, Inc. provides
services to terminally ill patients and their families.
NOTE 1 - FINANCIAL STATEMENTS
The consolidated balance sheet of the Company as of September 30, 1998, the
consolidated statements of operations for the three and nine months ended
September 30, 1998 and 1997, and the consolidated statements of cash flows for
the nine months ended September 30, 1998 and 1997 have been prepared by MAMSI
without audit. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included.
Certain information and disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. These financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's
December 31, 1997 audited consolidated financial statements. The results of
operations for the three and nine month periods ended September 30 are not
necessarily indicative of the operating results for the full year.
Certain balances in the 1997 and 1998 financial statements have been
reclassified to conform to current presentation.
NOTE 2 - COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("Statement 130"). Statement
130 establishes new rules for the reporting and display of comprehensive income
and its components; however, the adoption of this statement had no impact on the
Company's net income or stockholders' equity. Statement 130 requires unrealized
gains and losses on the Company's available for sale securities, which prior to
adoption were reported separately in stockholders' equity, to be included in
other comprehensive income. Prior year financial statements have been
reclassified to conform to the requirements of Statement 130.
During the first nine months of 1998 and 1997, total comprehensive income
amounted to $984,000 and $11,929,000, respectively.
<PAGE> 8
NOTE 3 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share (in thousands except share amounts):
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Numerator:
Net income $ 3,532 $ 8,320 $ (6,743) $ 4,726
Denominator:
Denominator for basic earnings per share
- weighted average shares 46,339,272 46,159,626 45,042,891 46,494,555
Dilutive securities - employee stock options 83,315 689,461 617,371
Denominator for diluted earnings per share
- adjusted weighted average shares 46,422,587 46,849,087 45,042,891 47,111,926
</TABLE>
Options to purchase approximately 8.0 million shares of common stock at various
prices were outstanding at September 30, 1998 but were not included in the
computation of diluted earnings per share because the option proceeds were
greater than the average market price and, therefore, the effect would be
antidilutive.
On April 15, 1998, the Stock Option Committee of the Company's Board of
Directors authorized a voluntary exchange ("Exchange") of all existing stock
options with an exercise price of $16.00 or more per share. Each stock option
that was voluntarily tendered was replaced with a newly issued stock option
priced at $16.00 per share. As a condition of the Exchange, option holders
agreed to extend the vesting period for one year. In addition, the newly issued
stock options are exercisable for one additional year beyond the current
expiration date. Approximately 4.3 million options were exchanged for a like
number of newly issued options.
The Company maintains a stock compensation trust ("SCT") to fund its obligations
arising from its various stock compensation plans. Shares held by the SCT are
excluded from the denominator used in calculating basic and diluted earnings per
common share.
NOTE 4 - NEW ACCOUNTING STANDARD
In June 1997, the Financial Accounting Standards Board issued Statement No. 131,
"Disclosure About Segments of an Enterprise and Related Information" ("Statement
131"). Statement 131 significantly changes the way companies report segment
information in financial statements. Because Statement 131 concerns itself only
with how supplemental financial statement information is disclosed in annual and
interim reports, the adoption will not have a material impact on the Company's
consolidated financial statements. Statement 131 is effective for annual
financial statements for fiscal years beginning after December 15, 1997.
NOTE 5 - FEDERAL EMPLOYEES' HEALTH BENEFITS PROGRAM POTENTIAL SETTLEMENT
In the second quarter of 1998, the Company received a draft audit report
relating to an audit conducted by the Office of Inspector General concerning the
Company's participation in the Federal Employees' Health Benefits Program
("FEHBP") for the years 1992 - 1997. The report's preliminary findings indicate
that in the years 1992 - 1994 the FEHBP was charged rates that exceeded the then
market price. The report had no findings for the years 1995 - 1997. The Company
has evaluated the report's findings and determined that, while it is too early
to predict the ultimate resolution of this matter, $16,500,000 (which includes
approximately $4,400,000 of interest) may be due the FEHBP for the years 1992 -
1994 and has recorded it in the third quarter 1998 financial statements. The
audit report includes certain findings that the Company disagrees with and is
contesting. If the Company where to prevail in these matters, the amount accrued
could be reduced.
<PAGE> 9
MID ATLANTIC MEDICAL SERVICES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING INFORMATION
All forward-looking information contained in this Management's Discussion and
Analysis of Financial Condition and Results of Operations is based on
management's current knowledge of factors affecting MAMSI's business. MAMSI's
actual results may differ materially if these assumptions prove invalid.
Significant risk factors, while not all-inclusive, are:
1. The possibility of increasing price competition in the Company's market
place.
2. The possibility that the Company is not able to increase its market share at
the anticipated premium rates.
3. The possibility of state or federal budget related mandates that reduce
premiums for Medicaid recipients.
4. The potential for increased medical expenses due to: - Increased
utilization by the Company's membership. - Inflation in provider and
pharmaceutical costs. - Federal or state mandates that increase benefits
or limit the
Company's oversight ability.
5. The possibility that the Company is not able to expand its service territory
as planned due to regulatory delays and/or inability to contract with
appropriate providers.
6. The possibility that one of the Company's vendors will experience year 2000
problems that disrupt the Company's operating or administrative systems.
RESULTS OF OPERATIONS
THE THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH THE THREE MONTHS
ENDED SEPTEMBER 30, 1997
Consolidated net (loss) income of the Company was $(6,743,000) and $4,726,000
for the third quarters of 1998 and 1997, respectively. Diluted (loss) earnings
per share was $(.15) in the third quarter of 1998 as compared to $.10 in the
third quarter of 1997. This decrease in earnings is primarily attributable to a
non-recurring item related to the results of an audit conducted in connection
with the Company's participation in the Federal Employees' Health Benefits
Program. The audit covered the periods 1992 - 1997 with the audit findings
related to years 1992 - 1994. There were no findings for years 1995 - 1997.
The Company has priced its health products competitively in order to increase
its membership base and thereby enhance its strategic position in its market
place. The Company currently has one of the largest HMO and managed care
enrollments and also the largest network of contract providers of medical care
in its service area (which includes the entire states of Maryland and Delaware,
the District of Columbia, most counties and cities in Virginia and certain areas
of West Virginia, North Carolina and Pennsylvania.)
Revenue for the three months ended September 30, 1998 increased approximately
$29.7 million or 11.0 percent over the three months ended September 30, 1997.
Revenue for the third quarter of 1998 includes a $4.9 million gain related to
the sale of certain Company owned real estate no longer needed for operations.
Excluding this sale, quarter over quarter revenue increased 9.2 percent. A 5.3
percent increase in net average HMO and indemnity enrollment resulted in an
increase of approximately $13.4 million in health premium revenue while a 5.7
percent increase in average monthly premium per enrollee, combined for all
products, resulted in a $15.1 million increase in health premium revenue. The
increase in HMO and indemnity enrollment is principally due to increases in the
Company's commercial members. Management believes that commercial health
premiums should continue to increase over the next twelve months as the Company
continues to increase its commercial membership and as new and renewing groups
are charged higher premium rates due to legislatively mandated benefit
enhancements and general price increases initiated by the Company. This is a
forward-looking statement. See "Forward Looking Information" above for a
description of the risk factors that may effect health premiums per member.
<PAGE> 10
The Company has implemented increased premium rates across essentially all of
its commercial products. As the Company's contracts are generally for a one year
period, increased pricing cannot be initiated until a contract reaches its
renewal date. Therefore, price increases cannot be made across the Company's
membership at the same time. Commercial premium rate increases are expected to
continue in 1998 at the same rate as 1997, in the range of 5% to 7%. Management
believes that these rate increases may have the effect of slowing the Company's
future membership growth. In addition, management reevaluated premium
reimbursement rates with regard to its Medicare and Medicaid programs.
Specifically, effective January 1, 1998, the Company withdrew from participation
in certain areas of the Virginia Medicaid program. The Company also modified
certain benefits for enrollees in its Medicare program and began to charge
additional premiums in certain areas.
In the third quarter of 1998, three HMO's with large Medicare membership in the
Mid-Atlantic area announced that effective January 1, 1999 they would not
continue their Medicare risk contract with the Health Care Financing
Administration ("HCFA"). In response to the Company's perception of increased
risk related to these HMO's departure, the Company requested a change to its
already filed rates which were to be effective January 1, 1999. HCFA responded
that they would not allow the Company to change its filed rates. Based on HCFA's
response, the Company has terminated its Medicare contract effective January 1,
1999. At September 30, 1998, the Company had approximately 7,300 Medicare Risk
members.
The Company's future membership growth depends on several factors such as
relative premium prices and product availability, future increases or decreases
in the Company's service area, increased competition in the Company's service
area and changes in state mandated enrollment in Medicaid HMO programs in which
the Company participates. Enrollment may also decrease if the Company determines
that premium reimbursement rates related to certain state Medicaid programs are
inadequate, which would cause the Company to voluntarily withdraw from
participation.
In the third quarter of 1998, the National Committee for Quality Assurance
("NCQA") announced that OCI and MD-IPA received three year, full accreditation.
Full accreditation is granted only to those plans that have excellent programs
for continuous quality improvement and meet NCQA's rigorous standards.
Service revenue from non-MAMSI affiliated entities earned by the Company's home
health care subsidiaries remained relatively stable and contributed
approximately $5.2 million in revenue in the third quarters of 1998 and 1997.
Revenue from life and short-term disability products contributed $1.8 million in
revenue in the third quarter of 1998 as compared to $1.4 million for the same
period in 1997.
Fee and other income increased from $4.6 million for the third quarter of 1997
to $5.0 million for the third quarter of 1998, principally due to increased
membership in the Company's PPO product.
Medical expenses as a percentage of health premium revenue ("medical loss
ratio") increased slightly to 89.1 percent for the third quarter of 1998 as
compared to 89.0 percent for the comparable period of 1997. On a per member per
month basis, medical expenses increased 5.8 percent. In the third quarter of
1997, the Company recorded as a reduction of medical expense approximately $7
million related to claims incurred and paid in 1996 that were overpaid. The
Company has continued its efforts to implement product specific cost containment
controls, expand activity in specialized subrogation areas and claims review for
dual health coverage and adopt regionalized and product specific fee maximums
for health services. These initiatives should help to control the Company's
medical loss ratio. The statements in this paragraph and the preceding
paragraphs regarding future utilization rates, cost containment initiatives,
total medical costs and future increases in health premiums per member are
forward-looking statements. See "Forward-Looking Information" above for a
description of risk factors that may affect medical expenses per member and the
medical loss ratio.
Administrative expenses as a percentage of revenue ("administrative expense
ratio") decreased to 11.1 percent for the third quarter of 1998 as compared
to 11.8 percent for the same period in 1997. Adjusted to exclude the
effect of the $4.9 million gain on sale of real estate, the administrative
expense ratio was 11.3 percent for the third quarter of 1998. Management
<PAGE> 11
believes that the administrative expense ratio will remain near the current
level of 11.3 percent for the remainder of 1998. Management's expectation
concerning the administrative expense ratio is a forward-looking statement. The
administrative expense ratio is affected by changes in health premiums and other
revenues, development of the Company's expansion areas and increased
administrative activity related to business volume.
Included in the Company's third quarter 1998 results is a $16,500,000 accrual
related to an audit conducted by the Office of Inspector General concerning the
Company's participation in the Federal Employees' Health Benefits Program
("FEHBP") for the years 1992 - 1997. The report's preliminary findings indicate
that in the years 1992 - 1994 the FEHBP was charged rates that exceeded the then
market price. The report had no findings for the years 1995 - 1997. The Company
has evaluated the report's findings and determined that, while it is too early
to predict the ultimate resolution of this matter, it is possible that
$16,500,000 may be due the FEHBP for the years 1992 - 1994.
Also reflected in the Company's third quarter 1998 results is a $4,604,000 write
down of certain computer and computer related assets that the Company has
identified as being no longer of use. The Company has adjusted the carrying
value of these assets to their anticipated salvage value.
Investment income decreased $4.3 million due to a decrease in realized gains on
sales of marketable equity securities of $4.9 million offset by an increase in
interest income due to higher investable balances.
The net margin rate decreased from 1.8 percent in the third quarter of 1997 to
(2.3) percent in the current quarter. This decrease is primarily due to the
non-recurring item related to the Company's participation in the FEHBP.
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1997
The Company's consolidated net income for the nine months ended September 30,
1998 decreased to $3,532,000 from $8,320,000 for the nine months ended September
30, 1997. Earnings per share on net income decreased from $.18 in the first nine
months of 1997 to $.08 for the same period in 1998. The decrease in earnings is
primarily attributable to a non-recurring item related to the results of an
audit conducted in connection with the Company's participation in the FEHBP. The
audit covered the periods 1992 - 1997 with the audit findings related to years
1992 - 1994. There were no findings for years 1995 - 1997.
Revenue for the nine months ended September 30, 1998 increased approximately
$47.8 million or 5.7 percent over the nine months ended September 30, 1997.
Revenue for the nine months ending September 30, 1998 includes $5.7 million
related to the sale of certain Company owned real estate no longer required in
its operation. Excluding these sales, year- over-year revenue increased 5.0
percent. A 4.7 percent increase in average premiums per HMO and indemnity
enrollee increased health premium revenue by approximately $37.2 million and a
.5 percent increase in net average HMO and indemnity enrollment resulted in an
increase of approximately $4.2 million. Revenue from life and short-term
disability products contributed $5.1 million for the first nine months of 1998
as compared to $3.9 million for the same period in 1997.
Fee and other income increased $2.1 million from $13.3 million for the first
nine months of 1997 mainly due to increased membership in the Company's PPO
product.
Investment income decreased $2.6 million due to a decrease in realized gains on
sales of marketable equity securities offset by an increase in interest income
due to higher investable balances.
The medical loss ratio decreased to 89.0 percent for nine months ended September
30, 1998 as compared to 89.6 percent for the comparable period in 1997. Included
in the nine months ended September 30, 1997 are the results of the Company's
identification of certain claims which were overpaid. These overpayments were
caused, in large part, by a combination of factors including the ever increasing
complexity of the claims paying process as well as providers enhancing their
ability to maximize charges.
<PAGE> 12
In connection with these overpayments, in the first nine months of 1997 the
Company recorded, as a reduction of medical expenses, approximately $12 million
relating to claims paid in 1996. The Company believes that it has taken the
appropriate action and implemented the appropriate controls to insure that
future claims are paid at the appropriate amount.
The administrative expense ratio for the first nine months of 1998 decreased to
11.3 percent as compared to 11.7 percent for the same period in 1997. Adjusted
to exclude the effect of the $5.7 million gain on sale of real estate, the
administrative expense ratio was 11.4 percent for the first nine months of 1998.
Included in the Company's year-to-date 1998 results is a $16,500,000 accrual
related to an audit conducted by the Office of Inspector General concerning the
Company's participation in FEHBP for the years 1992 - 1997. The report's
preliminary findings indicate that in the years 1992 - 1994 the FEHBP was
charged rates that exceeded the then market price. The report had no findings
for the years 1995 - 1997. The Company has evaluated the report's findings and
determined that, while it is too early to predict the ultimate resolution of
this matter, it is possible that $16,500,000 may be due the FEHBP for the years
1992 - 1994.
Also reflected in the Company's year-to-date 1998 results is a $4,604,000 write
down of certain computer and computer related assets that the Company has
identified as no longer of use. The Company has adjusted the carrying value of
these assets to their anticipated salvage value.
The net margin rate decreased from 1.0 percent for the first nine months of 1997
to .4 percent for the first nine months of 1998. The reasons for this decrease
are consistent with the items discussed in the quarterly analysis.
LIQUIDITY AND CAPITAL RESOURCES
The Company's business is not capital intensive and the majority of the
Company's expenses are payments to health care providers, which generally vary
in direct proportion to the health premium revenues received by the Company.
Although medical utilization rates vary by season, the payments for such
expenses lag behind cash inflow from premiums because of the lag in provider
billing procedures. In the past, the Company's cash requirements have been met
principally from operating cash flow and it is anticipated that this source,
coupled with the Company's operating line-of-credit, will continue to be
sufficient in the future.
Accounts receivable decreased from $84.7 million at December 31, 1997 to $78.4
million at September 30, 1998, principally due to a reduction of amounts
receivable from the Federal Government due to the accrual of the potential
settlement of their 1992 - 1997 audit offset by increased membership.
Medical claims payable increased from $98.3 million at December 31, 1997 to
$115.2 million at September 30, 1998, primarily due to increased membership and
related claims accruals and an increase in medical expenses per member.
Prepaid expenses increased by $10.3 million from $84.7 million at December 31,
1997 due to an increase in taxes paid in advance and additional hospital working
capital advances made.
The Company currently has access to total revolving credit facilities of $24.0
million, which are used to provide short-term capital resources for routine cash
flow fluctuations. On October 1, 1998 the total revolving credit facility was
increased to $29.0 million. At September 30, 1998, approximately $2.4 million
was drawn against these credit facilities. In addition, the Company maintains a
$12,000,000 letter of credit for the benefit of the North Carolina Insurance
Department in support of operations of MAMSI Life and Health Company and a
$300,000 letter of credit for the Company's home health subsidiary. While no
amounts have been drawn against these letters of credit, they are a reduction of
the Company's credit line availability.
<PAGE> 13
Following is a schedule of the short-term capital resources available to the
Company (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Cash and cash equivalents $ 4,399 $ 3,570
Short-term investments 153,509 152,080
Working capital advances to Maryland hospitals 11,963 9,186
------------ ------------
Total available liquid assets 169,871 164,836
Credit line availability 9,256 21,526
------------ ------------
Total short-term capital resources $ 179,127 $ 186,362
============ ============
</TABLE>
The Company believes that cash generated from operations along with its current
liquidity and borrowing capabilities are adequate for both current and planned
expanded operations. Certain capital expenditures will be made over the
remainder of 1998 to enhance the Company's computer systems and to make
necessary improvements to existing administrative offices. The Company closed on
the sale of an office building in April, 1998 at a price of approximately $3
million. In July, 1998, the Company sold another of its office buildings for
approximately $9.4 million. The Company's purchase of an approximately 208,000
square foot office building in Frederick, Maryland in 1997, and the resulting
consolidation of its service departments in this new facility, made the
previously owned buildings unnecessary for the Company's operations.
In 1997, the Company began the process of identifying, evaluating and
implementing changes to computer programs necessary to address the year 2000
issue ("Y2K"). This issue affects computer systems that have time- sensitive
programs that may not properly recognize the year 2000. This could result in
major system failures or miscalculations. The Company is currently addressing
its internal year 2000 issue with modifications to existing programs. As a part
of the Company's initial assessment, 1,300 software programs were identified for
Y2K review. Of those 1,300, 182 programs were identified as needing
modification. To date, the Company has modified the majority of the programs
with internal resources diverted from other projects, none of which are critical
to the Company's daily operations. Testing and validation of the modified
programs is currently underway. The Company has incurred less than $200,000 to
date in external costs, mainly upgrading equipment. The Company does not
anticipate significant additional external costs to bring the Y2K compliance
program to completion. In addition, the Company is in the process of surveying
it's significant outside vendors for Y2K compliance. Approximately one-third of
the 632 vendors have indicated Y2K compliance. Based upon the work completed to
date, the Company does not anticipate any future material impact on its
financial statements. The total cost associated with the required modifications
and conversions has been estimated and is not expected to be material to the
Company's results of operations or financial position. The Company is in the
process of evaluating a reasonably likely worst-case Y2K scenario and developing
a related contingency plan. While the Company believes this to be a prudent
course of action, progress made to-date would seem to indicate the need for such
a plan unlikely. The statements in this paragraph regarding future effects of
the year 2000 issue is a forward looking statement. See "Forward-Looking
Information" for a description of risk factors.
At its February 1998 meeting, the Board of Directors authorized a $20 million
stock repurchase program. The Company may purchase its stock on the open market,
through block trades, or in private transactions over the next 12 months. On
August 3, 1998, the Executive Committee of the Board of Directors (subsequently
ratified by the Board of Directors) increased the authorization to purchase up
to $40 million of common stock prior to February 25, 1999. The program may be
discontinued at any time. As of September 30, 1998, the Company has repurchased
5,043,700 shares of its common stock for a total cost of approximately $34.4
million under the stock repurchase program.
<PAGE> 14
On November 5, 1998 the Company issued a press release stating that George T.
Jochum, Chairman of the Board, President and CEO, and the Board of Directors are
engaged in discussions regarding Mr. Jochum's tenure with the Company.
These discussions follow an evenly divided Board of Directors' vote
concerning Mr. Jochum's continued tenure. There is a dispute as to
whether the Board of Directors' vote operates to terminate Mr. Jochum's
employment. Mr. Jochum and members of the Board of Directors are seeking
to resolve the question promptly.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various legal actions arising in the normal course of
business, some of which seek substantial monetary damages. After review,
including consultation with legal counsel, management believes that any ultimate
liability that could arise from these other actions will not materially affect
the Company's consolidated financial position or results of operation.
During the quarter ended March 31, 1998, the Company became involved in a
dispute with the Maryland Insurance Administration ("MIA") concerning the
construction and application of Section 15-1008 of the Maryland Insurance
Article. The law limits the time within which a carrier may retroactively
collect money owed by providers to the carrier by using the device of offsetting
future payments to providers with the amount owed by the provider to the
carrier. The law does not affect the right of carriers to otherwise recover
monies owed. The Company construed the law to be applicable to claims paid on or
after October 1, 1997. The MIA construed the law to apply to retroactive
adjustments made on or after October 1, 1997 and the MIA has ordered the Company
to abide by its construction of the law. The Company has not yet decided whether
to appeal. Management believes that the ultimate outcome of this matter will not
have a material adverse effect on the Company's financial statements as the
MIA's current position effects the method of collection of the claims reversals,
rather than the Company's legal right to the refunds.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See the Exhibit Index on page 16 of the Form 10-Q. (b) There were no reports
filed on Form 8-K during the quarter ended September 30, 1998.
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by undersigned
thereto duly authorized.
MID ATLANTIC MEDICAL SERVICES, INC.
--------------------------------------------
(Registrant)
Date: November 13, 1998 /s/ Robert E. Foss
----------------------------
Robert E. Foss
Executive Vice President
and
Chief Financial Officer
(duly authorized officer and
principal financial officer)
<PAGE> 16
6(a) List of Exhibits.
EXHIBIT INDEX
Location of Exhibit
Exhibit In Sequential
Number Description of Document Numbering System
- ------- ----------------------- -------------------
10.98 Agreement of Purchase and Sale of Real Estate. . . . . . .
27 Financial Data Schedule for the Nine
Months Ended September 30, 1998. . . . . . . . . . . . . .
<PAGE>
AGREEMENT OF PURCHASE AND SALE
BY AND BETWEEN
MID-ATLANTIC MEDICAL SERVICES, INC.
("SELLER")
AND
BERKELEY INVESTMENTS, INC.
("PURCHASER")
July 10, 1998
Property: 2301 Research Boulevard
Rockville, Maryland
<PAGE>
-6-
WAS:44761.5/74550-95525
AGREEMENT OF PURCHASE AND SALE
THIS AGREEMENT OF PURCHASE AND SALE (the "Agreement") is made and
entered into as of the 10th day of July ,1998, by and between MID-ATLANTIC
MEDICAL SERVICES, INC., a Delaware corporation (hereinafter referred to as
"Seller") and BERKELEY INVESTMENTS, INC., a Massachusetts corporation, its
successors and assigns (hereinafter referred to as "Purchaser").
R E C I T A L S
A. Seller is the owner in fee simple of that certain property located
at 2301 Research Boulevard, Rockville, Montgomery County, Maryland, more
particularly described in Exhibit A attached hereto and incorporated herein by
reference containing approximately 5.19 acres of land, together with all
easements, licenses, covenants and other rights appurtenant to said Property (as
hereinafter defined), and all right, title and interest of Seller in and to any
land lying in the bed of any street, road, avenue or alley, open or closed, in
front of, abutting or adjoining said Property and to the center line thereof
(the "Land"), one (1) building containing in the aggregate approximately 93,746
net rentable square feet, and other improvements located thereon (the
"Improvements"), together with all of the following tangible and intangible
property, if any (the "Personalty"):
(i) any and all fixtures, equipment and other personal
property and replacements thereof, which are now, or may hereafter prior to the
Closing Date (as herein defined) which are owned by Seller and are placed in,
attached to and used in connection with the management, operation, maintenance
or repair of the Property (as herein defined) (but expressly excluding all items
located in the computer room which Seller agrees to remove prior to the Closing
Date (as hereinafter defined));
(ii) to the extent they may be transferred under applicable
law, all licenses, permits, approvals, certificates of occupancy and other
approvals necessary for the current use and operation of the Property,
including, without limitation, sewer rights and permits, presently issued in
connection with the operation of all or any part of the Property, if any
(collectively "Permits");
(iii) the TAMKO roof warranty and any other warranties of
which Seller becomes aware issued to Seller by any manufacturers and contractors
in connection with construction or installation of equipment included as part of
the Property;
(iv) all transferable development rights related to the
Property;
(v) any and all architectural, mechanical, electrical and
structural plans, studies, drawings, specifications, surveys, renderings and
other technical descriptions that relate to the Land or the Improvements to the
extent available to Seller, which consist of those items which Seller has
provided to Purchaser pursuant to that certain letter dated May 4, 1998 (the
"May 4 Letter") or which subsequently become available to Seller.
The Land, the Improvements and the Personalty are collectively referred to
herein as the "Property."
B. Purchaser desires to purchase the Property from Seller and Seller
desires to sell, transfer and assign the same to Purchaser.
NOW, THEREFORE, for and in consideration of the recitals, the mutual
promises hereinafter set forth and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
Incorporation of Recitals
1.1 Incorporation of Recitals. The foregoing recitals are incorporated
into this Agreement as if fully set forth herein.
ARTICLE II
Purchase and Sale
2.1 Purchase and Sale. Subject to the terms and conditions set forth in
this Agreement, Seller hereby agrees to sell, assign, transfer and deliver to
Purchaser, and Purchaser hereby agrees to purchase, acquire and accept from
Seller the Property upon the terms and conditions herein set forth.
ARTICLE III
Purchase Price
3.1 Purchase Price. The purchase price for the Property shall be Nine
Million Three Hundred Sixty Thousand and No/100 Dollars ($9,360,000.00) (the
"Purchase Price"). The Purchase Price shall be payable at Closing in immediately
available funds.
ARTICLE IV
Deposit
4.1 Initial Deposit. Upon full execution and delivery hereof, Purchaser
shall deposit One Hundred Thousand and No/100 Dollars ($100,000.00) (the
"Initial Deposit") with Lawyers Title Insurance Company, c/o Lerch, Early &
Brewer, 3 Bethesda Metro Center, Suite 380, Bethesda, Maryland 20814, Attention:
Robert Brewer, Esq. (the "Escrow Agent") in the form of cash, or a check payable
to the order of Escrow Agent, the receipt of which is hereby acknowledged by
Escrow Agent's execution hereof.
4.2 Second Deposit. In the event Purchaser has not given or is not
deemed to have given a Termination Notice (as defined in Section 7.2 below) to
Seller on or before the end of the Feasibility Period as provided in Section 7.2
below, Purchaser, on or before the last day of the Feasibility Period (as
defined in Section 7.2 below) shall increase the Initial Deposit by One Hundred
Fifty Thousand and No/100 Dollars ($150,000.00) (the "Second Deposit") to an
aggregate of Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00) (the
Initial Deposit and the Second Deposit, if paid, are hereinafter referred to as
the "Deposit").
4.3 Application Upon Default. The Deposit shall be held by Escrow Agent
and, if in the form of cash, shall be invested in short term obligations of the
United States Government and shall be directed by Purchaser and shall include
any interest earned thereon. To allow the interest bearing account to be opened,
Purchaser's and Seller's tax identification or social security numbers are set
forth below their signatures. The Deposit shall be held by the Escrow Agent
until (i) Closing (as defined in Article 5) occurs under this Agreement, in
which event the Deposit shall be paid to Seller as a credit to the Purchase
Price, or (ii) this Agreement has been terminated (for reasons other than
default of Purchaser hereunder), in which event the Deposit will be returned to
Purchaser; provided, however, that if termination of this Agreement is due to
Purchaser's default under any provision hereof, the Deposit shall be delivered
promptly to Seller as full, complete and liquidated damages whereupon Purchaser
shall be relieved of all liability under this Agreement.
4.4 Escrow Agent. Escrow Agent is executing this Agreement to
acknowledge Escrow Agent's responsibilities hereunder, which may be modified
only by a written amendment signed by all of the parties. Any amendment to this
Agreement that is not signed by Escrow Agent shall be effective as to the
parties thereto, but shall not be binding on Escrow Agent. Escrow Agent shall
accept the deposit with the understanding of the parties that Escrow Agent is
not a party to this Agreement except to the extent of its specific
responsibilities hereunder, and does not assume or have any liability of the
performance or non-performance of Purchaser or Seller hereunder to either of
them. Additional provisions with respect to the Escrow Agent are set forth in
Section 17.18.
ARTICLE V
Closing
5.1 Closing. Subject to the conditions set forth in this Agreement, the
closing of the purchase and sale of the Property (the "Closing") shall be held
at the offices of Bingham Dana LLP, 1200 Nineteenth Street, N.W., Suite 400,
Washington, D.C. 20036, or at such other place agreed to by Seller and
Purchaser, on or before thirty (30) days after the expiration of the Feasibility
Period (as hereinafter defined), or on such earlier date as Purchaser may elect.
The date of Closing is referred to in this Agreement as the "Closing Date."
ARTICLE VI
Prorations and Closing Costs
All matters involving prorations or adjustments to be made in connection with
Closing and not specifically provided for in some other provision of this
Agreement shall be adjusted as follows:
6.1 Prorations. Except as otherwise set forth herein, all items to be
prorated pursuant to this Article 6 shall be prorated as of midnight of the day
immediately preceding the Closing Date (except that if the Purchase Price is not
disbursed to or for the benefit of Seller on or before 4:00 p.m. local time on
the Closing Date, such adjustments shall be made as of the date of such
disbursement of the Purchase Price unless prior to 4:00 p.m. local time on the
Closing Date Purchaser wires the Purchase Price to the Title Company to be held
in escrow pending settlement and the interest earned on such proceeds is paid to
Seller), with Purchaser to be treated as the owner of the Property, for purposes
of prorations of income and expenses, on and after the Closing Date.
6.1.1 Taxes. Real estate and personal property taxes and
assessments for the year in which Closing is held shall be prorated on
the basis of a three hundred sixty-five (365) day year (with such real
estate taxes to be adjusted according to the Certificate of Taxes
issued by the appropriate authorities of the appropriate jurisdiction);
but assessments for improvements, if any, completed prior to the date
of Closing hereunder, whether assessment therefor has been levied or
not, shall be paid by Seller or allowance made therefor at the time of
Closing. If, at the time of Closing, the Property or any part thereof
shall be or shall have been affected by assessments which are or may
become payable in annual installments or are then a charge or lien
(such as, but not limited to, front foot benefit charges), then for the
purposes of this Agreement all the unpaid installments of such
assessments, including those which are to become due and payable after
Closing, shall be considered to be due and payable and to be liens upon
the Property, and shall be paid and discharged by Seller at Closing.
6.1.2 Insurance. There shall be no proration of Seller's
insurance premiums or assignment of Seller's insurance policies and
Seller shall cancel all of its existing policies as of the Closing
Date. Purchaser shall be obligated (at its own election) to obtain any
replacement policies.
6.1.3 Utilities. Prior to Closing, Purchaser and Seller shall
notify all public and private utilities providing services to the
Property of the prospective change in ownership and direct that all
future billings be made to Purchaser or its designee, at a specified
address, with no interruption of service.
6.1.4 Operating Costs. Purchaser and Seller hereby acknowledge
and agree that the amounts of all telephone, electric, sewer, water and
other utility bills, trash removal bills, janitorial and maintenance
service bills and all other operating expenses relating to the Property
and allocable to the period prior to the Closing Date shall be
determined and paid by Seller before Closing, if possible, or shall be
paid thereafter by Seller or adjusted between Purchaser and Seller
immediately after the same have been determined. Seller shall attempt
to have all utility meters read as of the Closing Date. The Escrow
Agent shall retain a reasonable escrow from the funds due Seller from
which all utilities and servicing bills through Closing shall be paid.
Seller shall promptly pay the difference between the amount of such
bills and the amount held in escrow. Such obligation shall survive
Closing. Seller shall further attempt to obtain from the provider of
same, all other service statements and bills of account adjusted as of
the Closing Date. Seller and Purchaser shall cause all utility services
to be placed in Purchaser's name as of the Closing Date.
6.1.5 Rents. Seller hereby represents to Purchaser that there
are no leases, subleases, franchises, licenses, occupancy agreements or
other agreements, demising space in or otherwise similarly affecting or
relating to the Improvements or Land (collectively "Leases") and
therefore, there will be no pro-rations of rental payments at Closing.
6.1.6 Security Deposits.
Based on Seller's representations that there are no Leases
affecting the Property, there shall be no transfer of or credit for any
security deposits under Leases.
6.1.7 Leasing/Brokerage Commissions. Based on Seller's
representation that there are no Leases affecting the Property, there
shall be no pro-ration of any leasing/brokerage commission amounts.
6.2 Closing Costs. All transfer and recordation taxes and expenses, and
any state or county documentary stamps or transfer taxes on the deed, and escrow
fees, shall be shared equally by Seller and Purchaser. Each party shall be
responsible for its own attorney's fees. Expenses for the examination of title,
title insurance premiums, survey tax certificates, notary fees and all other
costs not specifically mentioned herein, shall be paid by Purchaser.
ARTICLE VII
Purchaser's Right of Inspection; Feasibility Period
7.1 Purchaser's Right of Inspection. Purchaser and/or its designees
shall have the right, upon reasonable notice to Seller, at its own risk, cost
and expense, during normal business hours and at any date or dates prior to
Closing, to enter, or cause its agents or representatives to enter upon the
Property for the purpose of making surveys or other tests, test borings,
inspections, investigations, architectural, economic, financial, environmental
and other studies of the Property as Purchaser may deem desirable; provided,
however, that such access shall be subject to the Leases. Specifically,
Purchaser shall have the right to cause a Phase I and, if warranted or
desirable, a Phase II Environmental Study of the Property to be performed during
the Feasibility Period. Such entry shall not unreasonably interfere with the
tenants or management of the Property. In the event of any damage to the
Property as a result of Purchaser's due diligence review, Purchaser agrees to
restore the Property to substantially the same condition as existed prior to
such damage immediately upon expiration of the Feasibility Period. Purchaser
shall indemnify and hold Seller harmless for all reasonable costs and expenses
incurred by Seller in connection with any loss or damage (including any property
damage or personal liability) to the Property (or to a tenant's property)
resulting from Purchaser's entry onto the Property.
7.2 Feasibility Period. The feasibility period shall be deemed to have
commenced on May 8, 1998 and shall terminate on May 29, 1998. In the event
Purchaser gives Seller written notification (the "Termination Notice"), on or
before expiration of the "Feasibility Period" (time being of the essence), that
Purchaser elects not to consummate the purchase of the Property in accordance
with this Agreement, then Purchaser and Seller acknowledge and agree that this
Agreement shall be conclusively deemed to be terminated and this Agreement shall
be of no further force and effect. The Purchaser shall have the absolute right,
in its sole, absolute and nonreviewable discretion, to determine whether to give
the Termination Notice. In the event the Termination Notice is given, the
Deposit shall be promptly returned to Purchaser and neither party shall have
further liability to the other under this Agreement. If Purchaser elects not to,
or fails timely to, give the Termination Notice, but Purchaser nonetheless does
not post the Second Deposit with the Escrow Agent prior to the end of the
Feasibility Period as provided for in Section 4.2, then the Termination Notice
shall be deemed given, this Agreement shall terminate, the Deposit shall be
promptly returned to Purchaser and neither party shall have further liability to
the other under this Agreement. Purchaser may shorten the Feasibility Period by
providing Seller written notice of the date on which the Feasibility Period
shall end. This Agreement shall not terminate upon the expiration of the
Feasibility Period if, prior to the expiration of the Feasibility Period,
Purchaser has (i) posted the Second Deposit with the Escrow Agent and (ii)
provided notice to Seller that it intends to proceed to Closing in accordance
with the terms and conditions of this Agreement.
Seller has delivered to Purchaser (a) a copy of the most current title
commitment (including recorded exceptions) and survey for the Property and (b)
copies of the documents and items listed on Exhibit B attached hereto and
incorporated herein. In addition, Seller shall provide Purchaser with such other
reasonable documentation, agreements and other information to the extent readily
available and in the possession of Seller related to the ownership, use and
operation of the Property as Purchaser reasonably requests. In the event the
transaction contemplated by this Agreement is not consummated for any reason,
Purchaser agrees that it shall promptly return to Seller and instruct its
representatives, consultants, attorneys, and prospective investors and brokers
to return to Seller, all copies and originals of the materials provided pursuant
to this Section; provided, however, that the foregoing obligation shall cease to
apply to Purchaser upon the Closing of the purchase and sale contemplated by
this Agreement.
7.4 Continued Right to Access. In the event Purchaser does not
terminate this Agreement as provided in this Article 7 during the Feasibility
Period, Purchaser and/or its designees shall have the continued right through
the Closing Date to examine and review all such data and financial information,
inspect the premises, survey and make other tests and analyses as it deems
necessary or desirable, subject to the indemnity provisions of Section 7.1
above.
<PAGE>
ARTICLE VIII
Title
8.1 Title. Title to the Land and Improvements shall, as a condition of
Closing, be indefeasible, merchantable and marketable, good of record and in
fact, and insurable without exception at standard rates by a title insurance
company selected by Purchaser (the "Title Company"), free of all encumbrances,
liens, judgments, tenancies and covenants, excepting only the following
permitted exceptions ("Permitted Exceptions") (i) the lien of real estate taxes
and special assessments not yet due and payable and (ii) such other matters as
are set forth in Exhibit C attached hereto and made a part hereof.
8.2 Commitment. Purchaser shall promptly order a title insurance
commitment (1987 ALTA Form "B" or the equivalent) (the "Commitment") issued by a
national company chosen by Purchaser (the "Title Company") agreeing to issue to
Purchaser upon recording of the Deed (as hereinafter defined), an owner's policy
of title insurance ("Title Policy") in the amount of the Purchase Price. Said
Commitment shall agree to insure the proposed title of the Purchaser to the
Property without any exception for creditor's rights, subject only to the
Permitted Exceptions, and such other title exceptions as Purchaser has agreed to
accept or is deemed to have accepted pursuant to this Agreement.
8.3 Title Defects. If the Seller cannot convey title as aforesaid due
to a title encumbrance not willfully caused by any action or inaction of the
Seller, at the option of the Purchaser, this Agreement may be terminated within
three (3) business days after the outside date for the Closing set forth in
Article 5, unless the title defect(s) can be readily remedied by legal or other
action. If legal or other action is necessary to cure title defects not caused
by any act or inaction of Seller, Seller may promptly take such action at its
own expense whereupon the time for Closing shall be extended for up to sixty
(60) days. In the event such title encumbrance is not cured within said
additional sixty (60) days or Seller notifies Purchaser in writing that it
elected not to cure such title encumbrance, the Purchaser shall have the option,
to be elected within ten (10) days after expiration of such sixty (60) day
period or Purchaser's receipt of Seller's notice of election not to cure to (i)
terminate this Agreement in which event the Escrow Agent shall deliver the
Deposit to Purchaser, or (ii) purchase the Property without reduction in
purchase price. Notwithstanding the foregoing, in the event such title
encumbrance results from a matter willfully caused by Seller, Seller must take
affirmative action to cure such title encumbrance and the failure of Seller to
do so shall constitute a breach of this Agreement.
8.4 Creation of Encumbrances. Seller covenants and agrees not to
hereafter create or consent to the imposition of any lien, lease, easement,
restriction, covenant, condition or other encumbrance upon the Property which
would be binding upon Purchaser or the Property following the Closing without,
in each instance, the prior written consent of Purchaser.
8.5 Affidavits. Upon request by Purchaser, Seller shall execute such
affidavits, indemnities, and other similar type instruments as are required
reasonably by Title Company for the elimination of any standard or printed
exceptions in Purchaser's final Title Policy, including, without limitation, the
exception for unfiled mechanics' liens and parties in possession provided same
are at no cost or expense to Seller (but expressly recognizing that Seller may
incur liability as a result of execution of such documents).
8.6 Survey. Promptly after execution of this Agreement by both parties,
Purchaser may, at Purchaser's expense, order a current certified survey of the
Property ("Survey") prepared by West Consulting Group, Inc. (the "Surveyor")
that satisfies the "1997 Minimum Standard Detail Requirements for ALTA/ACSM Land
Title Surveys", jointly established and adopted by ALTA and ACSM and that meets
the accuracy requirements of a Class A Survey, as defined therein. If the Survey
shall not confirm that (a) the Property consists of an integral land area with
no slivers, strips, vacancies or gores, and that the Property has no voids or
lapses in the description thereof, (b) the Property is contiguous to and
continuously abutting the boundary of all public streets adjacent thereto and
any alleys abutting the Property, (c) there are no encroachments onto the
Property, and (d) the improvements on the Property do not encroach onto
adjoining lands (any one or more of the foregoing being collectively referred to
as an "Unsatisfied Condition"), then Purchaser shall by written notice given to
Seller on or before the expiration of the Feasibility Period, specify the nature
of the Unsatisfied Condition, enclosing a copy of the Survey therewith. Seller
may, at its sole option, elect to take such action at its own expense as
reasonably may be necessary to remedy the Unsatisfied Condition within thirty
(30) calendar days from the date of Seller's notice. If Seller does not elect to
remedy any Unsatisfied Condition or, once having elected to do so, is unable to
remedy the Unsatisfied Condition within the said thirty (30) day period, then
Seller shall notify Purchaser within five (5) business days thereafter whereupon
Purchaser shall have the right, exercisable by written notice given to Seller
within three (3) business days after receipt of Seller's notice, to elect (i) to
terminate this Agreement in which event, if the Unsatisfied Condition is one
that was not shown on the prior as built survey delivered by Seller to Purchaser
in accordance with Section 7.3 herein and the Escrow Agent shall deliver the
Deposit to Purchaser, or (ii) to agree to accept the Property with all of the
Unsatisfied Conditions that Seller has elected not to remedy or has been unable
to remedy without adjustment in the Purchase Price.
<PAGE>
ARTICLE IX
Representations and Warranties of The Seller
Seller hereby represents and covenants to Purchaser that each of the following
representations and warranties is true and correct as of the date of execution
of this Agreement and shall be true and correct as of the Closing Date.
9.1 Authority. Seller is a corporation duly formed, validly existing
and in good standing under the laws of the State of Delaware. Seller has full
and absolute power and authority to enter into this Agreement and all ancillary
documents delivered pursuant hereto, and to assume and perform all of its
obligations hereunder. The execution and delivery of this Agreement and the
performance by the Seller of its obligations hereunder has been duly authorized
by all requisite action and no further action or approval is required in order
to constitute this Agreement as a binding and enforceable obligation of the
Seller. The execution of this Agreement by Seller, and the consummation of the
transaction described herein, does not and will not cause Seller to be in
violation of any law, ordinance, order or requirement or of any agreement or
contract to which Seller is a party. The undersigned individual(s) is authorized
to sign on behalf of the Seller, and no additional signatures are required to
bind Seller.
9.2 Legal Action Against Seller. To the best of Seller's actual
knowledge without independent investigation or inquiry, there are no judgments,
orders, or decrees of any kind against Seller unpaid or unsatisfied of record,
nor any legal action, suit or other legal or administrative proceeding pending
before any court or administrative agency relating to the Property which would
adversely affect the Property for its present use or adversely affect the
performance by Seller of its obligations and agreements hereunder.
9.3 Bankruptcy or Debt of Seller. Seller is not in the hands of a
receiver and has not committed an act of bankruptcy.
9.4 Compliance with Existing Law. Seller has not received notice of any
violations of any law, municipal or other governmental ordinances, including
zoning ordinances and regulations, orders, rules, regulations or requirements,
or of any restrictive covenants against or affecting the Property, or any part
thereof.
9.5 Condemnation. To the best of Seller's actual knowledge without
independent investigation or inquiry, there are no pending or contemplated
condemnation proceedings affecting the Property, or any part thereof nor is
Seller aware of any such contemplated proceedings. To the best of Seller's
actual knowledge without independent investigation or inquiry, Seller has not
made any commitment to any board, bureau, commission, department or body of any
municipal, county, state or federal governmental unit or any subdivision
thereof, having jurisdiction over the property or the use or improvement thereto
("Governmental Authority") or to any homeowner or homeowners' association, or to
any third party to dedicate or grant any portion of the Property for roads,
easements, rights-of-way, park lands or for any other public purposes, to
construct any recreational facilities, to impose any restrictions or incur any
other expense or obligation relating to the Property.
9.6 The Property. [Intentionally Deleted]
9.7 Liens. There are no mechanics' liens against the Property; no
claims for labor, services, profit or material furnished for constructing,
repairing or improving the same, nor does Seller anticipate any such claims,
except in the normal course of Seller's business, which will be paid as of the
Closing Date or for which the Purchase Price shall be adjusted at Closing; no
liens or conditional sales contracts have been filed; and no petitions, actions
or suits to establish or enforce any such liens have been filed, nor has Seller
received any notice of any intention to do so.
9.8 Environmental Matters.
9.8.1 Representations and Warranties. Seller has neither
ordered, received nor possesses any other environmental reports other
than those listed in Exhibit E, copies of which have been delivered to
Purchaser. In addition, Seller has not received any written notice
indicating a violation of any statutory or judicial, federal, state or
local environmental law or regulation which affects the Property
(collectively "Environmental Laws"). Except as otherwise provided in
this Agreement, Seller makes no representation or warranty regarding
environmental matters.
9.9 Leases. Seller represents and warrants to Purchaser that there are
no Leases affecting the Property.
9.10 Outstanding Contracts. As of the Closing Date, any service,
supply, security, management and maintenance contracts (if any) held by Seller
with respect to the Property and its mechanical equipment, elevators and other
elements (collectively "Contracts") with respect to the Property shall be
terminated by Seller at Seller's sole cost and expense.
9.11 Insurance. Seller has in full force and effect fire, extended risk
and liability insurance policies covering the Property. Seller shall maintain
such insurance through the Closing Date. To the best of Seller's knowledge,
Seller has not received from any insurance company carrying insurance or that
has carried insurance on the Property any notice of defect or inadequacy in
connection with the Property or its operation.
9.12 Employees of Seller. Purchaser shall not have any obligation to
continue to employ any persons presently employed by Seller at the Property.
9.13 Foreign Person. Seller is not a foreign person within the meaning
of Section 1445(f) of the Internal Revenue Code, and Seller agrees to execute
any and all documents necessary or required by the Internal Revenue Service or
Purchaser in connection with such declaration(s).
Each reference in this Agreement to Seller's "knowledge," "actual
knowledge," "best of knowledge" or the like, or reflecting receipt of written
notice by Seller shall be deemed to mean the actual knowledge of, or receipt of
actual notice by Robert Foss, who Seller represents is the Chief Financial
Officer of Seller and the individual responsible for the sale of the Property,
without any duty of inquiry or investigation in connection therewith.
ARTICLE X
Additional Conditions to Settlement
The obligation of Purchaser to purchase the Property and to perform the other
covenants and obligations to be performed by it on the Closing Date shall be
subject to the following conditions:
10.1 Carry On Business. Seller will carry on the business of the
Property in the ordinary course and in a good and diligent manner consistent
with prior practice through the Closing Date.
10.2 Maintenance of Property. The Property shall be maintained and
shall be in good operating condition and repair, normal wear and tear excepted
and in compliance with applicable law.
10.3 Damage, Destruction or Loss. There shall have been no damage,
destruction or loss (whether or not covered by insurance), and no other event or
condition not existing on the date of the termination of the Feasibility Period
shall have occurred or shall exist, as the case may be, which materially and
adversely affects the zoning, entitlements or development rights attendant to
the Property or the construction thereon of improvements to the full extent as
permitted under current zoning.
<PAGE>
10.4 Leases.
(a) There shall be no Leases affecting the Property except as
may be expressly approved by Purchaser pursuant to Section 10.4(b) below.
(b) From and after the Effective Date of this Agreement,
Seller hereby agrees that it will not enter into any new Lease or renew, extend,
terminate or modify any of same, if any, or contracts pertaining to the Property
unless such action shall first be approved in writing by the Purchaser which
such approval shall not be unreasonably conditioned, withheld or delayed after
receipt of information about lease terms and conditions and full credit
information about the proposed tenant. In addition, Seller agrees to allow the
Purchaser to perform certain pre-leasing activities with respect to the
Property, including entering onto the Property with potential tenants. At
Purchaser's request, Seller, as landlord, agrees to execute any leases for the
Property which leases may be contingent on Purchaser's closing hereunder;
provided, however, that Purchaser agrees to promptly pay any third party costs
(including reasonable attorneys' fees) actually incurred by Seller in connection
with the review of any documents relating to any such leases.
10.5 Assignment and Transfer. Seller agrees that it will, upon
reasonable notice and from time to time after the Closing Date, upon request of
Purchaser, do, execute, acknowledge and deliver, or will cause to be done,
executed, acknowledged and delivered, all such further acts, deeds, assignments,
transfers, conveyances and assurances as may be reasonably required for the
better assignment, transfer and granting of the Property to Purchaser, its
successors or assigns, but nothing herein shall obligate Seller to incur any
liability beyond that set forth elsewhere in this Agreement.
10.6 Closing Deliveries. Seller shall provide the following to
Purchaser at Closing and the delivery of such shall be a condition precedent to
Purchaser's obligation to perform under this Agreement:
10.6.1 Possession. Full, complete and actual possession of the
Property to Purchaser on the Closing Date, free of all tenants and
occupants whatsoever except for those tenants identified in Exhibit D;
10.6.2 Deed. A special warranty deed in recordable form
properly executed by Seller conveying to Purchaser the Land and
Improvements described on Exhibit A in fee simple subject only to the
Permitted Exceptions, in the form attached hereto as Exhibit F;
10.6.3 Bill of Sale. A bill of sale for all Personalty
in the form attached hereto as Exhibit G;
10.6.4 Books and Records. The original books, records, files,
plans and specifications and other materials in Seller's possession
necessary to the continuity of operation of the Property as set forth
in the May 4 Letter, together with such additional items as become
available to Seller;
10.6.5 Certificates of Occupancy. All original
certificates of occupancy relating to the Property to the extent in
Seller's possession;
10.6.6 Plans and Specifications. All original as-built
plans and specifications relating to the Property to the extent in
Seller's possession;
10.6.7 Assignment. An assignment of all Permits, certificates
and authorizations relating to the Property, in the form attached
hereto as Exhibit G;
10.6.8 Keys. All keys to the Improvements which delivery
shall comprise at least one full set of keys;
10.6.9 Reaffirmation of Representations and Warranties. A
certificate reaffirming all representations and warranties of Seller
set forth in Section 9 hereof in the form attached hereto as Exhibit I;
and
10.6.10 Rights Under Permitted Exceptions. If requested by
Purchaser, a fully executed assignment of Seller's rights under any of
the Permitted Exceptions, to the extent such rights are assignable.
10.6.11 Other Consents, Approvals, Etc. Such other consents,
approvals, affidavits, estoppel certificates and other instruments and
documents as may be reasonably required by Purchaser or the Title
Company prior to Closing, including, without limitation, the standard
form affidavit required by the Title Company in order to remove all
standard title exceptions and mechanics' liens except the leases. Such
affidavits, indemnities and other similar type instruments as may be
requested pursuant to Section 8.5 hereof.
10.7 Bills and Claims. All bills and claims for labor performed and
materials furnished to Seller for the benefit of the Property during the period
preceding the Closing Date shall be paid in full at or prior to Closing, and
there shall be no mechanics' or materialmen's liens (whether or not perfected)
on or affecting Seller's interest in the Property at the Closing Date.
ARTICLE XI
Representations and Warranties of Purchaser
Purchaser warrants and represent to Seller as follows:
11.1 Authority. Purchaser is a corporation, duly formed, validly
existing and in good standing under the laws of the State of Massachusetts and
at Closing shall be authorized to transact business in Maryland. Purchaser has
full and absolute power and authority to enter into this Agreement and all
ancillary documents delivered pursuant hereto, and to assume and perform all of
its obligations hereunder. The execution and delivery of this Agreement and the
performance by the Purchaser of its obligations hereunder have been duly
authorized by all requisite action and no further action or approval is required
in order to constitute this Agreement as a binding and enforceable obligation of
the Purchaser. The execution of this Agreement by Purchaser, and the
consummation of the transaction described herein, does not and will not cause
Purchaser to be in violation of any law, ordinance, order or requirement or of
any agreement or contract to which Purchaser is a party.
11.2 Legal Action Against Purchaser. There are no judgments, orders, or
decrees of any kind against Purchaser unpaid or unsatisfied of record which
would adversely affect the Closing hereunder, nor any legal action, suit or
other legal or administrative proceeding pending before any court or
administrative agency.
11.3 Bankruptcy or Debt of Purchaser. Purchaser is not in the
hands of a receiver and has not committed an act of bankruptcy.
11.4 Binding on Purchaser. The execution and delivery of this Agreement
by the Purchaser and the consummation of the transaction contemplated hereby
will be binding upon Purchaser. The undersigned individual(s) is authorized to
sign on behalf of Purchaser and no additional signatures are required to bind
Purchaser.
ARTICLE XII
Risk of Loss
12. Risk of Loss.
12.1 Materially Damaged Improvements. If prior to the Closing, the
Improvements, or any part thereof, are materially damaged (as set forth below),
Purchaser shall have the right, exercisable by giving written notice to Seller
within twenty-one (21) business days after receiving written notice of such
damage or destruction from Seller (and the Closing shall be extended to afford
Purchaser such twenty-one (21) business day period), either (i) to terminate
this Agreement, in which case neither party shall have any further rights or
obligations hereunder (except as may be expressly provided to the contrary
elsewhere in this Agreement), and any money (including, without limitation, the
Deposit and all interest accrued thereon) or documents in escrow shall be
returned to the party depositing the same, or (ii) to accept the Property in its
then condition and to proceed with the Closing without any abatement or
reduction in the Purchase Price and receive an assignment of all Seller's right
to any insurance proceeds (including any rental abatement proceeds) payable by
reason of such damage or destruction, together with a credit equal to the amount
of any deductible with respect to said insurance. A failure by Purchaser to
notify Seller in writing within such twenty-one (21) business day period shall
be deemed an election to proceed under clause (ii) above. If Purchaser elects
(or is deemed to elect) to proceed under clause (ii) above, Seller shall not
compromise, settle or adjust any claims to such proceeds without Purchaser's
prior written consent.
12.2 Non-Materially Damaged Improvements. If prior to the
Closing, any non-material portion of the Property is damaged or subject to a
taking, Purchaser shall accept the Property in its then current condition and
proceed with the Closing, without any abatement or reduction in the Purchase
Price and receive an assignment of all Seller's right to any insurance proceeds
(including any rental abatement proceeds) payable by reason of such damage or
destruction, together with a credit equal to the amount of any uninsured or
under-insured damage. If any such non-material damage or taking occurs, Seller
shall not compromise, settle or adjust any claims to such insurance proceeds or
such award, as the case may be, without Purchaser's prior written consent.
12.3 Definition of "Material". For the purpose of this Section
12.1, damage to the Property or a taking of a portion thereof shall be deemed to
involve a material portion thereof if the reasonably estimated cost of
restoration or repair of such damage to the Property shall exceed Two Hundred
Thousand and no/100s Dollars ($200,000.00).
12.4 Notice. Seller agrees to give Purchaser notice of any
taking, damage or destruction of the Property promptly after Seller obtains
knowledge thereof.
ARTICLE XIII
Condemnation
13.1 Condemnation. Seller agrees to give Purchaser written notice of
any action or proceeding instituted or pending, in eminent domain or for
condemnation affecting any part of the Property, promptly after Seller's receipt
thereof. If, prior to the Closing Date, all or any part of the Property
materially and adversely affecting the occupancy and operation of the Property
is taken by condemnation or eminent domain proceeding or other transfer in lieu
thereof, this Agreement may be terminated at the option of Purchaser by written
notice to Seller given within five (5) business days after Seller gives
Purchaser the notice of such condemnation or conveyance in lieu thereof. If
Purchaser elects not to terminate this Agreement, then this Agreement shall
remain in full force and effect, and Seller shall at Closing assign to Purchaser
all rights of Seller to the condemnation award, but there shall be no reduction
in the purchase price.
ARTICLE XIV
As Is Sale
The Purchaser acknowledges that except as specifically set forth in
this Agreement and the documents to be delivered at Closing, the Property is
being sold to the Purchaser in an "AS IS CONDITION and WITH ALL FAULTS," known
or unknown, visible or latent and without any representation by or liability on
the part of the Seller as to the physical condition or the suitability or
profitability of the Property to the Purchaser. Except as set forth in this
Agreement and the documents to be delivered at Closing, no representations or
warranties have been made or are made and no responsibility has been or is
assumed by the Seller or by a partner, officer, person, firm, agent or
representative acting or purporting to act on behalf of the Seller as to the
condition or repair of the Property or the value, expense of operation, or
income potential thereof or as to any other fact or condition which has or might
affect the Property or the condition, repair, value, expense of operation or
income potential of the Property or any portion thereof.
ARTICLE XV
Default
15.1 Purchaser's Default. If Purchaser through no action, inaction or
fault of Seller fails to consummate the purchase and sale contemplated herein
after all conditions precedent to Purchaser's obligation to consummate such
transactions have been satisfied or waived by Purchaser, the Deposit shall be
delivered to Seller as full and complete liquidated damages, as the exclusive
and sole right and remedy of Seller, whereupon this Agreement shall terminate
and neither party shall have any further obligations or liabilities to any other
party.
15.2 Seller's Default. If Seller through no action, inaction or fault
of Purchaser, has failed, refused, is unable to consummate or if Seller has
breached a representation or warranty that prevents the consummation of the
purchase and sale contemplated herein by the Closing Date, then unless such
breach, failure, refusal or inability is waived in writing by Purchaser, Escrow
Agent shall be required to return the Deposit to Purchaser and Purchaser may (i)
avail itself of any legal or equitable rights (including, without limitation,
the right of specific performance and/or money damages which Purchaser may have
at law or in equity or under this Agreement), or (ii) Purchaser shall have the
right, but not the obligation, to extend the Closing Date for an additional
period to permit Seller to cure its default without the payment of any further
deposit, provided that if Purchaser extends the Closing Date pursuant to this
Section 15.2(ii) and Seller fails to close in accordance with the requirements
of this Agreement within such time, then Purchaser may exercise any of its
rights and remedies provided for in Section 15.2(i); provided further, that
Purchaser agrees to maintain an action for specific performance as its sole
remedy rather than to avail itself of the remedy of money damages so long as (x)
the default relates to matters other than fraud or the intentional or willful
act of Seller and (y) the remedy of specific performance is available.
Notwithstanding the foregoing, if the remedy of specific performance is not
available, then in such circumstance Purchaser may pursue an action for its
actual money damages not to exceed $250,000.00. Seller hereby agrees that the
Property being conveyed is unique, and that the remedy of specific performance
is an appropriate remedy. Purchaser shall be reimbursed for all expenses
incurred, including attorneys' fees, in connection with any action brought under
this Section;
ARTICLE XVI
Broker
16.1 Broker. Seller shall pay a brokerage commission due HBW Group in
connection with this transaction in the amount of three percent (3%) of the
Purchase Price, which payment shall be made pursuant to a separate agreement.
Purchaser shall pay a brokerage commission due Smithy Braedon in connection with
this transaction in the amount of one percent (1%) of the Purchase Price, which
payment shall be made pursuant to a separate agreement. Except as provided
above, the parties hereto agree and represent to each other that no broker,
agent or finder has been engaged on their behalf or otherwise involved in this
transaction and each party shall indemnify, defend and hold the other harmless
from and against the claims of any other broker, agent, consultant of finder
claiming to have acted on behalf of such party in connection with this
transaction or this Agreement. Each of HBW Group and Smithy Braedon have
executed this Agreement for the purpose of consenting to the foregoing as the
sole fees due for services rendered in connection with the Property and each
agree to deliver a release of any claims regarding the Property at Closing.
ARTICLE XVII
Miscellaneous
17.1 Notices. Any and all notices, requests, demands or other
communications hereunder shall be deemed to have been duly given if in writing
and if transmitted by hand delivery with receipt therefor, by facsimile delivery
(with confirmation by hard copy), by overnight courier, or by registered or
certified mail, return receipt requested, first class postage prepaid addressed
as follows (or to such new address as the addressee of such a communication may
have notified the sender thereof) (the date of such notice shall be the date of
actual delivery to the recipient thereof; in the case of transmission by
facsimile, effective on the date of the facsimile transmission):
To Seller: Mid-Atlantic Medical Services, Inc.
4 TAFT Court
Rockville, Maryland 20852
Attn: Robert E. Foss
Fax: (301) 251-1597
With a copy to: Richard H. Tanenbaum, Esq.
4550 Montgomery Avenue
Suite 775 N.
Bethesda, Maryland 20814
Fax: (301) 951-0427
To Purchaser: Berkeley Investments, Inc.
101 Federal Street
Boston, Massachusetts 02110
Attn: Young Park
Fax: (617) 439-4449
With a copy to: Bingham Dana LLP
1200 19th Street, N.W.
Suite 400
Washington, D.C. 20036
Attn: Barry P. Rosenthal, Esq.
Fax: (202) 778-6155
17.2 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Maryland.
17.3 Headings. The captions and headings herein are for convenience and
reference only and in no way define or limit the scope or content of this
Agreement or in any way affect its provisions.
17.4 Effective Date. This Agreement shall be effective upon delivery of
this Agreement fully executed by the Seller and Purchaser, which date shall be
deemed the Effective Date hereof (the "Effective Date"). Either party may
request that the other party promptly execute a memorandum specifying the
Effective Date hereof.
17.5 Business Days. If any date herein set forth for the performance of
any obligations of Seller or Purchaser or for the delivery of any instrument or
notice as herein provided should be on a Saturday, Sunday or legal holiday, the
compliance with such obligations or delivery shall be deemed acceptable on the
next business day following such Saturday, Sunday or legal holiday. As used
herein, the term "legal holiday" means any state or Federal holiday for which
financial institutions or post offices are generally closed in the state where
the Property is located.
17.6 Counterpart Copies. This Agreement may be executed in two or more
counterpart copies, all of which counterparts shall have the same force and
effect as if all parties hereto had executed a single copy of this Agreement.
17.7 Binding Effect. This Agreement shall be binding upon, and inure to
the benefit of, the parties hereto and their respective successors and assigns.
17.8 Assignment. Purchaser shall have the right at Closing to assign
its rights and interests to the Agreement to any subsidiary or affiliated
entity, or to a third party in which Purchaser or the principals thereof assert
direct control. Seller agrees that upon receipt of written notification of
assignment of this Agreement or such designation, (i) Seller shall release
Purchaser or any other assigning party from any liability hereunder and look
solely to the assignee or designee when enforcing its rights and interests
hereunder and (ii) Seller's representations and warranties hereunder shall be
deemed remade as of the date of such assignment. This Agreement may not be
assigned by Seller.
17.9 Interpretation. This Agreement shall not be construed more
strictly against one party than against the other merely by virtue of the fact
that it may have been prepared by counsel for one of the parties, it being
recognized that both Seller and Purchaser have contributed substantially and
materially to the preparation of this Agreement.
17.10 Entire Agreement. This Agreement and the Exhibits attached hereto
contain the final and entire agreement between the parties hereto with respect
to the sale and purchase of the Property and are intended to be an integration
of all prior negotiations and understandings. Purchaser, Seller and their agents
shall not be bound by any terms, conditions statements, warranties or
representations, oral or written, not contained herein. No change or
modifications to this Agreement shall be valid unless the same is in writing and
signed by the parties hereto. Purchaser reserves the right to waive any of the
terms or conditions of this Agreement which are for the benefit of the Purchaser
and to purchase the Property in accordance with the terms and conditions of this
Agreement which have not been so waived. Any such waiver must be in writing
signed by Purchaser.
17.11 Severability. If any one or more of the provisions hereof shall
for any reason be held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provision hereof, and this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein.
17.12 Survival. The provisions of this Agreement and the
representations and warranties herein shall survive after the conveyance of
title and payment of the Purchase Price until January 31, 1999.
17.13 Confidentiality. The parties hereto covenant and agree that they
shall not communicate the terms or any other aspect of this transaction prior to
the Closing with any person or entity other than the other party and their
respective agents, consultants and employees, and lenders and prospective
lenders (and their respective employees, agents, consultants and participants),
and shall treat the terms of this Agreement as well as all due diligence
materials delivered pursuant to this Agreement and the contents and results of
any investigations, inspections or third party reports in a confidential manner.
17.14 Agreement Not to Market. Seller agrees that after the expiration
of the Feasibility Period and prior to settlement hereunder, Seller shall take
the Property off the market and not solicit or accept any offers concerning the
sale of the Property other than the transaction contemplated herein.
17.15 Limitation of Liability. In no event shall any officer, director,
partner, shareholder, agent or employee of Purchaser or Seller or its partners
be personally liable for any of the obligations of Purchaser or Seller under
this Agreement or otherwise.
17.16 Waiver of Trial by Jury. The respective parties hereto shall and
they hereby do waive trial by jury in any action, proceeding or counterclaim
brought by either of the parties hereto against the other (except for personal
injury or property damage) on any matters whatsoever arising out of or in any
way connected with this Agreement, or for the enforcement of any remedy under
any statute, emergency or otherwise.
17.17 Prevailing Party. Should either party employ an attorney to
enforce any of the provisions hereof, (whether before or after Closing, and
including any claims or actions involving amounts held in escrow) or to recover
damages for the breach of this Agreement, the non-prevailing party in any final
judgment agrees to pay the other party's reasonable expenses, including
attorneys' fees and expenses in or out of litigation and, if in litigation,
trial, appellate, bankruptcy or other proceedings, expended or incurred in
connection therewith, as determined by a court of competent jurisdiction.
17.18 Liability of Escrow Agent. The parties acknowledge that the
Escrow Agent shall be conclusively entitled to rely, except as hereinafter set
forth, upon a certificate from Purchaser or Seller as to how the Deposit (which,
for purposes of this Section shall be deemed to also include any other escrowed
funds held by the Escrow Agent pursuant to this Agreement) should be disbursed.
Any notice sent by Seller or Purchaser (the "Notifying Party") to the Escrow
Agent shall be sent simultaneously to the other noticed parties pursuant to
Section 17.1 herein (the "Notice Party" or "Notice Parties"). If the Notice
Parties do not object to the Notifying Party's notice to the Escrow Agent within
ten (10) days after the Notice Parties' receipt of the Notifying Party's
certificate to the Escrow Agent, the Escrow Agent shall be able to rely on the
same. If the Notice Parties send, within such ten days, written notice to the
Escrow Agent disputing the Notifying Party's certificate, a dispute shall exist
and the Escrow Agent shall hold the Deposit as hereinafter provided. The parties
hereto hereby acknowledge that Escrow Agent shall have no liability to any party
on account of Escrow Agent's failure to disburse the Deposit if a dispute shall
have arisen with respect to the propriety of such disbursement and, in the event
of any dispute as to who is entitled to receive the Deposit, disburse them in
accordance with the final order of a court of competent jurisdiction, or to
deposit or interplead such funds into a court of competent jurisdiction pending
a final decision of such controversy. The parties hereto further agree that
Escrow Agent shall not be liable for failure of any depository and shall not be
otherwise liable except in the event of Escrow Agent's gross negligence or
willful misconduct. The Escrow Agent shall be reimbursed on an equal basis by
Purchaser and Seller for any reasonable expenses incurred by the Escrow Agent
arising from a dispute with respect to the Deposit.
17.19 No Agreement Until Accepted by Purchaser. Purchaser's delivery of
unexecuted copies of this Agreement is solely for the purpose of review by the
party to whom delivered and is in no way to be construed as an offer by
Purchaser, nor in any way implies that Purchaser is under any obligation to
purchase the Property.
17.20 Termination of Offer. This Agreement constitutes an offer from
Purchaser to purchase the Property from Seller. This offer shall expire and
become null and void on May 22, 1998 at noon in the event that Seller has not
returned a fully-executed original of this Agreement to Purchaser by such time.
In addition, in the event the Seller executes and returns an original of this
Agreement within the time frame set forth, the Agreement shall nevertheless
become null and void on May 26, 1998 at noon in the event that Purchaser has not
returned a fully-executed original of this Agreement to Seller by such time.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
under seal on the date or dates set forth below.
WITNESS: SELLER:
MID-ATLANTIC MEDICAL
SERVICES, INC.,
a Delaware corporation
/S/ Robert E. Foss
_________________________ By:
Name: Robert E. Foss
Its: Executive Vice
President
DATE: July 10, 1998
PURCHASER:
WITNESS:
BERKELEY INVESTMENTS, INC.,
a Massachusetts corporation
_________________________ By:
Name:
Its:
DATE: July 10, 1998
<PAGE>
The Escrow Agent hereby executes this Agreement for the sole purpose of
acknowledging receipt of the Deposit and its responsibilities hereunder and to
evidence its consent to serve as Escrow Agent in accordance with the terms of
this Agreement.
ESCROW AGENT:
- -----------------------------------
By: ______________________________
Robert Brewer, Esq.
Date: July 10, 1998
The undersigned hereby executes this Agreement for the sole purpose of
acknowledging and consenting to the provisions and amounts of commissions set
forth in Article XVI of this Agreement.
HBW GROUP
By:
Name:
Its:
SMITHY BRAEDON
By:
Name:
Its:
<PAGE>
LIST OF EXHIBITS
EXHIBIT A - Legal Description
EXHIBIT B - Due Diligence Checklist
EXHIBIT C - Permitted Exceptions
EXHIBIT D - Tenants
EXHIBIT E - Environmental Reports
EXHIBIT F - Deed
EXHIBIT G - Form of Blanket Conveyance
EXHIBIT H - Form of Seller's Reaffirmation of Representations
and Warranties
<PAGE>
A-1
WAS:44761.5
EXHIBIT A
LEGAL DESCRIPTION
Lot numbered four (4) in Block lettered "A", in a subdivision known as
"Lots 2, 3, 4, 5 and 6 in Block A, Washington National Pike Industrial Park," as
per plat thereof recorded in Plat Book 86 at Plat number 9024 among the Land
Records of Montgomery County, Maryland.
Also known as: 2301 Research Boulevard, Rockville, Maryland 20852
Tax I.D.: 4-201-147711
<PAGE>
B-1
WAS:44761.5
EXHIBIT B
DUE DILIGENCE DOCUMENTS
TO BE DELIVERED BY SELLER
<PAGE>
C-1
WAS:44761.5
EXHIBIT C
PERMITTED EXCEPTIONS
1. State and county taxes subsequent to the original levy for fiscal year
ending June 30, 1998 and for Washington Suburban Sanitary Commission
front foot benefit charges subsequent to the original levy for the
calendar year ending December 30, 1997, a lien not yet due and payable.
2. Such matters as appear on that certain plat recorded among the
Land Records and Plat Book 86 at Plat 9024, including but not limited
to:
(a) minimum building restriction line established and
Owner's dediction;
(b) easement for storm drain as shown on the plat.
3. Right of way granted to the Potomac Electric Power Company and C&P
Telephone Company dated September 21, 1973 and recorded September 27,
1973 among the land records in Liber 4444 at folio 196.
4. Rights of way for telephone lines and water to the City of Rockville
dated April 30, 1973 and recorded May 1, 1973 among the land records in
Liber 4369 at folio 115.
5. Declaration dated April 26, 1958 and recorded April 28, 1958 in
Liber 2451 at folio 382, and amended by the following:
(a) Declaration dated August 18, 1959 and recorded April 6, 1960
in Liber 2721 at folio 327.
(b) Declaration dated July 11, 1961 and recorded July 13, 1961 in
Liber 2865 at folio 616.
(c) Equity Action No. 22607.
(d) Equity Action No. 37368.
<PAGE>
D-1
WAS:44761.5
EXHIBIT D
TENANTS
None
<PAGE>
E-1
WAS:44761.5
EXHIBIT E
ENVIRONMENTAL REPORTS
1. August 1990-Hall-Kimbrell Environmental Services, Inc. - Asbestos
Survey Report
2. July, 1991-LawEngineering - Report of Asbestos Consulting Services
3. October,1993- Haley&Aldrich,Inc.- PhaseI Environmental Site Assessment
4. April, 1998 - ACM Services, Inc. - Asbestos Sampling Report
5. April, 1998 - ACM Services, Inc. - Soil Sampling Report
<PAGE>
F-5
WAS:44761.5
EXHIBIT F
PROPERTY: 2301 Research Boulevard
Rockville, Montgomery County,
Maryland 20850-3204
PARCEL ID NO. 04-201-001-47711
DEED
THIS DEED, dated ____ day of June, 1998, from , a corporation
("Grantor") to SEARCH ROCK LLC, a Delaware limited liability company
("Grantee").
The Grantor, for a consideration of Nine Million Three Hundred Forty
Thousand and 00/00 Dollars ($9,340,000.00) grants, conveys and assigns to the
Grantee, its successors and assigns, in fee simple, the real property located in
Montgomery County, Maryland, and described as follows:
Lot numbered four (4) in Block lettered "A" in a subdivision known as
"Lots 2, 3, 4, 5 and 6 in Block A, Washington National Pike Industrial Park," as
per plat thereof recorded in Plat Book 86 at Plat number 9024 among the Land
Records of Montgomery County, Maryland.
TOGETHER with all easements, licenses, covenants and other rights
appurtenant to the foregoing real property and all right, title and interest of
Grantor in and to any land lying in the bed of any street, road, avenue or alley
open or closed, in front of, abutting or adjoining the foregoing real property
and to the center line thereof and all improvements located thereon.
The improvements thereon being known as 2301 Research Boulevard,
Rockville, Maryland 20852.
Being the same property described in the Deed dated November 17, 1993
and recorded among the Land Records of Montgomery County in Liber 12141 at folio
832.
This Deed and the conveyance hereinabove set forth is executed by
Grantor and accepted by Grantee subject to the matters described in Exhibit A
attached hereto and incorporated herein by this reference, to the extent the
same are validly existing and applicable to the Property.
Together with all improvements thereupon, and the rights, alleys, ways,
waters, easements, privileges, appurtenances and advantages belonging or
appertaining thereto.
To have and to hold the property hereby conveyed unto the Grantee, its
successors and assigns, in fee simple, forever.
The Grantor covenants to warrant specially the property, and to execute
such further assurances of the property as may be requisite.
AND, the undersigned hereby certifies under the penalties of perjury
that the actual consideration paid or to be paid for the aforegoing conveyance,
including the amount of any mortgage or deed of trust assumed by the Grantee is
in the amount of $ .
IN TESTIMONY WHEREOF, the Grantor has caused this Deed to be duly
executed on its behalf by its duly authorized .
GRANTOR:
WITNESS: , a
By:
<PAGE>
State of Maryland
Montgomery County, to-wit:
I hereby certify that on _____ day of June, 1998, before me, a notary
public of the State of Maryland, personally appeared who acknowledged himself to
be the of the Grantor corporation, and that he, as such , being authorized so to
do, executed the foregoing Deed for the purposes therein contained by signing,
in my presence, the name of the corporation by himself as President, and
certified that this conveyance is not part of a transaction in which there is a
sale, lease, exchange or other transfer of all or substantially all of the
property and assets of the Grantor corporation.
Witness my hand and notarial seal.
Notary Public
THIS IS TO CERTIFY that the within instrument was prepared by or under
the supervision of the undersigned, an attorney duly admitted to practice before
the Court of Appeals of Maryland.
, attorney
AFTER RECORDATION, PLEASE RETURN TO:
Judith A. Hill, Paralegal
LERCH, EARLY & BREWER, CHTD.
3 Bethesda Metro Center
Suite 280
Bethesda, Maryland 20814
301-986-1300
[File No. 63613.001/JAH]
<PAGE>
CLERK'S INDEX SHEET
(For the purpose of proper indexing only)
Pursuant to the provisions and requirements of Section 3-501 of Subtitle 5, Real
Property Article, Annotated Code of Maryland (1981 Repl. Vol.), the following
additional information is declared by the parties hereto to be contained within
this instrument:
TYPE OF INSTRUMENT: DEED
GRANTOR: , a
corporation
4 Taft Court
Rockville, Maryland 20850-5310
GRANTEE: , a
c/o Berkeley Investments, Inc.
101 Federal Street
Boston, Massachusetts 02110
CONSIDERATION: $
TAX ID NUMBER: 04-201-00147711
PROPERTY ADDRESS: 2301 Research Boulevard
Rockville, Montgomery County,
Maryland 20850-3204
TITLE INSURER: Lawyers Title Insurance Corporation
CLERK: After recording, please see that the original of the foregoing
instrument is returned to:
Judith A. Hill, Paralegal
Lerch, Early & Brewer, Chtd.
3 Bethesda Metro Center
Suite 380
Bethesda, Maryland 20814
<PAGE>
EXHIBIT A
PERMITTED EXCEPTIONS
1. State and county taxes subsequent to the original levy for fiscal year
ending June 30, 1998 and for Washington Suburban Sanitary Commission
front foot benefit charges subsequent to the original levy for the
calendar year ending December 30, 1997, a lien not yet due and payable.
2. Such matters as appear on that certain plat recorded among the
Land Records and Plat Book 86 at Plat 9024, including but not limited
to:
(a) minimum building restriction line established and
owner's dediction;
(b) easement for storm drain as shown on the plat.
3. Right of way granted to the Potomac Electric Power Company and C&P
Telephone Company dated September 21, 1973 and recorded September 27,
1973 among the land records in Liber 4444 at folio 196.
4. Rights of way for telephone lines and water to the City of Rockville
dated April 30, 1973 and recorded May 1, 1973 among the land records in
Liber 4369 at folio 115.
5. Declaration dated April 26, 1958 and recorded April 28, 1958 in
Liber 2451 at folio 382, and amended b the following:
(a) Declaration dated August 18, 1959 and recorded April 6, 1960
in Liber 2721 at folio 327.
(b) Declaration dated July 11, 1961 and recorded July 13, 1961 in
Liber 2865 at folio 616.
(c) Equity Action No. 22607.
(d) Equity Action No. 37368.
<PAGE>
G-4
WAS:44761.5
EXHIBIT G
BLANKET CONVEYANCE
THIS BLANKET CONVEYANCE (the "Bill of Sale") is made
as of the ____________ day of_______________________, 1998 by: (i)
, a ("Seller") and
(ii) SEARCH ROCK LLC, a Delaware limited liability company ("Purchaser").
KNOW ALL MEN BY THESE PRESENTS:
Concurrently with the execution and delivery hereof, pursuant to a
certain Agreement of Purchase and Sale dated as of July 10,1998, as assigned to
Purchaser (the "Purchase Agreement"), Seller is conveying to Purchaser all of
the real property described on Exhibit A attached hereto and made a part hereof
(the "Land") and in and to the building, parking areas and other structures and
improvements located on the Land (collectively, the "Improvements") located in
the County of Montgomery, State of Maryland. The Land and the Improvements are
hereinafter sometimes collectively referred to as the "Property".
It is the desire of Seller to hereby sell, assign, transfer, convey,
set-over and deliver to Purchaser all of the "Assigned Property" (hereinafter
defined).
1. Bill of Sale and Assignment.
Seller does hereby sell, assign, transfer, set-over and
deliver unto Purchaser, its successors and assigns, with special warranty of
title, all of the following:
(i) any and all fixtures, equipment and other personal
property and replacements thereof, which are owned by Seller and are placed in,
attached to and used in connection with the management, operation, maintenance
or repair of the Property (but expressly excluding all items located in the
computer room which Seller agrees to remove prior to the date hereof).
(ii) to the extent they may be transferred under applicable
law, all licenses, permits, approvals, certificates of occupancy and other
approvals necessary for the current use and operation of the Property,
including, without limitation, sewer rights and permits, presently issued in
connection with the operation of all or any part of the Property, if any.
(iii) the TAMKO roof warranty and any other warranties of
which Seller becomes aware issued to Seller by any manufacturers and contractors
in connection with construction or installation of equipment included as part of
the Property;
(iv)all transferable development rights related to the
Property;
(v) any and all architectural, mechanical, electrical and
structural plans, studies, drawings, specifications, surveys, renderings and
other technical descriptions that relate to the Land or the Improvements to the
extent available to Seller, which consist of those items which Seller has
provided to Purchaser pursuant to that certain letter dated May 4, 1998 (the
"May 4 Letter"), a copy of which is attached hereto as Exhibit B or which
subsequently become available to Seller.
TOGETHER with the immediate and continuing right to collect and receive
all of the rents, income, receipts, revenues, issues, profits, deposits and
proceeds now due or which may become due or to which Seller may now or shall
hereafter become entitled to make demand or claim, arising or issuing from or
out of any of the foregoing items assigned or transferred by this Bill of Sale
or from or out of the Property or any part thereof, including, but not by way of
limitation, minimum rents, additional rents, tax and insurance contributions,
deficiency rents and liquidated damages following default, the premium payable
by any party upon the exercise of a cancellation privilege originally provided
for in any of the leases or contracts, and any rights and claims of any kind
which of the Seller may have against any occupancy tenant under the leases or
against any subtenants or occupants of the Property or against any Party other
than Seller under the contracts; subject, however, to the rights of Seller set
forth in the Purchase Agreement to rents under the leases assigned hereby
attributable to the period prior to the date hereof.
TO HAVE AND TO HOLD the improvements, leases, contracts, personalty,
security deposits, proceeds, permits, warranties and intangible property
(collectively, the "Assigned Property") unto Purchaser, its successors and
assigns, forever.
2. Representation and Warranty.
Seller represents, covenants and warrants that Seller is the
sole and lawful owner of all of the Assigned Property and that the Assigned
Property is free and clear of all claims, liens or encumbrances whatsoever
except for the Permitted Exceptions (as defined in the Purchase Agreement).
Seller further represents, covenants and warrants that Seller has the full
right, power and authority to execute this Bill of Sale.
3. No Mechanics' Liens.
Seller hereby affirms that there are no unpaid bills or claims for
labor performed or materials furnished to or for the benefit of the Property for
which mechanics' liens can be filed, and that there has been no casualty loss or
damage to, or pending condemnation of, any part of the Property.
4. Further Assurances.
Seller agrees that Seller will make, execute, acknowledge and deliver
all and every such further acts, deeds, conveyances, assignments, notices of
assignments, transfers and assurances as Purchaser shall from time to time
reasonably require, for the better assuring, conveying, assigning, transferring
and confirming unto Purchaser the Property and Assigned Property, and the rights
hereby conveyed or assigned or intended now or hereafter to be conveyed or
assigned to Purchaser, and all other Property as is herein conveyed or is to be
conveyed pursuant to the Purchase Agreement, or for carrying out the intention
or facilitating the performance of the terms of this Bill of Sale and the
Purchase Agreement or registering or recording this Bill of Sale.
5. Counterpart Copies.
This Bill of Sale may be executed in two or more counterpart copies,
all of which counterparts shall have the same force and effect as if all parties
hereto had executed a single copy of this Bill of Sale.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Bill of Sale to be
executed as of the date first written above.
SELLER:
WITNESS: , a
By: Robert E. Foss
DATE: July 10, 1998
PURCHASER:
WITNESS:
, a
By: Berkeley Investments, Inc.,
its managing member
By:
Name:
Its:
DATE: __________________, 199_
<PAGE>
H-1
WAS:44761.5/74550/95525
EXHIBIT H
REAFFIRMATION OF REPRESENTATIONS AND WARRANTIES
__________________________________________, referred to as "Seller"
under that certain Agreement of Purchase and Sale dated July 10, 1998, as
amended, hereby represents and warrants that the Seller's representations and
warranties in such Agreement are true and correct as of the date hereof, except
as otherwise indicated herein.
Dated: June, 1998
WITNESS: SELLER:
----------------------------------,
a ____________________________
________________________ By: _Robert E. Foss__________________
-----------------------------------
Its: ___Executive Vice President______
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 4,399
<SECURITIES> 153,509
<RECEIVABLES> 78,406
<ALLOWANCES> 4,782
<INVENTORY> 0
<CURRENT-ASSETS> 268,570
<PP&E> 44,964
<DEPRECIATION> 30,082
<TOTAL-ASSETS> 338,880
<CURRENT-LIABILITIES> 152,333
<BONDS> 29
0
0
<COMMON> 567
<OTHER-SE> 182,204
<TOTAL-LIABILITY-AND-EQUITY> 338,880
<SALES> 0
<TOTAL-REVENUES> 883,273
<CGS> 0
<TOTAL-COSTS> 778,408
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (65)
<INTEREST-EXPENSE> 361
<INCOME-PRETAX> 5,249
<INCOME-TAX> 1,717
<INCOME-CONTINUING> 3,532
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,532
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
