<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the fiscal year ended December 31, 1997
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 0-7416
SHARED MEDICAL SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 23-1704148
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
51 Valley Stream Parkway
Malvern, Pennsylvania 19355
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (610) 219-6300
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $.01 per share New York Stock Exchange
(Title of class) (Name of each exchange on which
registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No_____
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.___
The aggregate market value of the voting stock (Common Stock) held by non-
affiliates of the registrant as of February 27, 1998, was $1,930,227,000.
See page 8 herein for assumptions on which this calculation is based.
On February 27, 1998, there were 26,277,792 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE.
Certain portions of the Company's Annual Report to Stockholders for the
year ended December 31, 1997 are incorporated by reference into Part I and Part
II of this Form 10-K. Certain portions of the Company's definitive Proxy
Statement to be mailed to stockholders on or about March 31, 1998, are
incorporated by reference into Part III of this Form 10-K.
<PAGE>
2
Part I
Item 1. Business.
The Company, incorporated in Delaware in January 1969, and its subsidiaries
provide information service and system solutions to the health industry in North
America, Europe, and Asia Pacific.
The Company's services and systems are offered to integrated health networks,
multientity health corporations, community health information networks,
hospitals, physician offices, clinics, and other health providers. These
services and systems include a full range of clinical, financial, patient
management, electronic data interchange, managed care, management solutions, and
integrated multimedia solutions that use diverse computing and networking
technologies, ranging from remote processing (i.e., at the Company's Information
Services Center), to client/server networks, to distributed processing systems,
to onsite systems. The Company also provides professional services related to
its information systems business.
In the United States, which has historically been the Company's most significant
market, the Company currently has contracts with health providers in 47 states,
the District of Columbia, and Puerto Rico. The Company markets its information
systems and provides installation services and ongoing technical and educational
support with a field staff working from branch offices. At its Corporate
Headquarters and Information Services Center, the Company has a customer service
staff, applications specialists, and communications and computer operations
personnel who assist customers in their day-to-day use of the Company's systems,
and system designers and programmers who work to improve existing software
applications and develop additional information systems.
In 1981, the Company entered the health information services and systems market
in Europe. In Europe, the Company markets, installs, and supports its products
through local offices in eleven countries. Currently, the Company has customer
contracts in Belgium, Czech Republic, Denmark, France, Germany, Greece, Hungary,
Ireland, Italy, Luxembourg, Malta, Netherlands, Poland, Slovak Republic, Spain,
and the United Kingdom. In 1997, the Company entered the Asia Pacific market by
signing a customer contract in New Zealand.
Financial information by geographic area can be found on page 30 of the
Company's 1997 Annual Report to Stockholders, Notes to Consolidated Financial
Statements, Business Segment Information (Note 9), which is incorporated herein
by reference.
The business of providing information services and systems to the health
industry continues to grow and become more complex. Health industry
consolidation and changes in the way health providers are structured and
reimbursed, combined with pressures to control costs, improve quality, and
increase market share continue to create new and increased demands for the
Company's services and systems.
<PAGE>
3
On January 28, 1998, the Company acquired Data-Plan Software GmbH, a provider of
client/server clinical, financial, and administrative health information systems
in Germany. Under the terms of the agreement, the Company issued 1,119,428
shares of the Company's common stock. This transaction will be accounted for as
a pooling of interests.
On January 31, 1998, the Company increased its ownership interest in Delta
Health Systems from 50% to 100% by purchasing the remaining equity for
$21,176,000 from Delta Computer Systems, Inc.
On March 26,1998, the Company filed a complaint and petition for a special
injunction in response to the recent attempt by PeopleSoft, Inc. ("PeopleSoft")
to terminate a multi-year distribution agreement under which the Company
remarkets certain PeopleSoft client/server software to the Company's customers.
On March 27, 1998, the court entered an order issuing a special injunction
which, among other things, requires PeopleSoft to perform in accordance with the
terms of the agreement pending a further hearing. The Company is confident in
the merits of its position and will vigorously pursue its rights.
Services and Systems Offered
----------------------------
The Company's health information systems and related services are delivered on
computers that range from personal computers, to client/server networks, to
minicomputers, to mainframes, which can be operated at the customer's site, at
the Company's Information Services Center (i.e., remotely), or as part of a
distributed network. Distributed network systems enable customers to process
any combination of the Company's information systems either at the Company's
Information Services Center, or at the customer's site. These systems are also
offered with networking features that enable multientity health providers to
process information for affiliated hospitals, physician groups, and clinics.
The principal health information systems and related services offered by the
Company are:
Health Information Systems -
--------------------------
. Clinical Systems, which provide clinicians with point-of-care data entry
and access to clinical information. These systems automate many labor-
intensive tasks performed in the nursing, radiology, laboratory, pharmacy,
and other departments within health organizations, while facilitating
communications among them.
. Financial Systems, which consist of a full range of financial functions
that include provider accounting for both hospitals and physicians
(including billing and receivables), personnel, payroll, materials
management, and property.
. Patient Management Systems, which assist in the administration of patient
care through specialized programs for various health organization support
functions, such as admissions, outpatient visits, utilization review,
medical records, and physician encounters.
. Ambulatory Care Systems, which provide integrated systems that facilitate
the sharing of clinical and financial information between health providers
in non-acute care settings.
. Management Solutions, which provide health executives and managers with
access to a range of strategic information collected from clinical,
financial, and patient management systems, to set performance standards,
identify variances, and analyze results.
<PAGE>
4
. Physician Information Systems, which provide information processing and
administrative support to physician groups, clinics, and medical schools
with features such as scheduling, electronic claims processing, automated
billing and rebilling, and online collections.
. Integrated Health Network Systems, which connect all points of care through
patient indices that identify patients anywhere within the network,
schedule network-wide resources, and retain cumulative electronic patient
records. These systems also include software that address managed care and
enhance communications among all elements within an integrated health
network. Integrated health networks are generally comprised of a variety of
health providers, such as hospitals, skilled nursing facilities, home
health agencies, rehabilitation facilities, clinics, physician practices,
and others.
Electronic Data Interchange Services facilitate the sharing and
------------------------------------
standardization of information such as eligibility verifications, and claims
and remittance transmissions between health providers and payers.
Professional Services consist of a variety of activities related to the
---------------------
Company's health information systems. These professional services include
system installation and support, and customer education. In addition, the
Company provides specialized consulting services for the design and
integration of software and networks, business office consulting, facilities
management, information systems planning and integration, system-related
process reengineering, and Internet services.
Service and system fees earned by the Company for the years ended December 31,
1997, 1996, and 1995 were $784,308,000, $698,379,000, and $603,979,000,
respectively. Hardware at customer sites associated with these services and
systems may be provided by the Company under sales or lease agreements. Revenues
for hardware leased to customers by the Company are included in service and
system fees revenues. Hardware sales revenues for the years ended December 31,
1997, 1996, and 1995 were $111,927,000, $80,695,000, and $58,132,000,
respectively.
Customers
---------
The Company's services and systems are provided to customers under long-term
service contracts and perpetual license agreements. Long-term service contracts
range from one to ten years and generally allow price increases annually,
limited to the increase in the Consumer Price Index. Revenues under long-term
service agreements are recognized as they are earned over the life of the
contract. Software fees for perpetual license agreements are recognized over
the installation period. Support fees related to long-term service contracts or
perpetual license agreements are recognized over the term of the support
agreement. Management estimates that the total amount of future revenues under
contract as of December 31, 1997 are in excess of $2.1 billion. In 1997, 1996,
and 1995, no single customer accounted for 10% or more of consolidated revenues.
Revenues from individual customers vary depending on the number and type of the
Company's services and systems that are used. Because of the high
<PAGE>
5
fixed costs of the Company's operations, the loss of any single customer under a
long-term service contract would reduce the Company's net income by a greater
percentage than the percentage of total revenues lost.
Presently, no more than one quarter of the Company's long-term service
contracts expire in any future year. Although the Company strives to retain its
customers, not all of the Company's past contracts have been renewed, and there
can be no assurance that existing customers will either renew their contracts or
convert to another type of system offered by the Company upon the expiration of
their current contract.
Competition
-----------
The Company experiences intense competition from a number of firms in the health
information services and systems market. Virtually all health providers use
some form of computer-based information service or system. The Company's
competitors vary in size, in geographical coverage, and in scope and breadth of
services and systems offered.
The Company considers itself to be a major supplier of information services and
systems to health providers. Competition among those providing information
services and systems to the health industry is based upon the breadth and
reliability of the services and systems provided and, to the extent that the
services and systems are comparable, upon price.
Research and Development
------------------------
The Company continually investigates the feasibility of enhancing existing
services and systems and develops new services and systems to meet the
information processing needs of the health industry. Profitability of newly
developed services and systems depends upon attainment of sufficient sales
volumes and continued improvement and efficiency of the services and systems.
The Company expenses all research and non-capitalized development costs, which
generally consist of costs incurred to establish the technological feasibility
of internally produced computer software. These expenses, which are primarily
for salaries of personnel and computer costs, were $64,046,000 in 1997,
$54,665,000 in 1996, and $45,385,000 in 1995.
The Company capitalizes the cost of certain internally produced computer
software and purchased software. Capitalization for internally produced
software begins when a project reaches technological feasibility and ends when
the software is available for general release to customers. The Company
amortizes computer software using the straight-line method over its expected
useful life, which is generally five years. Capitalized internally produced
computer software costs, net of accumulated amortization, were $40,911,000 and
$36,042,000 as of December 31, 1997 and 1996, respectively. Amortization
related to capitalized internally produced software was $7,867,000 in 1997,
$7,993,000 in 1996, and $7,722,000 in 1995. Purchased software, net of
accumulated amortization, was $19,555,000 and $15,289,000 as of December 31,
1997 and 1996, respectively.
<PAGE>
6
Personnel
---------
As of December 31, 1997, the Company had a total of 5,984 full-time employees.
Item 2. Properties.
The Company owns 116 acres of land in Chester County, Pennsylvania and has
constructed three buildings on this site; an information services center (81,000
square feet), which was put into service in 1979, and two office buildings with
an aggregate of 431,000 square feet, the first of which was placed in service in
1981 and the second of which was placed in service in 1983. These office
buildings serve as the Company's corporate headquarters. In 1997, the Company
began construction of a 230,000 square foot office building at its corporate
headquarters in order to consolidate corporate-based personnel currently located
nearby in leased office space. The unused portion of this land can be used for
future expansion. The Company also leases office space in most major
metropolitan areas in the United States for marketing, installation and support
personnel. The Company also owns office buildings in Spain and the United
Kingdom and leases office space in various locations to support its
international operations. These properties are adequate for existing
operations.
The Company also owns 241 acres of land in Chester County, Pennsylvania for
possible future expansion.
As of December 31, 1997, the Company's Information Services Center, which is
used primarily to process customer information and to support the Company's
internal software development activity, contained two 9672-RY4 IBM CMOS
processors, two 9672-RX5 IBM CMOS processors, two 9672-RY5 IBM processors, one
IBM 9672/R75 CMOS processor, and one 9021-982 IBM processor, all of which were
obtained under operating leases. The Company's Information Services Center also
includes related mainframe peripherals and network communications equipment that
has been purchased or leased. These leases are generally contracted under long-
term agreements with terms that range from one to five years.
Item 3. Legal Proceedings.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
<PAGE>
7
Executive Officers of the Registrant
Listed below are the name, age as of December 31, 1997, position(s) with the
Company and principal occupation(s) for the past five years of each of the
current executive officers of the Company.
Positions with Company and Principal
Name Age Occupation(s) - Past Five Years
- ---------------------- --- --------------------------------------------------
R. James Macaleer 63 Chairman of the Board since August 1995.
Prior to this, Mr. Macaleer served as Chairman of
the Board and Chief Executive Officer since the
Company's founding in 1969.
Marvin S. Cadwell 54 Director, President, and Chief Executive Officer
since August 1995. Prior to this, Mr. Cadwell
served as Director, President, and Chief Operating
Officer, May 1995 - August 1995; President and
Chief Operating Officer, March 1995 - May 1995;
Executive Vice President and Chief Operating
Officer of SMS Europe, October 1993 - March 1995;
Senior Vice President, Managing Director, and
Chief Operating Officer of SMS Europe, March 1992
- October 1993. Mr. Cadwell originally joined the
Company in 1975.
James C. Kelly 58 Secretary since June 1990. Mr. Kelly originally
joined the Company in 1972.
V. Brewster Jones 53 Senior Vice President since May 1997. Prior to
this, Mr. Jones served in a variety of executive
positions for Multimedia Medical Systems, Inc., an
information technology provider for the health
industry, September 1995 - May 1997; and President
and Chief Executive Officer of Pharmakinetics
Laboratories, Inc., a pharmaceutical research
company, October 1990 - July 1995.
Terrence W. Kyle 47 Senior Vice President, Treasurer, and Assistant
Secretary since August 1996. Prior to this, Mr.
Kyle served as Vice President of Finance,
Treasurer, and Assistant Secretary, June 1990 -
August 1996. Mr. Kyle originally joined the
Company in 1976.
Francis W. Lavelle 48 Senior Vice President of U.S. Customer Operations
since December 1993. Prior to this, Mr. Lavelle
served as Vice President of New Business
Development, January 1991 - December 1993. Mr.
Lavelle originally joined the Company in 1988.
<PAGE>
8
Positions with Company and Principal
Name Age Occupation(s) - Past Five Years
- ---------------------- --- --------------------------------------------------
David F. Perri 48 Senior Vice President since August 1996. Prior to
this, Mr. Perri served as Vice President of
Technology Solutions, March 1995 - August 1996;
and Vice President of Technical Affairs, June
1990 - March 1995. Mr. Perri originally joined the
Company in 1980.
Guillermo N. Ramas, Sr. 52 Senior Vice President and President of SMS
International since August 1996. Prior to this,
Mr. Ramas served as Managing Director of SMS
Europe, October 1993 - August 1996; and General
Manager of Southern Europe, January 1992 - October
1993. Mr. Ramas originally joined the Company in
1987.
Michael B. Costello 54 Vice President of Administration and Corporate
Communications since January 1991. Mr. Costello
originally joined the Company in 1979.
Edward J. Grady 45 Vice President, Controller, and Assistant
Treasurer since September 1996. Prior to this, Mr.
Grady served as Controller and Assistant
Treasurer, February 1993 - September 1996; and
Controller, May 1985 - February 1993. Mr. Grady
originally joined the Company in 1980.
Bonnie L. Shuman 49 Vice President, General Counsel, and Assistant
Secretary since September 1996. Prior to this, Ms.
Shuman served as General Counsel and Assistant
Secretary, June 1990 - September 1996. Ms. Shuman
originally joined the Company in 1983.
________________________________________________________________________________
In calculating the aggregate market value of voting stock held by non-affiliates
as shown on the cover page of this Form 10-K Report, the Company has included
all of its directors, and only its directors, as affiliates of the Company.
This is not an admission by the Company that any or all of its directors are in
fact affiliates. The aggregate market value of voting stock held by non-
affiliates was computed by using the high and low prices of the stock as of
February 27, 1998.
<PAGE>
9
Part II
The following information contained in the Company's Annual Report to
Stockholders for the year ended December 31, 1997 is incorporated herein by
reference:
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Page 19, Section titled Market Price and Dividends Declared Per Share *- "1997"
and "1996**" columns and the related footnotes
Item 6. Selected Financial Data.
Page 19, Section titled Summary of Consolidated Operations - "Revenues," "Net
Income," "Net Income Per Share - Basic," and "Net Income Per Share - Diluted"
line items
Page 19, Section titled Summary of Consolidated Financial Position - "Total
Assets" and "Long-Term Debt and Capital Leases" line items
Page 19, Section titled Operating Ratios and Other Selected Financial Data -
"Cash Dividends Declared Per Share" line item
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Pages 14 through 18, Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 8. Financial Statements and Supplementary Data.
Pages 20 through 30
Page 31, Report of Independent Public Accountants
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
<PAGE>
10
Part III
The following information contained in the Company's definitive Proxy Statement
to be mailed to stockholders on or about March 31, 1998 is incorporated herein
by reference:
Item 10. Directors and Executive Officers of the Registrant.
Section titled "Security Ownership": subsection titled "Directors and
Management": columns "Name of Beneficial Owner" and "Director Since" for the
portion of the table titled "Directors"
Section titled "Section 16(a) Beneficial Ownership Reporting Compliance"
(For information concerning the Company's Executive Officers see pages 7 and 8
hereof, section titled "Executive Officers of the Registrant")
Item 11. Executive Compensation.
Section titled "Election of Directors": subsection titled "Compensation of
Directors"
Section titled "Executive Compensation": subsections titled "Compensation
Committee Interlocks and Insider Participation" and "Compensation Summaries"
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Section titled "Security Ownership"
Item 13. Certain Relationships and Related Transactions.
Section titled "Executive Compensation": subsection titled "Compensation
Committee Interlocks and Insider Participation"
<PAGE>
11
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements - the following consolidated financial statements
included on pages 20 through 31 in the Company's Annual Report to
Stockholders for the year ended December 31, 1997 are included in this
report.
. Consolidated Balance Sheet as of December 31, 1997 and 1996 (page
20)
. Consolidated Statement of Income for the years ended December 31,
1997, 1996, and 1995 (page 21)
. Consolidated Statement of Cash Flows for the years ended December
31, 1997, 1996, and 1995 (page 22)
. Consolidated Statement of Stockholders' Investment for the years
ended December 31, 1997, 1996, and 1995 (page 23)
. Notes to Consolidated Financial Statements for the years ended
December 31, 1997, 1996, and 1995 (pages 24 through 30)
. Selected Quarterly Financial Data (Unaudited) for the years ended
December 31, 1997 and 1996 as reported in Note 10 to Consolidated
Financial Statements (page 30)
. Report of Independent Public Accountants (page 31)
2. Financial Statement Schedules - the following Financial Statement
Schedules required by Article 5 of Regulation S-X are included in this
report:
. Report of Independent Public Accountants
. Schedule II - Valuation and Qualifying Accounts
. Schedules omitted - the following schedules are omitted since they
are not required, or not applicable: I, III, IV, and V
<PAGE>
12
3. The following exhibits are included in this report:
No. Description
---- -----------------------------------------------------------------
(3) Articles of Incorporation and By-Laws -
Certificate of Amendment of Restated Certificate of Incorporation
dated May 21, 1997 (filed as Exhibit (3) to the Company's Form
10-Q Report for the quarter ended June 30, 1997)*
Restated Certificate of Incorporation dated May 14, 1992 (filed
as Exhibit (3) to the Company's Form 10-Q Report for the quarter
ended June 30, 1997)*, By-laws as amended through August 10, 1995
(filed as Exhibit (3) to the Company's Form 10-Q Report for the
quarter ended September 30, 1995)*
(4) Instruments defining the rights of security holders,
including indentures -
Rights Agreement dated as of May 1, 1991, between the Registrant
and Pittsburgh National Bank, as Rights Agent (filed as Exhibit
(4) to Company's Form 10-K Report for the year ended December 31,
1996)*
(10) Material Contracts -
Deferred compensation agreements:**
R. James Macaleer (filed as Exhibit (10) to the Company's
Form 10-K Report for the year ended December 31, 1995)*
James C. Kelly (filed as Exhibit (10) to the Company's Form
10-K Report for the year ended December 31, 1995)*
Marvin S. Cadwell (filed as Exhibit (10) to the Company's
Form 10-Q Report for the quarter ended September 30, 1995)*
Guillermo N. Ramas, Sr.
Performance bonus plans - 1997:**
Marvin S. Cadwell (filed as Exhibit (10) to the Company's
Form 10-Q Report for the quarter ended June 30, 1997)*
Form of performance bonus plan (filed as Exhibit (10) to the
Company's Form 10-Q Report for the quarter ended June 30,
1997)*:
V. Brewster Jones
*Previously filed as indicated and incorporated herein by reference.
**May be deemed a management contract or compensatory arrangement.
<PAGE>
13
No. Description
---- -----------------------------------------------------------------
Terrence W. Kyle
Francis W. Lavelle
David F. Perri
Guillermo N. Ramas, Sr.
Performance bonus plans - 1996:**
R. James Macaleer (filed as Exhibit (10) to the Company's
Form 10-Q Report for the quarter ended June 30, 1996)*
Marvin S. Cadwell (filed as Exhibit (10) to the Company's
Form 10-Q Report for the quarter ended June 30, 1996)*
Form of performance bonus plan (filed as Exhibit (10.4) to
the Company's Form 10-Q Report for the quarter ended
September 30, 1996)*:
Terrence W. Kyle
Francis W. Lavelle
David F. Perri
Guillermo N. Ramas, Sr.
Insurance agreement:**
R. James Macaleer (filed as Exhibit (10) to the Company's
Form 10-K Report for the year ended December 31, 1995)*
Employment agreements:**
Marvin S. Cadwell (filed as Exhibit (10) to the Company's
Form 10-K Report for the year ended December 31, 1996)*
V. Brewster Jones (filed as Exhibit (10) to the Company's
Form 10-Q Report for the quarter ended June 30, 1997)*
Form of executive employment agreement (filed as Exhibit
(10.2) to the Company's Form 10-Q Report for the quarter
ended September 30, 1996)*:
Terrence W. Kyle
Francis W. Lavelle
David F. Perri
Guillermo N. Ramas, Sr.
*Previously filed as indicated and incorporated herein by reference.
**May be deemed a management contract or compensatory arrangement.
<PAGE>
14
No. Description
---- -----------------------------------------------------------------
Form of senior management employment agreement (filed as
Exhibit (10.3) to the Company's Form 10-Q Report for the
quarter ended September 30, 1996)*:
Michael B. Costello
Edward J. Grady
Bonnie L. Shuman
Construction contract for new office building located at the
Company's corporate headquarters
(13) Annual Report to Stockholders for the year ended
December 31, 1997**
(21) Subsidiaries of the Registrant
(23) Consent of Independent Public Accountants
(27) Financial Data Schedule
(b) No reports on Form 8-K were filed during the three month period ended
December 31, 1997.
*Previously filed as indicated and incorporated herein by reference. May be
deemed a management contract or compensatory arrangement.
**With the exception of the material specifically incorporated by reference in
Part I and Part II of this Form 10-K, the Annual Report to Stockholders for the
year ended December 31, 1997 is not to be deemed "filed" as part of this Form
10-K.
<PAGE>
15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SHARED MEDICAL SYSTEMS CORPORATION
By: /S/ R. James Macaleer Date: March 31, 1998
----------------------------------------- ----------------
R. James Macaleer - Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
By: /S/ R. James Macaleer Date: March 31, 1998
----------------------------------------- ----------------
R. James Macaleer - Chairman of the Board
By: /S/ Marvin S. Cadwell Date: March 31, 1998
---------------------------------------- -----------------
Marvin S. Cadwell - Director, President,
and Chief Executive Officer
By: /S/ Raymond K. Denworth, Jr. Date: March 31, 1998
----------------------------------------- ----------------
Raymond K. Denworth, Jr. - Director
By: /S/ Frederick W. DeTurk Date: March 31, 1998
----------------------------------------- ----------------
Frederick W. DeTurk - Director
By: /S/ Josh S. Weston Date: March 31, 1998
----------------------------------------- ----------------
Josh S. Weston - Director
By: /S/ Jeffrey S. Rubin Date: March 31, 1998
----------------------------------------- ----------------
Jeffrey S. Rubin - Director
By: /S/ Gail R. Wilensky Date: March 31, 1998
----------------------------------------- ----------------
Gail R. Wilensky - Director
By: /S/ Terrence W. Kyle Date: March 31, 1998
----------------------------------------- ----------------
Terrence W. Kyle - Senior Vice President,
Treasurer, and Assistant Secretary
By: /S/ Edward J. Grady Date: March 31, 1998
----------------------------------------- ----------------
Edward J. Grady - Vice President,
Controller, and Assistant Treasurer
<PAGE>
16
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To Shared Medical Systems Corporation:
We have audited in accordance with generally accepted auditing standards, the
financial statements included in Shared Medical Systems Corporation's 1997
Annual Report to Stockholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated February 9, 1998. Our audit was made for
the purpose of forming an opinion on those statements taken as a whole. The
schedule listed in Item 14 is the responsibility of the Company's management and
is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/S/ Arthur Andersen LLP
Philadelphia, PA
February 9, 1998
<PAGE>
17
SCHEDULE II
SHARED MEDICAL SYSTEMS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996*, AND 1995*
-------------------------------------------------------
<TABLE>
<CAPTION>
Balance Balance
Beginning of Charges to Additions/ End of
Year Expenses (Deductions) Year
------------ ---------- -------------- ----------
<S> <C> <C> <C> <C>
Reserve for Doubtful Accounts:
December 31, 1997 $ 8,094,000 $5,041,000 $(3,736,000)(1) $9,399,000
============ ========== =========== ==========
December 31, 1996 $ 6,347,000 $1,900,000 $ (153,000)(1) $8,094,000
============ ========== =========== ==========
December 31, 1995 $ 5,317,000 $2,320,000 $(1,290,000)(1) $6,347,000
============ ========== =========== ==========
</TABLE>
(1)Write-offs of uncollectible accounts
* Restated to reflect the acquisition of American Healthware Systems, Inc. in
1997, which was accounted for as a pooling of interests.
<PAGE>
18
Exhibit Index
No. Description
- ---- ----------------------------------------------------------------------
(3) Articles of Incorporation and By-Laws -
Certificate of Amendment of Restated Certificate of Incorporation
dated May 21, 1997 (filed as Exhibit (3) to the Company's Form 10-Q
Report for the quarter ended June 30, 1997)*
Restated Certificate of Incorporation dated May 14, 1992 (filed as
Exhibit (3) to the Company's Form 10-Q Report for the quarter ended
June 30, 1997)*, By-Laws as amended through August 10, 1995 (filed as
Exhibit (3) to the Company's Form 10-Q Report for the quarter ended
September 30, 1995)*
(4) Instruments defining the rights of security holders, including
indentures -
Rights Agreement dated as of May 1, 1991, between the Registrant and
Pittsburgh National Bank, as Rights Agent (filed as Exhibit (4) to the
Company's Form 10-K Report for the year ended December 31, 1996)*
(10) Material Contracts -
Deferred compensation agreements:**
R. James Macaleer (filed as Exhibit (10) to the Company's Form
10-K Report for the year ended December 31, 1995)*
James C. Kelly (filed as Exhibit (10) to the Company's Form 10-K
Report for the year ended December 31, 1995)*
Marvin S. Cadwell (filed as Exhibit (10) to the Company's Form
10-Q Report for the quarter ended September 30, 1995)*
Guillermo N. Ramas, Sr.
Performance bonus plans - 1997:**
Marvin S. Cadwell (filed as Exhibit (10) to the Company's Form
10-Q Report for the quarter ended June 30, 1997)*
Form of performance bonus plan (filed as Exhibit (10) to the
Company's Form 10-Q Report for the quarter ended June 30, 1997)*:
V. Brewster Jones
Terrence W. Kyle
Francis W. Lavelle
*Previously filed as indicated and incorporated herein by reference.
**May be deemed a management contract or compensatory arrangement.
<PAGE>
19
Exhibit Index
No. Description
- ---- ----------------------------------------------------------------------
David F. Perri
Guillermo N. Ramas, Sr.
Performance bonus plans - 1996:**
R. James Macaleer (filed as Exhibit (10) to the Company's Form
10-Q Report for the quarter ended June 30, 1996)*
Marvin S. Cadwell (filed as Exhibit (10) to the Company's Form
10-Q Report for the quarter ended June 30, 1996)*
Form of performance bonus plan (filed as Exhibit (10.4) to the
Company's Form 10-Q Report for the quarter ended September 30,
1996)*:
Terrence W. Kyle
Francis W. Lavelle
David F. Perri
Guillermo N. Ramas, Sr.
Insurance agreement:**
R. James Macaleer (filed as Exhibit (10) to the Company's Form
10-K Report for the year ended December 31, 1995)*
Employment agreements:**
Marvin S. Cadwell (filed as Exhibit (10) to the Company's Form
10-K Report for the year ended December 31, 1996)*
V. Brewster Jones (filed as Exhibit (10) to the Company's Form
10-Q Report for the quarter ended June 30, 1997)*
Form of executive employment agreement (filed as Exhibit (10.2)
to the Company's Form 10-Q Report for the quarter ended September
30, 1996)*:
Terrence W. Kyle
Francis W. Lavelle
David F. Perri
Guillermo N. Ramas, Sr.
*Previously filed as indicated and incorporated herein by reference.
**May be deemed a management contract or compensatory arrangement.
<PAGE>
20
Exhibit Index
No. Description
- ---- ----------------------------------------------------------------------
Form of senior management employment agreement (filed as Exhibit
(10.3) to the Company's Form 10-Q Report for the quarter ended
September 30, 1996)*:
Michael B. Costello
Edward J. Grady
Bonnie L. Shuman
Construction contract for new office building located at the Company's
corporate headquarters
(13) Annual Report to Stockholders for the year ended December 31, 1997**
(21) Subsidiaries of the Registrant
(23) Consent of Independent Public Accountants
(27) Financial Data Schedule
*Previously filed as indicated and incorporated herein by reference. May be
deemed a management contract or compensatory arrangement.
**With the exception of the material specifically incorporated by reference in
Part I and Part II of this Form 10-K, the Annual Report to Stockholders for the
year ended December 31, 1996 is not to be deemed "filed" as part of this Form
10-K.
<PAGE>
Exhibit 10.1
DEFERRED COMPENSATION AGREEMENT
THIS AGREEMENT is made this 2nd day of February, 1996, between SHARED MEDICAL
SYSTEMS CORPORATION (the "Company") and GUILLERMO N. RAMAS ("Employee"), who is
a member of a select group of management or highly compensated employees within
the meaning of section 201(2) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA").
The parties hereto, intending to be legally bound, agree as follows:
1. GRANTOR TRUST; DEFERRED COMPENSATION ACCOUNT.
--------------------------------------------
The Company has established an irrevocable grantor trust (the "Trust")
within the meaning of section 671 of the Internal Revenue Code of 1986, as
amended (the "Code"), pursuant to a trust agreement (the "Trust Agreement")
executed on February 2, 1996 with a trustee selected by the Company (the
"Trustee"). Concurrent with the execution of this Agreement, the Company will
contribute to the Trust 10,000 newly-issued shares of Company Common Stock
("Original Shares") by delivery of such Shares to the Trustee.
The Trustee shall, on behalf of the Company, hold a deferred compensation
account for Employee (the "Deferred Compensation Account" or the "Account").
The Account shall have two sub-accounts, the Stock Account and the Cash Account.
The Trustee shall hold the Original Shares in the Stock Account. Any stock
dividends, stock splits, and other non-cash distributions received on the
Original Shares shall be held in the Stock Account, while any cash dividends
received on the Original Shares shall be held in the Cash Account and shall be
invested in accordance with investment guidelines established by the Company.
The Accounts shall also be reduced for distributions made under the terms of
this Agreement.
Notwithstanding the foregoing, the Trust assets shall be treated as assets
of the Company and shall remain, in the event the Company becomes Insolvent (as
such term is defined in Section 5(a)(i) of the Trust Agreement) subject to the
claims of the Insolvency Creditors (within the meaning of Section 5(a)(ii) of
the Trust Agreement) of the Company. Employee shall not have any property
interest in the assets held in the Trust. Employee shall have only the rights of
an unsecured creditor against the Company for any distribution due under this
Agreement, and this Agreement shall constitute a mere promise by the Company to
make such distributions in the future. It is the intention of the parties
-1-
<PAGE>
that the Agreement be unfunded for Federal income tax purposes and for purposes
of Title I of ERISA.
2. ENTITLEMENT TO BENEFITS.
-----------------------
(a) BENEFITS AT NORMAL RETIREMENT.
-----------------------------
Upon the termination of Employee's employment with the Company
occurring on or after the Employee attains the age of 60 (his "Normal
Retirement Age"), Employee shall be entitled to receive and shall have
distributed to him the balance in his sub-accounts, as provided in
Exhibit A.
(b) TERMINATION BEFORE NORMAL RETIREMENT AGE.
----------------------------------------
If Employee's employment with the Company is terminated for any
reason prior to his Normal Retirement Age, Employee shall not be entitled
to receive any amount in his Account, and no distributions shall be made to
Employee, except under the following circumstances:
(i) DISABILITY.
----------
If Employee's termination of employment results from his
permanent disability prior to his Normal Retirement Age, Employee
shall be entitled to receive and shall have distributed to him the
balance in his sub-accounts, as provided in Exhibit A. Employee shall
be deemed "permanently disabled," only if he can no longer perform the
duties of his position, as determined by the Management and
Compensation Committee of the Company's Board of Directors, in his or
their sole discretion.
(ii) DEATH.
-----
If Employee's termination of employment results from the
Employee's death prior to his Normal Retirement Age, Employee's
beneficiary designated pursuant to Section 3(b) below shall be
entitled to receive within 30 days of Employee's death and shall have
distributed to him or her the balance in Employee's sub-accounts, in a
lump sum.
-2-
<PAGE>
(iii) DISCHARGE AFTER AGE 50.
----------------------
Except as otherwise provided in Section 2(b)(iv) below, if
Employee is discharged by the Company for any reason other than
"cause" after he reaches age 50 but prior to his Normal Retirement
Age, the balance in his sub-accounts shall be reduced to the balance
in his sub-accounts as of his date of termination multiplied by the
Adjustment Fraction. For purposes of this subsection only, "Adjustment
Fraction" shall mean a fraction, the numerator of which shall be the
number of full months the Employee worked for the Company after
attaining age 50, and the denominator of which shall be 120. The
balance in his sub-accounts shall be distributed to the Employee, as
provided in Exhibit A.
As used herein, the term "cause" shall mean Employee's (A)
dishonest or illegal conduct, (B) conduct contrary to the best
interests of the Company, (C) insubordination, incompetence,
misconduct, or neglect of his duties, or (D) willful violation of any
express direction of the senior management or the Board of Directors
of the Company, as determined by the Management and Compensation
Committee of the Company's Board of Directors, in his or their sole
discretion.
(iv) CHANGE IN CONTROL.
-----------------
(A) ACCELERATION OF ACCOUNT.
-----------------------
If, prior to Employee's Normal Retirement Age, (aa)
there is a "Change in Control" of the Company, (bb) the Chief
Executive Officer of the Company immediately prior to the Change
in Control is replaced, and (cc) within 3 months subsequent
thereto Employee is discharged by the Company or Employee resigns
because his place of work is changed such that his commute would
be increased by 50 miles or more or his responsibilities or his
aggregate compensation is reduced, Employee shall be entitled to
receive and shall have distributed to him the balance in his sub-
accounts, as provided in Exhibit A.
-3-
<PAGE>
(B) DEFINITION.
----------
As used herein, the term "Change in Control" shall mean
the acquisition by any person (other than the Company or any
affiliate or associate of the Company), as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), of beneficial ownership (within
the meaning of Rule 13d-3 under the Exchange Act) of 40% or more
of the combined voting power of the Company's then outstanding
securities, or the approval by the stockholders of the Company of
(aa) any merger or consolidation where stockholders of the
Company immediately prior to the merger or consolidation do not
immediately thereafter hold more than 50% of the combined voting
power of the surviving company's then outstanding securities,
(bb) a liquidation or dissolution of the Company, or (cc) a sale
of all or substantially all of the Company's assets.
(c) FORFEITURE OF BENEFITS.
----------------------
Notwithstanding the foregoing, if at any time after the date
hereof, Employee, without the express written consent of the Company,
manages, operates, or controls, or becomes an officer, director or employee
of, or consultant to, any business or enterprise determined by the Company
to be engaged in the manufacture, distribution or marketing of any product,
or the provision of any service, substantially similar to or in competition
with any product or service offered by the Company, Employee shall forfeit
all rights to receive any benefits under this Agreement, and no
distributions under this Agreement shall be made to Employee, or continued
to be made, as the case may be.
(d) ACCELERATION OF PAYMENTS.
------------------------
Notwithstanding any other provision of this Agreement or the
Trust Agreement, if the Company's independent public accountants determine,
based on a change in the tax or revenue laws of the United States of
America, a published ruling or similar announcement issued by the Internal
Revenue Service, a regulation issued by the Secretary of the Treasury or
his delegate, a final decision by a court of competent jurisdiction
involving the Employee, or a closing agreement
-4-
<PAGE>
involving the Employee made under section 7121 of the Code that is approved
by the Commissioner, that the Employee has recognized or will recognize
income for Federal income tax purposes with respect to benefits that are or
will be payable to the Employee hereunder, before they otherwise would be
paid to the Employee, the Company shall discuss with the Employee
appropriate measures to eliminate a negative economic impact on the
Employee, including if approved by the Company, an immediate distribution
by the Trustee from the Trust to the Employee or Beneficiary of the amount
so taxable.
3. BENEFICIARIES.
-------------
(a) DEATH OF EMPLOYEE ENTITLED TO BENEFITS.
--------------------------------------
If Employee dies after becoming entitled to benefits under
Section 2(a) or 2(b)(i), 2(b)(iii) or 2(b)(iv), the balance then in his
Account, shall, within 30 days of Employee's death, be distributed in a
lump sum to Employee's beneficiary designated pursuant to Section 3(b)
below.
(b) BENEFICIARY DESIGNATION.
-----------------------
Employee shall have the right to designate a beneficiary or
beneficiaries to receive any benefits hereunder which may be distributed
upon Employee's death. Employee shall have the right to change any
beneficiaries so designated, provided, however, that a change of a
beneficiary designation will be effective only if made in a manner
acceptable to the Company. If Employee fails to designate a beneficiary or
if no designated beneficiary survives the Employee, his estate shall be his
beneficiary.
4. CLAIMS AND APPEALS PROCEDURE.
----------------------------
The Company has provided to the Employee a copy of the Claims and
Appeals procedures which will be followed under this Agreement and which are
incorporated herein by reference.
5. NON-ALIENATION.
--------------
No benefits under this Agreement shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, or encumbrance,
and any attempt to do so shall be void and unenforceable. Such benefits shall
not be subject to or liable for the debts, contracts, liabilities, engagements,
or torts of Employee or his beneficiary or beneficiaries.
-5-
<PAGE>
6. INVESTMENT PURPOSES.
-------------------
Unless the Company has theretofore notified Employee that a
registration statement covering Shares deposited with the Trustee has become
effective under the Securities Act of 1933 and the Company has not thereafter
notified Employee that such registration is no longer effective, it shall be a
condition of this Agreement that any Shares to be distributed to Employee
hereunder shall be acquired for investment and not with a view to distribution
in violation of the Securities Act of 1933 (or of any rules or regulations
promulgated thereunder), and Employee hereby agrees to submit to the Company a
certificate of such investment intent, together with such other evidence
supporting the same as the Company may request. The Company shall be entitled to
restrict the transferability of any Shares distributed hereunder to the extent
necessary to avoid a risk of violations of the Securities Act of 1933 (or of any
rules or regulations promulgated thereunder) or of any state laws or regulation.
Such restrictions may, at the option of the Company, be noted or set forth in
full on the Share certificates.
7. AMENDMENT OR TERMINATION OF AGREEMENT.
-------------------------------------
This Agreement may be amended or terminated upon the mutual agreement
of Company, by resolution of the Management and Compensation Committee of its
Board of Directors adopted at a duly held meeting of said Committee or by
unanimous written consent of said Committee, and Employee.
8. AUTHORITY TO INTERPRET AGREEMENT VESTED IN COMPANY.
--------------------------------------------------
The Company shall have full power and authority to interpret,
construe, administer and make factual determinations with respect to this
Agreement, and the interpretation and construction thereof, and actions
thereunder, including any valuation of the Deferred Compensation Account, or any
decisions regarding the amount or recipient of any distribution to be made
therefrom, shall be binding and conclusive on all persons for all purposes. The
Company shall not be liable to any person for any action taken or omitted in
connection with the interpretation and administration of this Agreement unless
attributable to its own willful misconduct or lack of good faith.
9. NO CONTRACT OF EMPLOYMENT.
-------------------------
Nothing contained herein shall be construed as conferring upon the
Employee the right to continue in the employ of the Company.
-6-
<PAGE>
10. RIGHT TO WITHHOLD.
-----------------
The Company and the Trustee shall have the right to withhold from all
distributions under the Agreement any Federal, state, or local taxes required by
law to be withheld with respect to such distributions.
11. GOVERNING LAW.
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Pennsylvania to the extent not preempted by
federal law.
12. AGREEMENT BINDING.
-----------------
This Agreement shall be binding upon and inure to the benefit of the
Company, its successors and assigns, and Employee and his heirs, executors,
administrators and legal representatives.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first above written.
ATTEST: SHARED MEDICAL SYSTEMS CORPORATION
[SEAL]
/S/Bonnie Shuman By:/S/Terrence W. Kyle
- --------------------------- ------------------------------
Assistant Secretary Name:Terrence W. Kyle
Title:Vice President of Finance
WITNESS:
/S/John P. Dougherty /S/Guillermo N. Ramas
- --------------------------- -------------------------------
Guillermo N. Ramas
-7-
<PAGE>
EXHIBIT A
I. DISTRIBUTION OF BENEFITS.
------------------------
(a) TIMING OF DISTRIBUTIONS.
-----------------------
Distributions pursuant to Section 2(a) shall be made in 20 annual
installment payments, commencing on a date no later than 30 days after the date
of Employee's termination of employment. Distributions pursuant to Sections
2(b)(i), 2(b)(iii), and 2(b)(iv) shall be made in 20 annual installment
payments, commencing on a date no later than 30 days after the date the Employee
reaches his Normal Retirement Age. Annual installments shall be distributed on
the anniversary of the first such distribution.
(b) AMOUNT OF DISTRIBUTIONS UNDER SECTIONS 2(A), 2(B)(I) AND 2(B)(IV).
-----------------------------------------------------------------
For each installment payment made pursuant to Sections 2(a), 2(b)(i)
and 2(b)(iv), the Employee shall receive (i) an amount (payable in Shares, or
with respect to non-cash assets other than Company stock, in kind) equal to the
percentage of the Original Shares (and the stock dividends, stock splits and
other non-cash distributions deemed received on the Original Shares) as
indicated for the installment under II below, and (ii) cash in the amount of
$13,600. In the event that the amount of cash to be distributed in an
installment exceeds the current balance in the Cash Account on the date of such
distribution, then the amount of the cash distribution shall be limited to the
balance in the Cash Account on such date. In the event that the balance in the
Cash Account on the date of the last installment is greater than $13,600 then
the entire balance in the Cash Account shall be distributed with such last
installment.
Fractional Shares shall be disregarded in computing the amount of
distributions hereunder. All applicable taxes shall be withheld from
distributions under the Agreement.
(c) AMOUNT OF DISTRIBUTIONS UNDER SECTION 2(B)(III).
-----------------------------------------------
For each installment payment made pursuant to Section 2(b)(iii), the
Employee shall receive (i) an amount (payable in Shares, or with respect to non-
cash assets other than Company stock, in kind)) equal to the percentage of the
Original Shares then remaining in the Stock Account, as provided in Section
2(b)(iii) (and the stock dividends, stock splits and other non-cash
distributions received on such remaining Original Shares) indicated
A-i
<PAGE>
for the installment under II below, and (ii) cash in an amount equal to (aa)
$13,600, multiplied by (bb) the Adjustment Fraction set forth in Section
2(b)(iii). In the event that the amount of cash to be distributed in an
installment exceeds the current balance in the Cash Account on the date of such
distribution, then the amount of the cash distribution shall be limited to the
balance in the Cash Account on such date. In the event that the balance in the
Cash Account on the date of the last installment is greater than the amount of
cash determined pursuant to subclause (ii) of the preceding sentence, then the
entire balance in the Cash Account shall be distributed with such last
installment.
Fractional Shares shall be disregarded in computing the amount of
distributions hereunder. All applicable taxes shall be withheld from
distributions under the Agreement.
II. DISTRIBUTION SCHEDULE.
---------------------
PERCENTAGE OF ORIGINAL SHARES
(AND OTHER ASSETS IN STOCK ACCOUNT)
INSTALLMENT DISTRIBUTED
#1 8.5%
#2 7.9%
#3 7.3%
#4 6.8%
#5 6.3%
#6 5.9%
#7 5.6%
#8 5.3%
#9 5.0%
#10 4.7%
#11 4.4%
#12 4.2%
#13 4.0%
#14 3.9%
#15 3.7%
#16 3.6%
#17 3.4%
#18 3.3%
#19 3.2%
#20 3.0%
----
Total: 100%
A-ii
<PAGE>
Standard Form of Agreement Between Owner and
Contractor where the basis of payment is a Stipulated Sum
AIA Document A101 - Electronic Format
- --------------------------------------------------------------------------------
This DOCUMENT HAS IMPORTANT LEGAL CONSEQUENCES: CONSULTATION WITH AN ATTORNEY IS
ENCOURAGED WITH RESPECT TO ITS COMPLETION OR MODIFICATION. AUTHENTICATION OF
THIS ELECTRONICALLY DRAFTED AIA DOCUMENT MAY BE MADE BY USING AIA DOCUMENT D401.
The 1987 Edition of AIA Document A20 1. General Conditions of the Contract for
Construction , is adopted in this document by reference. Do not use with other
general conditions unless this document is modified. This document has been
approved and endorsed by The Associated General Contractors of America.
Copyright 1915, 1918, 1925, 1937, 1951, 1958, 1961, 1962, 1967, 1974, 1977,
copyright 1987 the American Institute of Architects, 1735 New York Avenue, N.W.,
Washington, D.C. 20006-5292. Reproduction of the material herein or substantial
quotation of its provisions without written permission of the AIA violates the
copyright laws of the United States and will be subject to legal prosecution.
- --------------------------------------------------------------------------------
AGREEMENT
made as of the 15th day of December in the year of Nineteen Hundred and Ninety
Seven
BETWEEN the Owner: Shared Medical Systems Corporation
(Name and address) 51 Valley Stream Parkway
Malvern, PA 19355
and the Contractor: Torcon, Inc.
(Name and address) 214 East Grove Street
Westfield, NJ 07091
The Project is: SMS Corporate III, 51 Valley Stream Parkway, and Garage
(Name and location)
The Architect is: Ewing Cole Cherry Brott
(Nome and address) Federal Reserve Bank Building Independence Mall West
100 North 6th Street
Philadelphia, PA 19106-1590
The Owner and Contractor agree as set forth below.
- --------------------------------------------------------------------------------
AIA DOCUMENT A101 - OWNER-CONTRACTOR AGREEMENT - TWELFTH EDITION - AIA COPYRIGHT
1987 - THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE. N.W.,
WASHINGTON, D.C., 20006-5292. WARNING: Unlicensed photocopying violates U.S.
copyright laws and is subject to legal prosecution. This document was
electronically produced with permission of the AlA and can be reproduced without
violation until the date of expiration noted below.
Electronic Format A101-1987
<PAGE>
User Document: A1 01.CON -- 6/25/1997. AIA License Number 100428, which
expires on 8/31/1997 - Page #1
ARTICLE 1
---------
THE CONTRACT DOCUMENTS
1.1 The Contract Documents consist of this Agreement, Conditions of the
Contract (General, Supplementary and other Conditions), Drawings,
Specifications, addenda issued prior to execution of this Agreement,
other documents listed in this Agreement and Modifications issued after
execution of this Agreement: these form the Contract, and are as fully
part of the Contract as if attached to this Agreement or repeated herein.
The Contract represents the entire and integrated agreement between the
parties hereto and supersedes prior negotiations, representations or
agreements, either written or oral. An enumeration of the Contract
Documents, other than Modifications, appears in Article 9.
ARTICLE 2
---------
THE WORK OF THIS CONTRACT
2.1 The Contractor shall execute the entire Work described in the Contract
Documents, except to the extent specifically indicated in the Contract
Documents to be the responsibility of others.
ARTICLE 3
---------
DATE OF COMMENCEMENT AND SUBSTANTIAL COMPLETION
3.1 The date of commencement is the date from which the Contract Time of
Paragraph 3.2 is measured. The date of commencement shall be on or about
December 1, 1997, and shall be established by the issuance of a notice to
proceed issued by the Owner to the Contractor. Work to be performed under
this Contract shall be commenced at the earliest, twenty-four hours after
the Waiver of Liens has been filed with the Prothonotary of the County in
which the work is to be performed, and in no event later than five days
after the Notice to Proceed has been issued to the Contractor.
3.2 The Contractor shall achieve Substantial Completion of the entire Work,
including the Work of Alternate No.1 (see paragraph 4.3 below), not later
than March 15, 1999, subject to adjustments of this Contract Time as
provided in the Contract Documents.
O: /S/ MBC
-------
C: /S/ JAT
-------
2
<PAGE>
ARTICLE 4
---------
CONTRACT SUM
4.1 The owner shall pay the Contractor in current funds for the Contractor's
performance of the in current funds for the Contractor's performance of
the Contract the Contract sum of Twenty Nine Million Ninety Five Thousand
Dollars ($29,095,000.00), including Alternate No.1, subject to additions
and deductions as provided in the Contract Documents.
4.2 The schedule of value for the various portions of the Work has been
approved by the Owner and Contractor and is appended hereto.
4.3 The Contract sum is based upon the following Alternates, if any, which
are described in the Contract Documents and are hereby accepted by the
Owner:
(a) Alternate No.1: Assembly Area. Add $1,200,000.00 (included in
Contract Sum).
(b) The cost of the following Alternate, if accepted by the Owner prior
to the expiration date, shall be added to the Contract sum: Alternate
No.3: Workstations. Add $1,300,000.00 (expiration date - December 31,
1997).
4.4 Contractor shall provide Owner with a list of unit prices for materials
supplied under the Contract. If Owner desires to accept the unit prices
for these materials and incorporate them into the Contract terms, Owner
shall initial said list and include it under paragraph 9.1.7 below.
ARTICLE 5
---------
PROGRESS PAYMENTS
5.1 Based upon Applications for Payment submitted to the owner by the
Contractor and after inspection and review by the Architect, the owner
shall make progress payments on account of the Contract Sum to the
Contractor as provided below and elsewhere in the Contract Documents.
5.2 The period covered by each Application for Payment shall be one calendar
month ending on last day of the month.
O: /S/ MBC
-------
C: /S/ JAT
-------
3
<PAGE>
5.3 Provided an Application for Payments is received by the Owner not later
than the 10th day of a month, the Owner shall make payment to the
Contractor not later than the last day of the month. If an Application
for Payment is received by the Owner after the application date fixed
above, the application shall be processed the following month.
5.4 Each Application for Payment shall be based upon the Schedule of Values
approved by the Contractor and the owner and appended to the Contract.
The Schedule of Values shall allocate the entire Contract Sum among the
various portions of the Work and be prepared in such form and supported
by such data to substantiate its accuracy as the Owner may require.
This schedule shall be used as a basis for reviewing the Contractor's
Applications for Payment.
5.5 Applications for Payment shall indicate the percentage of completion of
each portion of the Work as of the end of the period covered by the
Application for Payment.
5. 6 Subject to the provisions of the Contract Documents, the amount of each
progress payment shall be computed as follows:
5.6.1 Take that portion of the Contract Sum properly allocable to completed
Work as determined by multiplying the percentage completion of each
portion of the Work by the share of the total Contract Sum allocated to
that portion of the Work in the Schedule of Values, less the retainage
of ten percent (10%). Pending final determination of cost to the Owner
of changes in the Work, amounts not in dispute may be included as
provided in Subparagraph 7.3.7 of the General Conditions even though
the Contract Sum has not yet been adjusted by Change Order;
5.6.2 Add that portion of the Contract Sum properly allocable to materials
and equipment delivered and suitably stored at the site for subsequent
incorporation in the completed construction (or, if approved in advance
by the Owner, suitably stored off the site at a location agreed upon in
writing), less retainage of ten percent (10%);
5.6.3 Subtract the aggregate of previous payments made by the Owner; and
5. 6. 4 Subtract amounts, if any, for which the Owner has withheld or nullified
Payment as provided in Paragraph 9.5 of the General Conditions.
O: /S/ MBC
-------
C: /S/ JAT
-------
4
<PAGE>
5.7 The progress payment amount determined in accordance with Paragraph 5.6
shall be further modified under the following circumstances:
5.7.1 Add, upon Substantial Completion of the Work, a sum sufficient to
increase the total payments to ninety-nine percent (99%) of the Contract
Sum, less one hundred ten percent (110%) of such amounts as the owner
shall determine for incomplete Work and unsettled claims; and
5.7.2 Add, if final completion of the Work is thereafter materially delayed
through no fault of the Contractor, any additional amounts payable in
accordance with Subparagraph 9.10.3 of the General Conditions.
5.7.3 Notwithstanding the releases of retainage set forth above, the Architect
may, at any time after fifty percent (50%) of the Work has been
completed, if satisfactory progress is being made, and with written
Consent of Surety (if required) recommend that any and all of the
remaining partial payments be paid in full. This recommendation shall not
be binding on Owner, who may or not act on the recommendation, as Owner
deems appropriate.
5.8.1 At the next progress payment after the 60th day following certification
by Owner of the full completion by Contractor of any category of Work
contained in the Schedule of Values, Owner shall release to Contractor
fifty percent (50%) of the retainage being held by Owner for that
category of Work, if not previously released pursuant to Subparagraph
5.7.1 above.
5.8.2 Owner shall not withhold retainage for the categories of Work listed as
"General Conditions", "Permit" or "Bond" in making Progress Payments for
such items; and, the payment upon Substantial Completion of the Work to
be made pursuant to Subparagraph 5.7.1 above shall be increased to
include the one percent of "General Conditions", "Permits" and "Bond". A
detailed schedule of Work described as "General Conditions" shall be
appended as a part of paragraph 9.1.7.
ARTICLE 6
---------
FINAL PAYMENT
6.1 Final payment, constituting the entire unpaid balance of the Contract
Sum, shall be made by the owner to the Contractor when (1) the Contract
has been fully performed by the Contractor except for the Contractor's
responsibility to correct nonconforming Work as provided in Subparagraph
12.2.2 of the General Conditions and to satisfy
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other requirements, if any, which necessarily survive final payment; and
(2) Contractor has posted its Warranty Bond as provided in Subparagraph
17.5 of the General Conditions; such final payment shall be made by the
Owner not more than 30 days after verification by the Owner of
Contractor's compliance with (1) and (2) above.
ARTICLE 7
---------
MISCELLANEOUS PROVISIONS
7.1 Where reference is made in this Agreement to a provision of the General
Conditions or another Contract Document, the reference refers to that
provision as amended or supplemented by other provisions of the Contract
Documents.
7.2 Payments due and unpaid under the Contract shall bear interest from the
tenth (10th) day after the date payment is due at the rate stated below,
or in the absence thereof, at the legal rate prevailing from time to time
at the place where the Project is located.
7.3 Other provisions:
7.3.1 WAIVER OF LIENS - The Contractor, for itself and all of its
-----------------
Subcontractors, materialmen and all parties acting through or under it,
covenants and agrees that no mechanics' or materialmen's claims or liens,
or the like shall be filed or maintained by it, them or any of them
against the building or buildings to be erected under the terms of this
Contract or the lot or parcel of ground upon which it is to be erected,
for or on account of, any work done or materials furnished by it, them or
any of them, under this Contract, for, toward, or about the erection of
the said building or buildings; and the Contractor, for itself, its
Subcontractors, or materialmen and all other persons under it, them or
any of them, expressly waives and relinquishes the right to have, file or
maintain any mechanics' or materialmen's lien or claim against said
building or buildings or the ground appurtenant thereto and this
agreement waiving the right of lien shall be an independent covenant.
Without in any way diminishing or affecting this absolute prohibition
against liens, the Contractor agrees to incorporate into each subcontract
entered into by it under which labor or materials are furnished in the
course of the erection and construction of the said building or
buildings, an independent covenant by the terms of which each and every
Subcontractor furnishing such labor and/or materials shall, for himself
and any one acting under him specifically waive therein the right to file
or maintain any such mechanics' or materialmen's lien or claim. The
Contractor further agrees to execute a separate Waiver of Liens which
shall be filed in the Of f ice of the Prothonotary of the County in which
the site is located, prior to the physical commencement of the Work
called for by this Contract.
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7.3.2 The Contractor agrees to execute the Certification of Compliance pursuant
to the provisions of Act No. 222 (P.S. 35 paragraph 7201.101 et seq.),
known as the Building Energy Conservation Act.
7.3.3 INDEMNIFICATION- The Contractor agrees to indemnify and hold harmless the
----------------
owner, the Architect, Architect's Consultants, and agents and employees
of any of them from and against all claims, damages, losses or expenses,
including, but not limited to, attorneys' fees, arising out of or
resulting from negligence or intentional, willful, wanton or reckless
misconduct by Contractor, its subcontractor, their subcontractors, or
anyone acting on behalf , through, under or in any other manner for any
of them in any way relating to the performance of the Work, which results
in, inter alia:
(1) bodily injury, sickness, disease or death;
(2) injury to or destruction of tangible property (other than the Work
itself), including the loss of use resulting therefrom;
(3) governmental fines and/or penalties of any kind whatsoever;
(4) corrective measures required under the Federal Occupational Safety
and Health Act (hereinafter referred to as OSHA);
(5) delay in completion of the Work beyond the Contract Time, as
defined in Article 8 of the General Conditions, caused by
proceedings under OSHA.
This indemnification agreement in favor of the Owner shall be applicable
and the Owner, its agents, and employees or any of them, shall be
indemnified as long as there is no determination by a court of competent
jurisdiction that any of the causes listed in items (1) through (5) which
is the basis of the claim, was caused by sole negligence of the Owner,
its agents and employees of any of them.
This indemnification agreement in favor of the Architect, Architect's
consultants and agents, and employees of any of them, shall be applicable
and the Architect, Architect's consultants and agents, and employees of
any of them, shall be indemnified completely as long as there is no
determination by a court of competent jurisdiction that any of the causes
listed in (1) through (5) which is the basis of the claim, was caused by
the sole negligence of the Architect, Architect's consultants and agents
and employees of any of them. The obligation of the Contractor under
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this paragraph 7.3.3 shall not extend to the liability of the Architect,
the Architect's Consultants, and agents and employees of any of them
arising out of (1) the preparation or approval of maps, drawings,
opinions, reports, surveys, change orders, design or specifications, or
(2) the giving of or failure to give directions or instructions by the
Architect, the Architect's Consultants, and agents and employees of any
of them, provided such giving of failure to give is the primary cause of
the injury or damage.
The Contractor agrees that, pursuant to this indemnification provision,
it will pay the attorney's fees, expenses, judgments and settlements made
by or on behalf of the Owner, its agents and employees of any of them,
arising out of claims related to this Project unless and until there
should be a finding by a court of competent jurisdiction that the damages
alleged were caused by the sole negligence or fault or the owner, its
agents and employees of any of them.
The Contractor also agrees that he will maintain liability insurance
coverage as to the risk stated in this article naming the Owner and the
Architect as additional insured.
Such obligation shall not be construed to negate, abridge, or otherwise
reduce any other right or obligation of indemnity which would otherwise
exist as to any party or person described in this Paragraph.
7.4 (a) In lieu of 2" insulated units at windows, 1-1/4" units will be
used with a STC 40 rating.
(b) Acceptance of Alternate No.3 will add one month to the
construction schedule.
ARTICLE 8
---------
TERMINATION OR SUSPENSION
8.1 The Contract may be terminated by the Owner or the Contractor as provided
in Article 14 of the General conditions.
8.2 The work may be suspended by the owner as provided in Article 14 of the
General Conditions.
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ARTICLE 9
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ENUMERATION OF CONTRACT DOCUMENTS
9.1 The Contract Documents, except for Modifications issued after execution
of this Agreement, are enumerated as follows:
9.1.1 The Agreement is this executed Standard Form of Agreement Between Owner
and Contractor, AIA Document A101, 1987 Edition.
9.1.2 The General Conditions are the General Conditions of the Contract for
Construction, AIA Document A201, 1987 Edition, as initialed by Contractor
and Owner.
9.1.3 The Supplementary and other Conditions of the Contract are those
contained in the Project Manual and are as follows: See Exhibit "A"
attached hereto
9.1.4 The Specifications are those contained in the Project Manual dated as in
Subparagraph 9.1.3, and are as follows: See Exhibit "A" attached hereto
9.1.5 The Drawings are as follows, and are dated unless a different date is
shown below: See Exhibit "A" attached hereto
9.1.6 The addenda, if any, are as follows: See Exhibit "A" attached hereto
Portions of addenda relating to bidding requirements are not part of the
Contract Documents unless the bidding requirements are also enumerated in
this Article 9.
9.1.7 Other documents, if any, forming part of the Contract Documents are as
follows:
9.1.8 The inclusion of any sample contract terms in any document listed in
subparagraph 9.1.3 through 9.1.7 above shall not be deemed to be the
adoption of those terms or their inclusion as Contract Terms. The terms
of this Contract shall be only those terms contained in the documents
listed in 9.1.1 and 9.1.2 above, or in any amendment to either of them
signed by Owner and Contractor, or those terms otherwise specifically
incorporated in any of those documents by reference.
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This Agreement is entered into as of the day and year first written above
and is executed in at least three original copies of which one is to be
delivered to the Contractor, one to the Architect for use in the
administration of the Contract, and the remainder to the Owner.
OWNER: CONTRACTOR:
SHARED MEDICAL SYSTEMS CORPORATION TORCON, INC.
By: /s/ Michael B. Costello By: /s/ Joseph A. Torcivia
-------------------------- --------------------------
(Signature) (Signature)
(Printed name and title) (Printed name and title)
Michael B. Costello Joseph A. Torcivia
Vice President Ex. Vice President
ATTEST: ATTEST:
By: /s/ William C. Pyne By: /s/ Michael Preston
-------------------------- ------------------------
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REVISED GENERAL CONDITIONS OF THE CONTRACT FOR CONSTRUCTION
AIA DOCUMENT A201 - ELECTRONIC FORMAT
- --------------------------------------------------------------------------------
THIS DOCUMENT HAS IMPORTANT LEGAL CONSEQUENCES: CONSULTATION WITH AN ATTORNEY IS
ENCOURAGED WITH RESPECT TO ITS COMPLETION OR MODIFICATION. AUTHORIZATION OF THIS
ELECTRONICALLY DRAFTED AIA DOCUMENT MAY BE MADE BY USING AIA DOCUMENT D401.
This document has been approved and endorsed by the Associated General
Contractors of America.
Copyright 1911, 1915, 1918, 1925, 1927, 1951, 1958, 1961, 1963, 1967, 1970,
1976, 1987 by The American Institute of Architects, 1735 New York Avenue N.W.,
Washington D.C., 20006-5292. Reproduction of the material or substantial
quotation of its provisions without written permission of the AIA violates the
copyright laws of the United States and will be subject to legal prosecutions.
<TABLE>
<CAPTION>
TABLE OF ARTICLES
<S> <C>
1. GENERAL PROVISIONS 12. UNCOVERING CORRECTION OF
WORK
2. OWNER
13. MISCELLANEOUS PROVISIONS
3. CONTRACTOR
14. TERMINATION OR SUSPENSION
4. ADMINISTRATION OF THE CONTRACT OF THE CONTRACT
5. SUBCONTRACTORS 15. WATCHMAN
6. CONSTRUCTION BY OWNER OR BY 16. REMOVAL AND/OR RELOCATION
SEPARATE CONTRACTORS RELOCATION OF EXISTING
PIPES, CONDUITS, ETC.
7. CHANGES IN THE WORK
17. WARRANTIES
8. TIME
18. STANDARDS, REGULATIONS
9. PAYMENTS AND COMPLETION
10. PROTECTION OF PERSONS AND
PROPERTY
11. INSURANCE AND BONDS
</TABLE>
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GENERAL CONDITIONS OF THE CONTRACT FOR CONSTRUCTION
ARTICLE 1
---------
GENERAL PROVISIONS
1.1 BASIC DEFINITIONS
1.1.1 THE CONTRACT DOCUMENTS
The Contract Documents consist of the Agreement between Owner and
Contractor (hereinafter the Agreement), Conditions of the Contract
(General, Supplementary and other Conditions), Drawings, Specifications,
addenda issued prior to execution of the Contract, other documents listed
in the Agreement and Modifications issued after execution of the
Contract. A Modification is (1) a written amendment to the Contract
signed by both parties, (2) a Change Order, (3) a Construction Change
Directive or (4) a written order for a minor change in the Work issued by
the Owner. Unless specifically enumerated in the Agreement, the Contract
Documents do not include other documents such as bidding requirements
(advertisement or invitation to bid, Instructions to Bidders, sample
forms, the Contractor's bid or portions or addenda relating to bidding
requirements).
1.1.2 THE CONTRACT
The Contract Documents form the Contract for Construction. The Contract
represents the entire and integrated agreement between the parties hereto
and supersedes prior negotiations, representations or agreements, either
written or oral. The Contract may be amended or modified only by a
Modification. The Contract Documents shall not be construed to create a
contractual relationship of any kind (1) between the Architect and
Contractor. (2) between the Owner and a Subcontractor or Subsubcontractor
or (3) between any persons or entities other than the Owner and
Contractor. The Architect shall, however, be entitled to performance and
enforcement of obligations of Contractor under the Contract intended to
facilitate performance of the Architect's duties.
1.1.3 THE WORK
The term "Work" means the construction and services required by the
Contract Documents, whether completed or partially completed, and
includes all other labor, materials, equipment and services provided or
to be provided by the Contractor to fulfill the Contractor's obligations.
The work may constitute the whole or a part of the Project.
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1.1.4 THE PROJECT
The Project is the total construction of which the Work performed under
the Contract Documents may be the whole or a part and which may included
construction by the Owner or by separate contractors.
1.1.5 THE DRAWINGS
The Drawings are the graphic and pictorial portions of the Contract
Documents, wherever located and whenever issued, showing the design,
location and dimensions of the Work, generally including plans,
elevations, sections, details, schedules and diagrams.
1.1.6 THE SPECIFICATIONS
The Specifications are that portion of the Contract Documents consisting
of the written requirements for materials, equipment, construction
systems, standards and workmanship for the work, and performance of
related services.
1.1.7 THE PROJECT MANUAL
The Project Manual is the volume usually assembled for the Work which may
include the bidding requirements, sample forms, Conditions of the
Contract and Specifications. If there is any discrepancy between the
description of Contract procedures as set forth in the Project Manual and
the terms of this Contract, the terms set forth in this Contract shall
govern.
1.2 EXECUTION, CORRELATION AND INTENT
1.2.1 The Contract Documents shall be signed by the Owner and the Contractor as
provided in the Agreement. If either the Owner or Contractor or both do
not sign all the Contract Documents, the Architect shall identify such
unsigned Documents upon request.
1.2.2 Execution of the Contract by the Contractor is a representation that the
Contractor has visited the site, become familiar with local conditions
under which the Work is to be performed and correlated personal
observations with requirements of the Contract Documents.
1.2.3 The intent of the Contract Documents is to include all items necessary
for the proper execution and completion of the Work by the Contractor.
The Contract Documents are complementary, and what is required by one
shall be as binding as if required by all;
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performance by the Contractor shall be required only to the extent
consistent with the Contract Documents and reasonably inferable from
them as being necessary to produce the intended results.
1.2.3.1 In case of discrepancies among the Contract Documents not resolved
prior to execution of the Owner - Contractor Agreement, the material,
system or equipment of greater cost shall take precedence. Any such
discrepancies shall be called to the attention of the Owner before the
proceeding with work affected thereby. Upon Owner's request, the
Architect will issue his interpretation of the discrepancy to all
interested parties. Final determination of the resolution of any
discrepancy shall be made by the Owner. As far as arrangement of
equipment and material to conform to construction is concerned,
Architectural and Structural Drawings and details shall govern rather
than Mechanical and Electrical Drawings, but not to the extent of
permitting any omission of items shown on Mechanical and Electrical
Drawings.
1.2.4 Organization of the Specifications into divisions, sections and
articles, and arrangement of Drawings shall not control the Contractor
in dividing the Work among Subcontractors or in establishing the extent
of Work to be performed by any trade.
1.2.5 Unless otherwise stated in the Contract Documents words which have
well-known technical or construction industry meanings are used in the
Contract Documents in accordance with such recognized meanings.
1.2.5.1 TERMINOLOGY
The word FURNISH shall be interpreted to mean furnish only.
The word INSTALL shall be interpreted to mean install only.
The word PROVIDE shall be interpreted to mean furnish and install.
The word CONCEALED shall be understood as referring to Work contained
within building floors, walls or partitions; Work installed in the
space between any type of suspended ceiling and the structural floor or
roof above; Work installed within a structural shaft, chase or column;
and other Work installed so as to be hidden from view.
The word EXPOSED shall be understood as referring to Work installed
external to building floors, walls or partitions; Work installed in a
room or space where any type of suspended ceiling is not specified;
Work installed in penthouses, mechanical rooms and electrical rooms of
all types; and all other Work installed so as to be exposed to view.
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1.2.6 "Bidding and Contract Requirements" as listed in the index of the Project
Manual apply to each Contractor and/or Subcontractor.
1.2.7 Wherever singular number and/or words are used in the Specifications and
the Work requires more than one of the items described, the plural and/or
the word "each" shall be understood and inferred and as many units as are
necessary for a complete installation shall be provided.
1.3 OWNERSHIP AND USE OF ARCHITECT'S DRAWINGS, SPECIFICATIONS AND OTHER
DOCUMENTS
1.3.1 The Drawings, Specifications and other documents prepared by the
Architect are instruments of the Architect's service through which the
Work to be executed by the Contractor is described. The Contractor may
retain one contract record set. Neither the Contractor nor any
Subcontractor, Subsubcontractor or material or equipment supplier shall
own or claim a copyright in the Drawings, Specifications and other
documents prepared by the Architect, and unless otherwise indicated the
Architect shall be deemed the author of them and will retain all common
law statutory and other reserved rights in addition to the copyright. All
copies of them, except the Contractor's record set shall be returned or
suitably accounted for to the Architect, on request, upon completion of
the Work. The Drawings, Specifications and other documents prepared by
the Architect, and copies thereof furnished to the Contractor are for the
use solely with respect to this Project. They are not to be used by the
Contractor or any Subcontractor, Subsubcontractor or material or
equipment supplier on other projects or for additions to this project
outside the scope of the Work without the specific written consent of the
Owner and Architect. The Contractor, Subcontractors, Subsubcontractors
and material or equipment suppliers are granted a limited license to use
and reproduce applicable portions of the Drawings, Specifications and
other documents prepared by the Architect appropriate to and for use in
the execution of their Work under the Contract Documents. All copies made
under this license shall bear the statutory copyright notice, if any,
shown on the Drawings, Specifications and other documents prepared by the
Architect. Submittal or distribution to meet official regulatory
requirements or for other purposes in connection with the Project is not
to be construed as publication in derogation of the Architect's copyright
or other reserved rights.
1.4 CAPITALIZATION
1.4.1 Terms capitalized in these General Conditions include those which are (1)
specifically defined; (2) the titles of numbered articles and identified
references to Paragraphs, Subparagraphs and Clauses in the document; or
(3) the titles of other documents published by the American Institute of
Architects.
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1.5 INTERPRETATION
1.5.1 In the interest of brevity the Contract Documents frequently omit
modifying words such as "all" and "any" and articles such as "the" and
"an", but the fact that a modifier or an article is absent from one
statement and appears in another is not to affect the interpretation of
either statement.
ARTICLE 2
---------
OWNER
2.1 DEFINITION
2.1.1 The Owner is the person or entity identified as such in the Agreement and
is referred to throughout the Contract Documents as if singular in
number. The term "Owner" means the Owner or the Owner's representative,
authorized in writing by Owner.
2.2 INFORMATION AND SERVICES REQUIRED OF THE OWNER
2.2.1 The Owner shall, at the request of the Contractor, prior to execution of
the Agreement and promptly from time to time thereafter, furnish to the
Contractor reasonable evidence that financial arrangements have been made
to fulfill the Owner's obligations under the Contract.
2.2.2 The Owner shall furnish surveys describing physical characteristics,
legal limitations and utility locations for the site of the Project, and
a legal description of the site.
2.2.3 Except for permits and fees which are the responsibility of the
Contractor under the Contract Documents, the Owner shall secure and pay
for necessary approvals, easements, assessments and charges required for
construction, use of occupancy of permanent structures or for permanent
changes in existing facilities. The Owner will obtain and pay for the
building permit.
2.2.4 Information or services under the Owner's control shall be furnished by
the Owner with reasonable promptness to avoid delay in orderly progress
of the Work.
2.2.5 The Contractor will be provided with 1 (one) set of reproducible Contract
Drawings and Specifications without charge. The Contractor will be
charged the Architect's reproduction cost for any additional Drawings and
Specifications.
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2.2.6 The foregoing are in addition to other duties and responsibilities of the
Owner enumerated herein and especially those in respect to Article 6
(Construction by Owner or by Separate Contractors), Article 9 (Payments
and Completion) and Article 11 (Insurance and Bonds).
2.3 OWNER'S RIGHT TO STOP THE WORK
2.3.1 If the Contractor fails to correct Work which is not in accordance with
the requirements of the Contract Documents as required by Paragraph 12.2
or persistently fails to carry out Work in accordance with the Contract
Documents, the Owner, by written order signed personally or by an agent
specifically so empowered by the Owner in writing, may order the
Contractor to stop Work, or any portion thereof, until the cause for such
order has been eliminated; however, the right of the Owner to stop the
Work shall not give rise to a duty on the part of the Owner to exercise
this right for the benefit of the Contractor or any other person or
entity, except to the extent required by Subparagraph 6.1.3.
2.4 OWNER'S RIGHT TO CARRY OUT THE WORK
2.4.1 If the Contractor defaults or neglects to carry out the Work in
accordance with the Contract Documents and fails within a seven-day
period after receipt of written notice from the Owner to commence and
continue corrections of such default or neglect with diligence and
promptness, the Owner may after such seven-day period give the Contractor
a second written notice to correct deficiencies within a second seven-day
period. If the Contractor within such second seven-day period after
receipt of such second notice fails to commence and continue to correct
any deficiencies, the Owner may without prejudice to other remedies the
Owner may have correct such deficiencies. In such case an appropriate
Change Order shall be issued deducting from payments then or thereafter
due the Contractor the cost of correcting such deficiencies, including
compensation for the Architect's additional services and expenses made
necessary by such default, neglect or failure. If payments then or
thereafter due the Contractor are not sufficient to cover such amounts,
the Contractor shall pay the difference to the Owner.
ARTICLE 3
---------
CONTRACTOR
3.1 DEFINITION
3.1.1 The Contractor is the person or entity identified as such in the
Agreement and is referred to throughout the Contract Documents as if
singular in number. The term "Contractor" means the Contractor or the
Contractor's authorized representative.
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3.2.1 REVIEW OF CONTRACT DOCUMENTS AND FIELD CONDITIONS BY CONTRACTOR
The Contractor shall carefully study and compare the Contract Documents
with each other and with information furnished by the Owner pursuant to
Subparagraph 2.2.2 and shall at once report to the Owner and the
Architect errors, inconsistencies or omissions discovered. The
Contractor shall not be liable to the Owner or Architect for damage
resulting from errors, inconsistencies or omissions in the Contract
Documents unless the Contractor recognized such error, inconsistency or
omission and knowingly failed to report it to the Owner and the
Architect. If the Contractor performs any construction activity knowing
it involves a recognized error, inconsistency or omission in the
Contract Documents without such notice to the Owner and the Architect
shall assume appropriate responsibility for such performance and shall
bear an appropriate amount of the attributable costs for correction.
3.2.2 The Contractor shall take field measurements and verify field
conditions and shall carefully compare such field measurements and
conditions and other information known to the Contractor with the
Contract Documents before commencing activities. Errors,
inconsistencies or omissions discovered shall be reported to the Owner
and the Architect at once.
3.2.2.1 Survey drawings describing the site, its physical characteristics,
buildings, legal limits and utility locations are included with the
Contract Documents for information purposes only. The Contractor shall
be responsible for obtaining verification of all information included
on the survey drawings through the local borough, township, district or
county surveyor. Should any discrepancy be discovered, the Contractor
will notify the Owner and Architect promptly. The Contractor shall not
proceed with the work until instructions have been received from the
Owner.
3.2.3 The Contractor shall perform the Work in accordance with the Contract
Documents and submittals reviewed pursuant to Paragraph 3.12. The
Contractor shall make no changes therefrom without written acceptance
by the Owner. Where detailed information is lacking, the Contractor
shall refer to the Architect for information before proceeding with the
Work.
3.3 SUPERVISION AND CONSTRUCTION PROCEDURES
3.3.1 The Contractor shall supervise and direct the Work using the
Contractor's best skill and attention. The Contractor shall be solely
responsible for and have control over construction means, methods,
techniques, sequences and procedures and for coordinating all portions
of the Work under the Contract, unless Contract Documents give other
specific instructions concerning these matters.
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3.3.2 The Contractor shall be responsible to the Owner for acts and omissions
of the Contractor's employees, Subcontractors and their agents and
employees, and other persons performing portions of the Work under a
contract with the Contractor.
3.3.3 The Contractor shall not be relieved of obligations to performing the
Work in accordance with the Contract Documents either by activities or
duties of the Architect in the Architect's administration of the
Contract, or by tests, inspections or approvals required or performed
by persons other than the Contractor.
3.3.4 The Contractor shall be responsible for inspection of portions of work
already performed under this Contract to determine that such portions
are in proper condition to receive subsequent Work.
3.3.5 As part of the Contractor's obligation to perform the Work in
accordance with the Contract Documents, the Contractor shall be
responsible for preparing and filing the necessary Certification of
Compliance pursuant to the provisions of Act No. 222 (35 P.S.,
paragraph 7201.101 et seq.) known as the Building Conservation Act, to
the extent such requirements are included in the Contract Documents.
The Contractor will not be held responsible for the design of said
requirements.
3.3.6 The Contractor shall be responsible for laying out the Work and shall
be responsible for all lines, elevations, and measurements of the Work.
The Contractor must exercise proper precautions to verify all figures
shown on the Drawings before laying out the Work and will be
responsible for any errors or omissions resulting from failure to
exercise such precautions.
3.3.7 The Contractor shall base all measurements, both horizontal and
vertical, established bench marks. All Work shall agree with these
established lines and levels.
3.3.8 Should the Contractor discover any discrepancies between the actual
measurements and those indicated, which prevent following good practice
or the intent of the Contract Documents, the Contractor shall notify
the Owner and Architect promptly and shall not proceed with the Work
until instructions have been received from the Owner.
3.4 LABOR AND MATERIALS
3.4.1 Unless otherwise provided in the Contract Documents, the Contractor
shall provide and pay for labor, materials, equipment, tools,
construction equipment and machinery, water, heat, utilities,
transportation, and other facilities and services necessary for proper
execution and completion of the Work, whether temporary or permanent
and whether or not incorporated or to be incorporated in the Work. The
Owner will pay the cost of all electrical energy and all charges for
water.
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The Contractor and each Subcontractor shall furnish at their expense,
all scaffolding, trestles, ladders and platforms, and all other
construction equipment that is required by code and is required for the
execution of the Work under the Contract. Where it becomes necessary
for the Contractor or any Subcontractor to move scaffolding and/or
staging to permit installation of other Work under this contract,, it
shall be moved at no cost to the Owner.
3.4.2 The Contractor shall enforce strict discipline and good order among the
Contractor' s employees and other persons carrying out the Contract.
The Contractor shall not permit employment of unfit persons or persons
not skilled in tasks assigned to them.
The Contractor shall take all steps necessary to ensure that neither
Contractor's employees, nor any Subcontractor of Contractor or its
employees, nor any other persons carrying out the Contract shall
harass, disturb or bother any employee, guest, agent or invitee of the
Owner at the Project site or any other site owned or used by the Owner,
including, but not limited to, the time and times that such employees,
guests, agents or invitees are coming to, going from, moving about or
performing their work at the Owner's site or sites.
3.5 CONTRACTOR'S GENERAL WARRANTY
3.5.1 The Contractor warrants to the Owner and Architect that materials and
equipment furnished under the Contract will be of good quality and new
unless otherwise required or permitted by the Contract Documents, that
the Work will be free from defects not inherent in the quality required
or permitted, and that the Work will conform with the requirements of
the Contract Documents and will remain free from defects and in
conformity with the requirements of the Contract Documents for a period
of one year from the Warranty Date (as defined in paragraph 9.8.2).
Work not conforming to these requirements, including substitutions not
properly approved and authorized, may be considered defective. The
Contractor's warranty excludes remedy for damage or defect caused by
abuse, modifications not executed by the Contractor, improper or
insufficient maintenance or improper operation, or normal wear and tear
under normal usage. If required by the Owner or the Architect the
Contractor shall furnish satisfactory evidence as to the kind of
quality of materials and equipment. The time periods set forth in this
subparagraph shall not be deemed to shorten any warranty period
otherwise provided in this Contract, the Specifications or any other
Contract Document, and all warranties shall be subject to the conflict
resolution provisions of subparagraph 17.4.
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3.6 TAXES
3.6.1 The Contractor shall pay sales, consumer, use and similar taxes for the
Work or portions thereof provided by the Contractor which are legally
enacted when bids are received or negotiations concluded, whether or
not yet effective or merely scheduled to go into effect.
Taxes paid by the Contractor shall also include Unemployment, Old Age
Pension and other taxes imposed by local, City, State or Federal
Government. Taxes and assessments on real property comprising site of
project are to be excluded.
3.7 PERMITS, FEES AND NOTICES
3.7.1 Unless otherwise provided in the Contract Documents, the Contractor
shall secure and pay for the permits (other than the building permit)
and governmental fees, licenses and inspections necessary for proper
execution and completion of the Contract and which are legally required
when bids are received or negotiations concluded.
3.7.1.1 The Owner will obtain and pay for the building permit only.
3.7.2 The Contractor shall comply with and give notices required by laws,
ordinances, rules, negotiations and lawful orders of public authorities
bearing on performance of the Work.
3.7.3 It is not the Contractor's responsibility to ascertain that the
Contract Documents are in accordance with applicable laws, statutes,
ordinances, building codes, and rules and regulations. However, if the
Contractor observes that portions of the Contract Documents are at
variance therewith, the Contractor shall promptly notify the Architect
and owner in writing, and necessary changes shall be accomplished by
appropriate Modification.
3.7.4 If the Contractor performs any Work knowing it to be contrary to
statutes, laws, ordinances, building codes, standards, rules and
regulations, and without such notice to the Architect and Owner, and
without receiving written instructions from Owner regarding the
modification thereof, the Contractor shall assume full responsibility
for such Work and shall bear the attributable costs.
3.8 ALLOWANCES
3.8.1 The Contractor shall include in the Contract Sum all allowances stated
in the Contract Documents. Items covered by allowances shall be
supplied for such amounts and by such persons or entities as the Owner
may direct, but the Contractor shall not be required to employ persons
or entities against which the Contractor makes reasonable objection.
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3.8.2 Unless otherwise provided in the Contract Documents:
.1 materials and equipment under an allowance shall be selected
promptly by the Owner to avoid delay in the Work;
.2 allowances shall cover the cost to the Contractor of materials and
equipment delivered at the site and all required taxes, less applicable
trade discounts;
.3 Contractor's costs for unloading and handling at the site, labor,
installation costs, overhead, profit and other expenses contemplated
for stated allowance amounts shall be included in the Contract Sum and
not in the allowances;
.4 whenever costs are more than or less than allowances, the Contract
Sum shall be adjusted accordingly by Change Order. The amount of the
Change Order shall reflect (1) the difference between actual costs and
the allowances under Clause 3.8.2.2 and (2) changes in Contractor's
costs under Clause 3.8.2.3.
3.9 SUPERINTENDENT
3.9.1 The Contractor shall employ a competent superintendent and necessary
assistants who shall be in attendance at the Project site during
performance of the Work. The superintendent shall represent the
Contractor, and communications given to the superintendent shall be as
binding as if given to the Contractor. Important communications shall
be confirmed in writing. Other communications shall be similarly
confirmed on written request in each case.
The Contractor and each Subcontractor, including heating, ventilating
and air conditioning, plumbing and drainage, fire protection, and
electrical, shall have a competent superintendent on the job at all
times in attendance and supervising the Work. The Contractor shall not
change, or remove from the job, such superintendent without prior
approval from the Owner.
3.10 CONTRACTOR'S CONSTRUCTION SCHEDULES
3.10.1 The Contractor, promptly after being awarded the Contract, shall
prepare and submit for the Owner's and Architect's information, a
Contractor's construction schedule for the Work. The schedule shall not
exceed time limits current under the Contract Documents, shall be
revised at appropriate intervals as required by the conditions of the
Work and Project, shall be related to the entire Project to the extent
required by the Contract Documents, and shall provide for expeditious
and practicable execution of the Work.
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3.10.2 The Contractor shall prepare and keep current, for the Owner's
approval, a schedule or submittals which is coordinated with the
Contractor's construction schedule and allows the Owner and Architect
reasonable time to review submittals.
3.10.3 The Contractor shall conform to the most recent schedules.
3.11 DOCUMENTS AND SAMPLES AT THE SITE
3.11.1 The Contractor shall maintain at the site for the Owner one record copy
of the Drawings, Specifications, addenda, Change Orders and other
Modifications in good order and marked currently to record changes and
selections made during construction, and in addition approved Shop
Drawings, Product Data, Samples and similar required submittals. These
shall be available to the Owner and the Architect and shall be
delivered to the Architect for submittal to the Owner upon completion
of the Work.
Shop Drawings, Product Data and Samples maintained and delivered shall
include all such material required by the Contractor for actual
construction or coordination of trades in addition to those required to
be submitted to the Owner and the Architect for review.
3.12 SHOP DRAWINGS, PRODUCT DATA AND SAMPLES
3.12.1 Shop Drawings are drawings, diagrams, schedules and other data
specifically prepared for the Work by the Contractor or a
Subcontractor, Subsubcontractor, manufacturer, supplier or distributor
to illustrate materials or equipment for some portion of the Work.
3.12.2 Product Data are illustrations, standard schedules, performance charts,
instructions, brochures, diagrams and other information furnished by
the Contractor to illustrate materials or equipment for some portion of
the Work.
3.12.3 Samples are physical examples which illustrate materials, equipment or
workmanship and establish standards by which the Work will be judged.
3.12.4 Shop Drawings, Product Data, Samples and similar submittals are not
Contract Documents. The purpose of their submittal is to demonstrate
for those portions of the Work for which submittals are required the
way the Contractor proposes to conform to the information given and the
design concept expressed in the Contract Documents. Review by the Owner
and Architect is subject to the limitations of Subparagraph 4.2.7.
3.12.5 The Contractor shall review, approve, certify and submit to the Owner
and the Architect Shop Drawings, Product Data, Samples and similar
submittals required by the Contract Documents with reasonable
promptness and in such sequence as required by the
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Submittals Schedule required under Paragraph 3.10.2 and as to cause no
delay in the Work or in the activities of the Owner or of separate
contractors. Submittals made by the Contractor which are not required
by the Contract Documents may be returned without action.
3.12.6 The Contractor shall perform no portion of the Work requiring submittal
and review of Shop Drawings, Product Data, Samples and similar
submittals until the respective submittal has been reviewed by the
Owner and the Architect. Such Work shall be in accordance with reviewed
submittals.
3.12.7 By approving and submitting Shop Drawings, Product Data, Samples and
similar submittals, the Contractor represents that the Contractor has
determined and verified materials, field measurements and field
construction criteria related thereto, or will do so, and has checked
and coordinated the information contained within such submittals with
the requirements of the Work and of the Contract Documents.
3.12.8 The Contractor shall not be relieved of responsibility for deviations
from requirements of the Contract Documents by the Owner's or the
Architect's review of Shop Drawings, Product Data, Samples or similar
submittals unless the Contractor has specifically informed the Owner
and the Architect in writing of such deviation at the time of submittal
and the Owner or the Architect has given written acceptance of the
specific deviation. The Contractor shall not be relieved of
responsibility for errors and omissions in Shop Drawings, Product Data,
Samples or similar submittals by the Owner's or the Architect's review
thereof.
3.12.9 The Contractor shall direct specific attention, in writing or on
resubmitted Shop Drawings, Product Data, Samples or similar submittals,
to revisions other than those requested by the Owner or the Architect
on previous submittals.
3.12.10 Informational submittals upon which the Owner or the Architect is not
expected to take responsive action may be so identified in the Contract
Documents.
3.12.11 When professional certification of performance criteria of materials,
systems or equipment is required by the Contract Documents, the Owner
and the Architect shall be entitled to rely upon the accuracy and
completeness of such calculations and certifications.
3.12.12 If material or equipment is installed before it has been reviewed by
the Owner and the Architect, the Contractor shall be liable for its
removal and replacement at no extra charge to the Owner, if, in the
opinion of the Owner the installed material or equipment does not meet
the intent of the Contract Documents.
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3.13 USE OF SITE
3.13.1 The Contractor shall confine operations at the site to areas permitted
by law, ordinances, permits and the Contract Documents and shall not
unreasonably encumber the site with materials or equipment.
3.13.2 The Contractor and all Subcontractors shall keep respective employees
out of areas beyond the contract limit lines except where necessary for
actual performance of work.
3.14 CUTTING AND PATCHING
3.14.1 The Contractor shall be responsible for cutting, fitting or patching
required to complete the Work or to make its parts fit together
properly.
3.14.2 The Contractor shall not damage or endanger a portion of the Work or
fully or partially completed construction of the Owner or separate
contractors by cutting, patching, or otherwise altering such
construction, or by excavation. The Contractor shall not cut or
otherwise alter such construction by the Owner or a separate contractor
except with written consent of the Owner and of such separate
contractor; such consent shall not be unreasonably withheld. The
Contractor shall not unreasonably withhold from the Owner or a separate
contractor the Contractor's consent to cutting or otherwise altering
the Work.
3.15 CLEANING UP
3.15.1 The Contractor shall keep the premises and surrounding area from
accumulation of waste materials or rubbish caused by operations under
the Contract. At completion of the Work the Contractor shall remove
from and about the Project waste materials, rubbish, the Contractor's
tools, construction equipment, machinery and surplus materials.
3.15.2 If the Contractor fails to clean up as provided in the Contract
Documents, the Owner may do so and the cost thereof shall be charged to
the Contractor.
3.15.3 The Contractor shall keep all driveway and parking lots (including
aisles) on the premises, as well as, the roadways adjacent to the
premises, free from mud, dirt and debris caused by operations under the
Contract, and in compliance with all applicable laws, statutes,
ordinances, rules, regulations or conditions of governmental approvals.
Upon the receipt of any notice of violation, directive or complaint
alleging any violation of such law, statute, ordinance, rule,
regulation or condition of governmental approval, Contractor shall
immediately remedy the same and shall be responsible for any fine or
penalty related thereto.
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3.15.4 (a) Contractor shall be deemed to be the owner of waste materials which
result from materials brought onto the Project site by the Contractor,
its Subcontractors or anyone directly or indirectly employed by them,
or by anyone for whose acts they may be liable. All other waste shall
be removed by Contractor as agent for the actual owner thereof. Title
to such waste shall be transferred directly from its owner to a waste
hauler licensed to transact business in the Commonwealth of
Pennsylvania. However the cost of waste removal is included within the
Contract Sum.
(b) In the event that Contractor uncovers or discovers hazardous
materials or waste at the Project site which is not the result of
materials brought onto the Project site, or conduct or actions taken by
the Contractor, its Subcontractor or anyone directly or indirectly
employed by them, or by anyone for whose acts they may be liable,
Contractor shall so notify the Owner, in writing, and the Owner shall,
as between Owner and Contractor, be responsible to arrange for the
removal or disposal of said material.
3.16 ACCESS TO WORK
3.16.1 The Contractor shall provide the Owner and Architect access to the Work
in preparation and progress wherever located.
3.17 ROYALTIES AND PATENTS
3.17.1 The Contractor shall pay all royalties and license fees. The Contractor
shall defend suits or claims for infringement of patent rights and
shall hold the Owner and Architect harmless from loss on account
thereof, but shall not be responsible for such defense of loss when a
particular design, process or product of a particular manufacturer or
manufacturers is required by the Contract Documents. However, if the
Contractor has reason to believe that the required design, process or
product is an infringement of a patent, the Contractor shall be
responsible for such loss unless such information is promptly furnished
to the Architect and the Owner.
3.18 INDEMNIFICATION
3.18.1 The Contractor shall indemnify and hold harmless the Owner, the
Architect, Architect's consultants, and agents and employees of any of
them from and against all claims, damages, losses or expenses,
including, but not limited to, attorneys, fees, arising out of or
resulting from negligence or intentional, willful, wanton or reckless
misconduct by Contractor, its Subcontractors, their subcontractors, or
anyone acting on behalf, through, under or in any other manner for any
of them in anyway relating to the performance of the work, which
results in, inter alia:
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(1) bodily injury, sickness, disease or death;
(2) injury to or destruction of tangible property (other than the Work
itself), including the loss of the use resulting therefrom;
(3) governmental fines and/or penalties of any kind whatsoever;
(4) corrective measures required under the Federal occupational Safety and
Health Act (hereinafter referred to as OSHA);
(5) delay in completion of the work beyond the Contract Time, as defined in
Article 8, caused by proceedings under OSHA.
This indemnification in favor of the Owner shall be applicable and the Owner,
its agents, and employees of any of them, shall be indemnified as long as there
is no determination by a court of competent jurisdiction that any of the causes
listed in items (1) through (5) which is the basis of the claim, was caused by
sole negligence of the Owner, its agents and employees of any of them.
This indemnification in favor of the Architect, Architect's consultants and
agents, and employees of any of them, shall be applicable and the Architect,
Architect's consultants and agents, and employees of any of them, shall be
indemnified completely as long as there is no determination by a court of
competent jurisdiction that any of the causes listed in (1) through (5) which is
the basis for the claim, was caused by the sole negligence of the Architect,
Architect's consultants and agents, and employees of any of them. The
obligations of the Contractor under this Paragraph 3.18.1 shall not extend to
the liability of the Architect, the Architect's consultants, and agents and
employees of any of them arising out of (1) the preparation or approval of maps,
drawings, opinions, reports, surveys, Change Orders, design or specifications or
(2) the giving of or failure to give directions or instructions by the
Architect, the Architect's Consultants, and agents and employees of any of them,
provided such giving or failure to give is the primary cause of the injury or
damage.
The Contractor shall, pursuant to this indemnification provision, pay the
attorney's fees, expenses, judgments and settlements made by or on behalf of the
Owner, its agents and employees of any of them, arising out of the claims
related to this Project unless and until there should be a finding by a court of
competent jurisdiction that the damages alleged were caused by the sole
negligence or fault of the Owner, its agents and employees of any of them.
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The Contractor also agrees that he will maintain liability insurance
coverage as to the risk stated in this article, naming the Owner and
the Architect as additional insured.
Such obligation shall not be construed to negate, abridge, or otherwise
reduce any other right or obligation of indemnity which would otherwise
exist as to any party or person described in this Paragraph 3.18.
3.18.2 In claims against any person or entity indemnified under this Paragraph
3.18 by an employee of the Contractor, a Subcontractor, anyone directly
or indirectly employed by them or anyone for whose acts they may be
liable, the indemnification obligation under this Paragraph 3.18 shall
not be limited by a limitation on amount or type of damages,
compensation or benefits payable by or for the Contractor or a
Subcontractor under workers' compensation acts, disability benefit acts
or other employee benefit acts.
3.18.3 The obligations of the Contractor under this Paragraph 3.18 shall not
exceed to the liability of the architect, the Architects consultants
and agents and employees of any of them arising out of (1) the
preparation of approval of maps, drawings, opinions, reports, surveys,
Change Orders, designs or specifications, or (2) the giving of or the
failure to give directions or instructions by the Architect, the
Architect's consultants, and agents and employees of any of them
provided such giving or failure to give is the primary cause of the
injury or damage.
3.18.4 The Contractor shall indemnify and hold harmless the owner and
Architect from any claim or liability resulting from the Contractor's
failure to construct the Project in accordance with the Contract
Documents, including the requirements of Act No. 222 (35 P.S. paragraph
7201.101 et seq.), known as the Building Energy Conservation Act, to
the extent such requirements are included in the Contract Documents,
and have been properly engineered and detailed by the Architect
including any Certification required of the Owner or Architect pursuant
to that Act.
ARTICLE 4
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ADMINISTRATION OF THE CONTRACT
4.1 ARCHITECT
4.1.1 The Architect is the person lawfully licensed to practice architecture
or an entity lawfully practicing architecture identified as such in the
Agreement and is referred to throughout the Contract as if singular in
number. The term "Architect" means the Architect of the Architect's
authorized representative.
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4.1.2 Duties, responsibilities and limitations of authority of the Architect
as set forth in the Contract Documents shall not be restricted,
modified or extended without written consent of the Owner.
4.1.3 In case of termination of the Architect, the Owner shall appoint an
architect whose status under the Contract Documents shall be that of
the former architect.
4.2 ARCHITECTS ADMINISTRATION OF THE CONTRACT
4.2.1 The Architect will provide administration of the Contract as described
in the Contract Documents, and will be the Owner's representative (1)
during construction, (2) until final payment is due and (3) with the
Owner's concurrence, from time to time during the correction period
described in Paragraph 12.2. The Architect will advise and consult with
the Owner. The Architect will have authority to act on behalf of the
Owner only to the extent provided by written instrument.
4.2.2 The Architect will visit the site at intervals appropriate to the stage
of construction to become generally familiar with the progress and
quality of the completed Work and to determine in general if the Work
is being performed in a manner indicating that the Work, when
completed, will be in accordance with the Contract Documents. However,
the Architect will not be required to make exhaustive or continuous
on-site inspections to check quality or quantity of the Work. On the
basis of the on-site observations as an architect, the Architect will
keep the Owner informed of progress of the Work and will endeavor to
guard the owner against defects and deficiencies in the Work.
4.2.3 The Architect will not have control over or charge of and will not be
responsible for construction means, methods, techniques, sequences or
procedures, or for safety precautions and programs in connection with
the Work, whether or not same are required by applicable law, since
these are solely the Contractor's responsibility as provided in
Paragraph 3.3. The Architect will not be responsible for the
Contractor's failure to carry out the Work in accordance with the
Contract Documents or applicable law. The Architect will not have
control over or charge of nor be responsible for acts or omissions of
the Contractor, Subcontractors, or their agents and employees, or any
other persons performing portions of the Work, nor does the Architect
assume responsibility for compliance, by any of the aforementioned
persons or entities, with applicable laws, standards and regulations.
The Architect will not be responsible for any design calculations, or
the results therefrom, which are required of the Contractor,
Subcontractors or suppliers, either by provisions of the Contract
Documents or inherently required by the Contractor, Subcontractor or
suppliers for their proper performance of the Work.
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4.2.4 COMMUNICATIONS FACILITATING CONTRACT ADMINISTRATION
Except as otherwise provided in the Contract Documents or when direct
communications have been specifically authorized, the Owner and
Contractor shall endeavor to communicate through the Architect.
Communications by and with the Architect's consultants shall be through
the Architect. Communications by and with Subcontractors and material
suppliers shall be through the Contractor. Communications by and with
separate contractors shall be through the Owner.
4.2.5 Based on the Architect's observations and evaluations of the
Contractor's Applications for Payment, the Architect will, upon Owner's
request, review the amounts claimed to be due the Contractor.
4.2.6 The Architect will have authority to reject on owner's behalf, Work
which does not conform to the Contract Documents. Whenever the
Architect or owner considers it necessary or advisable for
implementation of the intent of the Contract Documents, the Architect
will have authority to require additional inspection or testing of the
Work in accordance with Subparagraphs 13.5.2 and 13.5.3, whether or not
such Work is fabricated, installed or completed. However, neither this
authority of the Architect nor a decision made in good faith either to
exercise or not to exercise such authority shall give rise to a duty or
responsibility of the Architect to the Contractor, Subcontractors,
material and equipment suppliers, their agents or employees, or other
persons performing portions of the Work.
4.2.7 The Architect will review or take other appropriate action upon the
Contractor's submittals such as Shop Drawings, Product Data and
Samples, but only for the limited purpose of checking for and advising
owner as to conformance with information given and the design concept
expressed in the Contract Documents. The Architect's action will be
taken with reasonable promptness so as to cause no delay in the Work or
in the activities of the Owner, Contractor or separate contractors,
taking into account the time and method of submittal by the Contractor
and allowing sufficient time in the Architect's professional judgment
to permit adequate review. Review of such submittals is not conducted
for the purpose of determining the accuracy and completeness of other
details such as dimensions and quantities, or for substantiating
instructions for installations or performance of equipment or systems,
all of which remain the responsibility of the Contractor as required by
the Contract Documents. The Architects review of the Contractors
submittals shall not relieve the Contractor of the obligations under
Paragraphs 3.3, 3.5 and 3.12. The Architect's review shall not
constitute approval of safety precautions, construction means, methods,
techniques or procedures. The Architect's review of a specific item
shall not indicate acceptance of an assembly of which the item is a
component.
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4.2.8 The Architect will prepare Change Orders and Construction Change
Directives, and may, as permitted by Owner, authorize minor changes in
the Work as provided in Paragraph 7.4.
4.2.9 The Architect will conduct inspections to advise the Owner with regard
to the date or dates of Substantial Completion and the date of final
completion, and will receive and forward to the Owner for the Owner's
review and records, written warranties and related documents required
by the Contract and assembled by the Contractor.
4.2.10 If the Owner and Architect agree, the Architect will provide one or
more project representatives to assist in carrying out the Architect's
responsibilities at the site. The duties, responsibilities and
limitations of authority of such project representatives shall be as
set forth in an exhibit to be incorporated in the Contract Documents.
4.2.11 The Architect will interpret and advise on matters concerning
performance under and requirements of the Contract Documents on request
of the Owner.
4.3 CLAIMS AND DISPUTES
4.3.1 Definition. A claim is a demand or assertion by one of the parties
seeking, as a matter of right, adjustment or interpretation of Contract
terms, payment of money, extension of time or other relief with respect
to the terms of the Contract. The term "Claim" also included other
disputes and matters in question between the Owner and Contractor
arising out of or relating to the Contract. Claims must be made by
written notice. The responsibility to substantiate Claims shall rest
with the party making the Claim.
4.3.2 Continuing Contract Performance. Pending final resolution of a claim
unless otherwise agreed in writing the Contractor shall proceed
diligently with performance of the Contract and the Owner shall
continue to make payments in accordance with the Contract Documents.
4.3.3 Waiver of Claims: Final Payment. The making of final payment shall
constitute a waiver of Claims by the Owner except those arising from:
.1 liens, Claims, security interests or encumbrances arising out
of the Contract and unsettled;
.2 failure of the Contractor or the Work to comply with the
requirements of the Contract Documents; or
.3 terms of special warranties required by the Contract
Documents;
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.4 Governmental fines or penalties imposed on the Contractor, or
any Subcontractor, for violations of applicable law.
4.3.4 Claims for Concealed or Unknown Conditions. If conditions are
encountered at the site which are (1) subsurface or otherwise concealed
physical conditions which differ materially from those indicated in the
Contract Documents or (2) unknown physical conditions of an unusual
nature, which differ materially from those ordinarily found to exist
and generally recognized as inherent in construction activities of the
character provided for in the Contract Documents, then notice by the
observing party shall be given to the other party promptly before
conditions are disturbed and in no event later than 21 days after first
observance of the conditions. The Architect will promptly investigate
such conditions and, if they differ materially and cause an increase or
decrease in the Contractor's cost of, or time required for, performance
of any part of the Work, will recommend an equitable adjustment in the
Contract Sum or Contract Time, or both. If the Architect determines
that the conditions at the site are not materially different from those
indicated in the Contract Documents and that no change in the terms of
the Contract is justified, the Architect shall so notify the Owner and
Contractor in writing, stating the reasons. Claims by either party in
opposition to such determination must be made within 21 days after the
Architect has given notice of this finding. If the Owner and Contractor
cannot agree on an adjustment in the Contract Sum or Contract Time, the
adjustment shall be referred to the Architect for recommendation. Any
continuing dispute shall be resolved in accordance with subparagraph
4.4.4.
4.3.5 Claims for Additional Cost. If the Contractor wishes to make a Claim
for an increase in the Contract Sum, written notice to the Owner and
Architect as provided herein shall be given before proceeding to
execute the Work. Prior notice is not required for Claims relating to
an emergency endangering life or property arising under Paragraph 10.3.
If the Contractor believes additional cost is involved for reasons
including but not limited to (1) a written interpretation from the
Architect; (2) an order by the Owner to stop the Work where the
Contractor was not at fault; (3) a written order for a minor change in
the Work issued by the Owner; (4) failure of payment by the Owner; (5)
termination of the Contract by the Owner; (6) Owners suspension; or (7)
other reasonable grounds, the Claim shall be resolved in accordance to
Subparagraph 4.4.4.
4.3.6 CLAIMS FOR ADDITIONAL TIME
4.3.6.1 If the Contractor wishes to make Claim for all increases in the
Contract Time, written notice as provided herein shall be given. The
Contractor's Claim shall include an estimate of cost and of probable
effect of delay on progress of the Work.
In case of a continuing delay only one claim is necessary.
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4.3.6.2 If adverse weather conditions are the basis for a Claim for additional
time, such Claim shall be documented by data substantiating that
weather conditions were abnormal for the period of time and could not
have been reasonably anticipated, and that weather conditions had an
adverse effect on the scheduled construction.
4.3.7 Injury or Damage to Person or Property. If either party to the Contract
suffers injury or damage to person or property because of an act or
omission of the other party, of any of the other parties employees or
agents, or of others for whose acts such party is legally liable,
written notice of such injury or damage, whether or not insured, shall
be given to the other party. The notice shall provide sufficient detail
to enable the other party to investigate the matter. If a Claim for
additional cost or time related to this Claim is to be asserted, it
shall be filed as provided in Subparagraph 4.3.5 and 4.3.6.
4.4 RESOLUTION OF CLAIMS AND DISPUTES
4.4.1 The Architect will review Claims and take one or more of the following
preliminary actions within ten days of receipt of a Claim: (1) request
additional supporting data from the claimant, (2) recommend rejection
of the Claim in whole or in part, stating reasons for rejection, (3)
recommend approval of the Claim by the other party, or (4) suggest a
compromise. The Architect may also, but is not obligated to, notify the
surety, if any, of the nature and amount of the Claim.
4.4.2 If the Claim has been resolved, the Architect will prepare or obtain
appropriate documentation.
4.4.3 If a Claim has not been resolved, the party making the Claim shall,
within ten days after the Architect's preliminary response, take one or
more of the following actions: (1) submit additional supporting data
requested by the Architect, (2) modify the initial Claim or (3) notify
the Architect and the other party that the initial Claim stands.
4.4.4 If a Claim has not been resolved after consideration of the foregoing
and of further evidence presented by the parties or requested by the
Architect, the Claim on the initiation of either party may be the
subject of adjudication or litigation.
ARTICLE 5
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SUBCONTRACTORS
5.1 DEFINITIONS
5.1.1 A Subcontractor is a person or entity who has a direct contract with
the Contractor to perform a portion of the Work at the site. The term
"Subcontractor" is referred to
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throughout the Contract Documents as if singular in number and means a
Subcontractor or an authorized representative of the Subcontractor. The
term "Subcontractor" does not include a separate contractor or
subcontractors of a separate contractor.
5.1.2 A Subsubcontractor is a person or entity who has a direct or indirect
contract with a Subcontractor to perform a portion of the Work at the
site. The term "Sub-subcontractor" is referred to throughout the
Contract Documents as if singular in number and means a
Sub-subcontractor or an authorized representative of the
Sub-subcontractor.
5.2 AWARD OF SUBCONTRACTS AND OTHER CONTRACT FOR PORTIONS OF THE WORK
5.2. 1 Unless otherwise stated in the Contract Documents or the Bidding
Documents, the Contractor, within ten (10) days after the award of the
Contract, shall furnish to the Owner and Architect in writing the names
of the persons or entities (including those who are to furnish
materials or equipment fabricated to a special design) proposed for
each principal portion of the Work. The Owner will promptly reply to
the Contractor in writing stating whether or not the Owner, after due
investigation, has reasonable objection to any such proposed person or
entity.
5.2.2 The Contractor shall not contract with a proposed person or entity to
whom the Owner has made reasonable and timely objection. The Contractor
shall not be required to contract with anyone whom the Contractor has
made reasonable objection.
5.2.3 If the Owner has reasonable objection to any such proposed person or
entity, the Contractor shall submit a substitute to whom the Owner has
no reasonable objection. If the requirement that Contractor select a
substitute Subcontractor causes a difference in cost from the cost of
the originally proposed Subcontractor, the Contract Sum shall be
adjusted by the increase or decrease in the cost occasioned by the
substitution, which adjustment shall be evidenced by the issuance of an
appropriate Change Order. However, no adjustment shall be made in the
Contract Sum by reason of a required change in Contractor's proposed
HVAC or Electrical Subcontractors.
5.2.4 The Contractor shall not change a Subcontractor, person or entity
previously selected if the Owner makes reasonable objection to such
change.
5.3 SUBCONTRACTUAL RELATIONS
5.3.1 By appropriate agreement, written where legally required for validity,
the Contractor shall require each Subcontractor, to the extent of the
Work to be performed by the Subcontractor, to be bound to the
Contractor by terms of the Contract Documents, and to
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assume toward the Contractor all the obligations and responsibilities
which the Contractor, by these Documents, assumes toward the Owner and
Architect. Each subcontract agreement shall preserve and protects the
rights of the Owner and Architect under the Contract Documents with
respect to the Work to be performed by the Subcontractor so that
subcontracting thereof will not prejudice such rights, and shall allow
to the Subcontractor, unless specifically provided otherwise in the
subcontract agreement, the benefit of all rights, remedies and redress
against the Contractor that the Contractor, by the Contract Documents,
has against the Owner. Where appropriate, the Contractor shall require
each Subcontractor to enter into similar agreements with
Subsubcontractors. The Contractor shall make available to each proposed
Subcontractor, prior to the execution of the subcontract agreement,
copies of the Contract Documents to which the Subcontractor will be
bound, and, upon written request of the Subcontractor, identify to the
Subcontractor terms and conditions of the proposed subcontract
agreement which may be at variance with the Contract Documents.
Subcontractors shall similarly make copies of applicable portions of
such documents available to their respective proposed
Sub-subcontractors.
In the event a Subcontractor is named as a defendant in any proceeding
by the Secretary of Labor under OSHA, the Contractor shall have the
right and obligation to correct any alleged violations of OSHA if
corrections are not made by the Subcontractor.
5.4 CONTINGENT ASSIGNMENT OF SUBCONTRACTS
5.4.1 Each subcontract agreement for a portion of the Work is assigned by the
Contractor to the Owner provided that:
.1 assignment is effective only after termination of the Contract
by the Owner for cause pursuant to Paragraph 14.2 and only for
those subcontract agreements which the Owner accepts by
notifying the Subcontractor in writing; and
.2 assignment is subject to the prior rights of the surety, if
any, obligated under bond relating to the Contract.
5.4.2 If the Work has been suspended for more than 30 days, the
Subcontractor's compensation shall be equitably adjusted.
5.5 DISCHARGE OF SUBCONTRACTORS FOR CAUSE
5.5.1 The Owner upon cause shown may require Contractor to discharge an
existing Subcontractor and replace the offending Subcontractor with a
Subcontractor reasonably acceptable to Owner and Contractor. Contractor
shall be responsible for the conduct of
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all Subcontractors and their employees and agents while on the project
site including the conduct of those Subcontractors with respect to
Owner's employees and guests. Owner may, in Owner's reasonable
discretion, require the discharge of any Subcontractor who directly or
through its employees or agents is responsible for inappropriate
conduct directed to Owner's employees or guests.
5.5.2 Any delay in time or increase in cost due to the discharge of a
Subcontractor pursuant to paragraph 5.5.1 above shall be deemed to be a
suspension by Owner pursuant to paragraph 14.4 of this Agreement.
ARTICLE 6
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CONSTRUCTION BY OWNER OF BY SEPARATE CONTRACTORS
6.1 OWNER'S RIGHT TO PERFORM CONSTRUCTION AND TO AWARD SEPARATE CONTRACTS
6.1.1 The Owner reserves the right to perform construction or operations
related to the Project with the Owner's own forces, and to award
separate contracts in connection with other portions of the Project or
other construction operations on the site under Conditions of the
Contract identical or substantially similar to these including those
portions related to insurance and waiver of subrogation. If the
Contractor claims that delay or additional cost is involved because of
such action by the Owner, the Contractor shall make such Claim as
provided elsewhere in the Contract Documents.
6. 1.2 When separate contracts are awarded for different portions of the
Project or other construction or operations on the site the term
"Contractor" in the Contract Documents in each case shall mean the
Contractor who executes each separate Owner/Contractor Agreement.
6.1.3 The Owner shall provide for coordination of the activities of the
Owner's own forces and of each separate contractor with the Work of the
Contractor, who shall cooperate with them. The Contractor shall
participate with other separate contractors and the Owner in reviewing
their construction schedules when directed to do so. The Contractor
shall make any revisions to the construction schedule and Contract Sum
deemed necessary after a joint review and mutual agreement. The
construction schedules shall then constitute the schedules to be used
by the Contractor, separate contractors and the Owner until
subsequently revised.
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6.1.4 Unless otherwise provided in the Contract Documents, when the Owner
performs construction or operations related to the Project with the
Owner's own forces, the Owner shall be deemed to be subject to the same
obligations and to have the same rights which apply to the Contractor
under the Conditions of the Contract, including, without excluding
other, those stated in Article 3, this Article 6 and Articles 10, 11
and 12.
6.2 MUTUAL RESPONSIBILITY
6.2.1 The Contractor shall afford the Owner and separate contractors
reasonable opportunity for introduction and storage of their materials
and equipment and performance of their activities and shall connect and
coordinate the Contractor's construction and operations with theirs as
required by the Contract Documents.
6.2.2 If part of the Contractor's Work depends for proper execution or
results upon construction or operations by the Owner or a separate
contractor, the Contractor shall, prior to proceeding with that portion
of the Work, promptly report to the Owner and the Architect apparent
discrepancies or defects in such other construction that would render
it unsuitable for such proper execution and results. Failure of the
Contractor so to report shall constitute an acknowledgment that the
Owner's or separate contractors' completed or partially completed
construction is fit and proper to receive the Contractor's Work except
as to defects not then reasonably discoverable.
6.2.3 Costs caused by delays or by improperly timed activities or defective
construction shall be borne by the party responsible therefor.
6.2.4 The Contractor shall promptly remedy damage wrongfully caused by the
Contractor to completed or partially completed construction or to
property of the Owner of separate contractors as provided in
Subparagraph 10.2.5.
6.2.5 Claims and other disputes and matters in question between the
Contractor and a separate contractor shall be subject to the provisions
of Paragraph 4.3 provided the separate contractor has reciprocal
obligations.
6.2.6 The Owner and each separate contractor shall have the same
responsibilities for cutting and patching as are described for the
Contractor in Paragraph 3.14.
6.3 OWNER'S RIGHT TO CLEAN UP
6.3.1 If a dispute arises among the Contractor, separate contractors and the
Owner as to the responsibility under their respective contracts for
maintaining the premises and
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surrounding area free from dirt, mud, waste materials and rubbish as
describes in Paragraph 3.15, the Owner may clean up and allocate the
cost among those responsible as the Owner determines to be just.
ARTICLE 7
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CHANGES IN THE WORK
7.1 CHANGES
7.1.1 Changes in the Work may be accomplished after execution of the
Contract, and without invalidating the Contract, by Change Order,
Construction Change Directive or order for a minor change in the Work,
subject to the limitations stated in this Article 7 and elsewhere in
the Contract Documents.
7.1.2 A Change Order shall be based upon agreement between the Owner and
Contractor, a Construction Change Directive requires agreement of the
Owner and may or may not be agreed to by the Contractor; an order for a
minor change in the work may be issued by the Architect or Owner alone.
7.1.3 Changes in the Work shall be performed under applicable provisions of
the Contract Documents, and the Contractor shall proceed promptly,
unless otherwise provided in the Change Order, Construction Change
Directive or order for a minor change in the Work.
7.1.4 If unit prices are stated in the Contract Documents or subsequently
agreed upon, and if quantities originally contemplated are so changed
in the proposed Change Order or Construction Change Directive that
application of such unit prices to quantities of Work proposed will
cause substantial inequity to the Owner or Contractor, the applicable
unit prices shall be equitably adjusted.
7.2 CHANGE ORDERS
7.2.1 A Change Order is a written instrument prepared by the Architect and
signed by the Owner and Contractor, stating their agreement upon all of
the following:
.1 a change in the Work;
.2 the amount of the adjustment in the Contract Sum, if any; and
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.3 the extent of the adjustment in the Contract Time, if any.
7.2.2 Methods used in determining adjustments to the Contract Sum include
those listed in Subparagraph 7.3.3.
7.3 CONSTRUCTION CHANGE DIRECTIVES AND CHANGE ORDERS
7.3.1 A Construction Change Directive is a written order prepared by the
Architect and signed by the Owner directing a change in the Work and
stating a proposed basis for adjustment, if any, in the Contract Sum or
Contract Time, or both. The Owner may by Construction Change Directive,
without invalidating the Contract, order changes in the Work within the
general scope of the Contract consisting of additions, deletions or
other revisions, the Contract Sum and Contract Time being adjusted
accordingly.
7.3.2 A Construction Change Directive shall be used in the absence of total
agreement on the terms of a Change Order.
7.3.3 If the Construction Change Directive or Change Order provides for an
adjustment to the Contract Sum, the adjustment, net of savings in costs
to the Contractor, if any, shall be based on one of the following
methods:
.1 Mutual acceptance of a lump sum properly itemized and
supported by sufficient substantiating data to permit
evaluation. Lump sum shall be complete with breakdown for each
trade giving separation of material, equipment and labor,
providing quantities and labor hours as outlined in
Sub-subparagraph 7.3.3.3. The fee payable to the Contractor,
Subcontractor or Sub-subcontractor shall be the same as
permitted in Sub-subparagraph 7.3.3.3.
.2 Unit prices stated in the Contract Documents or subsequently
agreed upon.
.3 On a time and material basis by cost (as defined herein), plus
a percentage fee which shall be established as follows:
For extra work performed by the Contractor, the charges to the
Owner may include the Contractor's cost, plus a fee (payable
to the Contractor) in an amount equal to fifteen percent (15%)
of such cost.
For extra work performed by a Subcontractor, the charges to
Owner may include: the Subcontractor's cost, plus a fee
(payable to the Subcontractor) in the amount equal to fifteen
percent (15%) of such cost, plus a fee (payable to the
Contractor)
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in amount equal to ten percent (10%) of the sum of the Subcontractor's
cost and the Subcontractor's fee. In no case shall the total fees on
extra work performed by a Subcontractor exceed 26.5% of the
Subcontractor's cost.
For extra work performed by a Subsubcontractor, the charges to Owner
may include: the Sub-subcontractor's cost, plus a fee (payable to the
Sub-subcontractor) in an amount equal to fifteen percent (15%) of such
cost; plus a fee (payable to the Subcontractor) in an amount equal to
five percent (5%) of the sum of the Sub-subcontractor's cost and the
Subsubcontractor's fee; plus a fee (payable to the Contractor) in an
amount equal to five percent (5%) of the sum of the Sub-subcontractor's
costs, the Sub-subcontractor's fee and the Subcontractor's fee. In no
case shall the total fees on extra work performed by a
Sub-subcontractor exceed 26.8% of the Sub-subcontractor's cost.
"Cost" shall consist exclusively of the actual cost of:
a. Labor, including foreman,. including fringe benefits;
b. Security and old age and unemployment contributions;
c. Materials entering permanently into the work, including
freight and/or delivery charge;
d. The ownership or rental cost of on site equipment during the
time of use on the extra work;
e. Power and consumable supplies for the operation of power
equipment;
f. Applicable taxes;
g. Insurance;
h. Bonds.
Cost shall not include any provision for the cost of supervision,
overhead, profit, and any other general expenses.
The Contractor shall furnish satisfactory bills, payrolls and vouchers
covering all items of cost, and when requested by the Owner, shall give
the Owner access to accounts relating thereto.
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.4 As provided in Subparagraph 7.3.6, Value of Work added and deleted for
each item of Work shall be computed on the net difference in quality.
7.3.4 Upon receipt of a Construction Change Directive, the Contractor shall
promptly proceed with the change in the Work involved and advise the
Owner and Architect of the Contractor's agreement or disagreement with
the method, if any, provided in the Construction Change Directive for
determining the proposed adjustment in the Contract Sum or Contract Time.
7.3.5 A Construction Change Directive signed by the Contractor indicates the
agreement of the Contractor therewith, including adjustment in Contract
Sum and Contract Time or the method for determining them. Such agreement
shall be effective immediately and shall be recorded as a Change Order.
7.3.6 If the Contractor does not respond promptly or disagrees with the method
for adjustment in the Contract Sum, the method and the adjustment shall
be determined by the Owner, upon recommendation from the Architect, on
the basis of reasonable expenditures and savings of those performing the
Work attributable to the change, including, in the case of an increase in
the Contract Sum, fees defined in Subparagraph 7.3.3, item .3. In such
case, and also under Subparagraph 7.3.3, the Contractor shall keep and
present, in such form as the Owner may prescribe, an itemized accounting
together with appropriate supporting data. Unless otherwise provided in
the Contract Documents, costs and fees are to be presented in accordance
with the provisions of Subparagraph 7.3.3, item .3. Value of work added
and deleted for each item of Work shall be computed on the net difference
in quantity.
7.3.7 Pending final determination of cost to the Owner, amounts not in dispute
may be included in Applications for Payment. The amount of credit to be
allowed by the Contractor to the Owner for a deletion or change which
results in a net decrease in the Contract Sum shall be actual net cost.
When both additions and credits covering related Work or substitutions
are involved in a change, the allowance for overhead and profit shall be
figured on the basis of net increase, if any, with, respect to that
change.
7.3.8 If the Owner and Contractor do not agree with the adjustment in Contract
Time or the method for determining it, the adjustment or the method shall
be referred to the Architect for recommendation.
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7.3.9 When the Owner and Contractor agree with the recommendation made by the
Architect concerning the adjustments in the Contract Sum and Contract
Time, or otherwise reach agreement upon the adjustments, such agreement
shall be effective immediately and shall be recorded by preparation and
execution of an appropriate Change Order.
7.4 MINOR CHANGES IN THE WORK
7.4.1 The Owner and the Architect (if so authorized by the Owner) will have the
authority to order minor changes in the Work not involving adjustment in
the Contract Sum or extension of the Contract Time and not inconsistent
with the intent of the Contract Documents. Such changes shall be effected
by written order and shall be binding on the Owner and Contractor. The
Contractor shall carry out such written orders promptly.
ARTICLE 8
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TIME
8.1 DEFINITIONS
8.1.1 Unless otherwise provided, Contract Time is the period of time, including
authorized adjustments, allotted in the Contract Documents for
Substantial Completion of the Work.
8.1.2 The date of commencement of the Work is the date established in the
Agreement. The date shall not be postponed by the failure to act of the
Contractor or of persons or entities for whom the Contractor is
responsible.
8.1.3 The date of Substantial Completion is the date determined in accordance
with Paragraph 9.8.
8.1.4 The term "day" as used in the Contract Documents shall mean calendar day
unless otherwise specifically defined.
8.2 PROGRESS AND COMPLETION
8.2.1 Time limits stated in the Contract Documents are of the essence of the
Contract. By executing the Agreement the Contractor confirms that the
Contract Time is a reasonable period for performing the Work.
8.2.2 The Contractor shall not knowingly, except by agreement or instruction of
the Owner in writing, prematurely commence operations on the site or
elsewhere prior to the effective date of insurance required by Article 11
to be furnished by the Contractor. The date of
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commencement of the Work shall not be changed by the effective date of
such insurance. Unless the date of commencement is established by a
notice to proceed given by the Owner, the Contractor shall notify the
Owner in writing not less than five days or other agreed period before
commencing the Work to permit the timely filing of mortgages, mechanic's
liens and other security interests.
8.2.3 The Contractor shall proceed expeditiously with adequate forces and shall
achieve Substantial Completion within the Contract Time.
8.3 DELAYS AND EXTENSIONS OF TIME
8.3.1 If the Contractor is delayed at any time in the progress of Work by any
act or neglect of the Owner or Architect, or of an employee of either, or
of a separate contractor employed by the Owner, or by delays in the
issuance of the Building Permit or Permits, or by changes ordered in the
Work, or by labor disputes, fire, unusual delay in deliveries,
unavoidable casualties, or any causes beyond the Contractor's control, or
by delay authorized by the Owner pending litigation or adjudication or by
other causes which the Owner determines may justify delay, then the
Contract Time shall be extended by Change Order for such reasonable time
as the Owner may determine.
8.3.2 Claims relating to time shall be made in accordance with applicable
provisions of Paragraph 4.3.
8.3.3 This Paragraph 8.3 does not preclude recovery of damages for delay by
either party under other provisions of the Contract Documents.
ARTICLE 9
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PAYMENTS AND COMPLETION
9.1 CONTRACT SUM
9.1.1 The Contract Sum is stated in the Agreement and, including authorized
adjustments, is the total amount payable by the Owner to the Contractor
for performance of the Work under the Contract Documents.
9.2 SCHEDULE OF VALUES
9.2.1 Prior to execution of this Agreement, the Contractor shall submit to the
Owner and the Architect a schedule of values allocated to various
portions of the Work, prepared in such
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form and supported by such data to substantiate its accuracy as the
Owner may require. This schedule, unless objected to by the Owner,
shall be used as a basis for reviewing the Contractor's Applications
for Payment.
9.3 APPLICATIONS FOR PAYMENT
9.3.1 At least fifteen days before the date established for each progress
payment, the Contractor shall submit to the Owner and the Architect an
itemized Application for Payment for operations completed in accordance
with the schedule of values. Such application shall be notarized, if
required, and supported by such data substantiating the Contractor's
right to payment as the Owner may require, such as copies of
requisitions from Subcontractors and material suppliers, and reflecting
retainage if provided for elsewhere in the Contract Documents.
9.3.1.1 Such applications may include requests for payment on account of
changes in the Work which have been properly authorized by Construction
Change Directives but not yet included in Change Orders.
9.3.1.2 Such applications may not include requests for payment of amounts the
Contractor does not intend to pay to a Subcontractor or material
supplier because of a dispute or other reason.
9.3.2 Unless otherwise provided in the Contract Documents, payments shall be
made on account of materials and equipment delivered and suitably
stored at the site for subsequent incorporation in the Work. If
approved in advance by the Owner, the payment may similarly be made for
materials and equipment suitably stored off the site at a location
agreed upon in writing. Payment for materials and equipment stored on
or off the site shall be conditioned upon compliance by the Contractor
with procedures satisfactory to the Owner to establish the Owner's
title to such materials and equipment or otherwise protect the Owner's
interest and shall include applicable insurance, storage and
transportation to the site for such materials and equipment stored off
the site.
9.3.3 The Contractor warrants that title to all Work covered by an
Application for Payment will pass to the Owner no later than the time
of payment. The Contractor further warrants that upon submittal of an
Application for Payment all Work for which payments have been
previously received from the Owner shall, to the best of the
Contractor's knowledge, information and belief, be free and clear of
liens, claims, security interests or encumbrances in favor of the
Contractor, Subcontractors, material suppliers or other persons or
entities making a claim by reason of having provided labor, materials
and equipment relating to the Work.
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9.3.4 Owner may require (after the first monthly payment has been made)
the Contractor to submit either receipted bills or sworn affidavits
from all Subcontractors and materialmen showing they have been paid for
their previous month's work and materials to the extent that payment
has been received by the Contractor from the Owner.
9.4 CERTIFICATES OF NONCOMPLIANCE
9.4.1 The Architect will, within seven days after receipt of the Contractor's
Application for Payment, issue to the Owner and the Contractor a
notice, in writing, of the Architect's reasons for withholding a
certification of any Work in whole or in part as provided in
Subparagraph 9.5.1.
9.5 DECISION TO CERTIFY NONCOMPLIANCE
9.5.1 The Architect may decide to certify noncompliance in whole or in part,
to the extent reasonably necessary to protect the Owner, if in the
Architect's opinion, based on the Architect's observations at the site
and the data comprising the Application for Payment, the
representations to the Owner, that the Work has progressed to the point
indicated and that to the best of the Architect's knowledge,
information and belief, the quality of the Work is in accordance with
the Contract Documents, cannot be made. If the Architect certifies
noncompliance, the Architect will notify the Contractor and the Owner
as provided in Subparagraph 9.4.1. If the Contractor and the Owner
cannot agree on a revised amount, the Architect will advise the Owner
of the amount for which the Architect is able to make a representation
of compliance to the Owner. The Architect may also decide to certify
noncompliance because of subsequently discovered evidence or subsequent
observations which nullify a Payment previously issued to such extent
as may be necessary, in the Architect's opinion to protect the owner
from loss because of:
.1 defective Work not remedied;
.2 third party claims filed or reasonable evidence indicating
probable filing of such claims;
.3 failure of the Contractor to make payments properly to
Subcontractors or for labor, materials or equipment;
.4 reasonable evidence that the Work cannot be completed for the
unpaid balance of the Contract Sum;
.5 damage to the Owner or another contractor;
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.6 reasonable evidence that the Work will not be completed within
the Contract Time and that the unpaid balance would not be
adequate to cover actual or liquidated damages for the
anticipated delay; or
.7 persistent failure to carry out the Work in accordance with
the Contract Documents.
9.5.2 When the above reasons for certifying noncompliance are removed,
payment will be made for amounts previously withheld.
9.6 PROGRESS PAYMENTS
9.6.1 Subject to the provisions of Subparagraphs 9.4 and 9.5, the Owner shall
make payment in the manner and within the time provided in the Contract
Documents, and shall so notify the Architect.
9.6.2 The Contractor shall promptly pay each Subcontractor, upon receipt of
payment from the Owner, out of the amount paid to the Contractor on
account of such Subcontractor's portion of the Work, the amount to
which said Subcontractor is entitled reflecting percentages actually
retained from payments to the Contractor on account of such
Subcontractor's portion of the Work. The Contractor shall, by
appropriate agreement with each Subcontractor, require each
Subcontractor to make payments to Sub-subcontractors in similar manner.
9.6.3 The Architect will, on request, furnish to a Subcontractor, if
practicable, information regarding percentages of completion or amounts
applied for by the Contractor and action taken thereon by the Architect
and Owner on account of portions of the Work done by such
Subcontractor.
9.6.4 Neither the Owner nor Architect shall have an obligation to pay or to
see to the payment of money to a Subcontractor except as may otherwise
be required by law.
9.6.5 Payment to material suppliers shall be treated in a manner similar to
that provided in Subparagraphs 9.6.2, 9.6.3 and 9.6.4.
9.6.6 Progress payment, or partial or entire use or occupancy of the Project,
by the Owner shall not constitute acceptance of Work not in accordance
with the Contract Documents.
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9.7 FAILURE OF PAYMENT
9.7.1 Provided that the Architect has not issued a Certificate of
Noncompliance within seven days after receipt of the Contractor's
Application for Payment, or if the Owner does not pay the Contractor
within seven days after the date established in the Contract Documents
the amount then due under the Contract or awarded by adjudication or
litigation, then the Contractor may, upon seven additional days written
notice to the Owner and Architect, stop the Work until payment of the
amount owing has been received. The Contract Time shall be extended
appropriately and the Contract Sum shall be increased by the amount of
the Contractor's reasonable costs of shutdown, delay and startup, which
shall be accomplished as provided in Article 7.
9.8 SUBSTANTIAL COMPLETION
9.8.1 Substantial Completion is the stage in the progress of the Work when
the Work is sufficiently complete in accordance with the Contract
Documents so the Owner can occupy or utilize the Work for its intended
use.
9.8.2 When the Contractor considers that the Work, or a portion thereof which
the Owner agrees to accept separately, is substantially complete, the
Contractor shall prepare and submit to the Owner and the Architect a
comprehensive list of items to be completed or corrected. The
Contractor shall proceed promptly to complete and correct items on the
list. Failure to include an item on such list does not alter the
responsibility of the Contractor to complete all Work in accordance
with the Contract Documents. Upon receipt of the Contractor's list, the
Owner and/or Architect will make an inspection to determine whether the
Work or designated portion thereof is substantially complete. If the
Owner's or Architect's inspection discloses any item, whether or not
included on the Contractor's list, which is not in accordance with the
requirements of the Contract Documents, the Contractor shall, before
the issuance of the Certificate of Substantial Completion, complete or
correct such item, upon notification by the Owner and/or Architect. The
Contractor shall then submit a request for another inspection by the
Owner and/or Architect to determine Substantial Completion. When the
Owner determines that the Work or designated portion thereof is
substantially complete, and that all pre-acceptance testing thereof
(including, but not limited to, roof, ventilation and air balance
testing) has been completed with satisfactory results, the Architect
will prepare a Certificate of Substantial Completion for execution by
Owner which shall establish the date of
Substantial Completion, shall establish responsibilities of the Owner
and Contractor for security, maintenance, heat, utilities, damage to
the Work and insurance, and shall fix the time within which the
Contractor shall finish all items on the list accompanying the
Certificate. The Certificate of Substantial Completion shall be
submitted to the Owner
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and Contractor for their written acceptance of responsibilities
assigned to them in such Certificate.
If Substantial Completion is sought by Contractor for portions of the
Work at a time, the Warranty Date shall be the date that Owner executes
the Certificate of Substantial Completion for the last portion of the
Work to be so certified. If Substantial Completion is sought by Owner
for portions of the Work at a time or, if Substantial Completion of all
the Work is the subject of a single Certificate of Substantial
Completion, the Warranty Date for the work so certified shall be the
date that Owner executes that Certificate. Warranties required by the
Contract Documents shall commence upon the Warranty Date for all Work
completed by that Date, and upon the date of payment for any portion of
the Work not competed by the Warranty Date, including all checklist
items, unless otherwise provided in the Certificate of Substantial
Completion. The time period for each Warranty shall be as provided in
Article 17.
9.9 PARTIAL OCCUPANCY OR USE
9.9.1 The Owner may occupy or use any completed or partially completed
portion of the Work at any stage when such portion is designated by
separate agreement with the Contractor, provided such occupancy or use
is consented to by the insurer as required under Subparagraph 11.3.11
and authorized by public authorities having jurisdiction over the Work.
Such partial occupancy or use may commence whether or not the portion
is substantially complete, provided the Owner and Contractor have
accepted in writing the responsibilities assigned to each of them for
payments, retainage, if any, security, maintenance, heat, utilities,
damage to the Work and insurance and have agreed in writing concerning
the period for correction of the Work and commencement of warranties
required by the Contract Documents. When the Contractor considers a
portion substantially complete, the Contractor shall prepare and submit
a list to the Owner and the Architect as provided under Subparagraph
9.8.2. Consent of the Contractor to partial occupancy or use shall not
be unreasonably withheld. The stage of the progress of the Work shall
be determined by written agreement between the Owner and Contractor or,
if no agreement is reached, by decision of the Owner.
9.9.2 Immediately prior to such partial occupancy or use, the Owner,
Contractor and Architect shall jointly inspect the area to be occupied
or portion of the Work to be used in order to determine and record the
condition of the Work.
9.9.3 Unless otherwise agreed upon, partial occupancy or use of a portion or
portions of the Work shall not constitute acceptance of Work not
complying with the requirements of the Contract Documents.
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9.10 FINAL COMPLETION AND FINAL PAYMENT
9.10.1 Upon receipt of written notice that the Work is ready for final
inspection and acceptance and upon receipt of a final Application for
Payment, the Owner and the Architect will promptly make such inspection
and, when the Owner and the Architect find the Work acceptable under
the Contract Documents and the Contract fully performed, the Architect
will promptly issue to Owner a final Certificate stating that to the
best of the Architect's knowledge, information and belief, and on the
basis of the Architect's observations and inspections, the Work has
been completed in accordance with terms and conditions of the Contract
Documents. The Architect's final Certificate will constitute a further
representation that conditions listed in Subparagraph 9.10.2 as
precedent to the Contractor's receiving final payment have been
fulfilled.
9.10.2 Neither final payment nor any remaining retained percentage shall
become due until the Contractor submits to the Owner and the Architect
(1) an affidavit that payrolls, bills for materials and equipment, and
other indebtedness connected with the Work for which the Owner or the
Owner's property might be responsible or encumbered (less amounts
withheld by (Owner) have been paid or otherwise satisfied; (2) a
certificate evidencing that insurance required by the Contract
Documents to remain in force after final payment is currently in effect
and will not be cancelled or allowed to expire until at least 30 days'
prior written notice has been given to the Owner; (3) a written
statement that the Contractor knows of no substantial reason that the
insurance will not be renewable to cover the period required by the
Contract Documents; (4) consent of surety, if any, to final payment;
(5) the required warranty bond or letter of credit of one percent (1%)
of the Contract Sum required by Paragraph 17.5 is in full force and
effect; and (6) if required by the Owner, other data establishing
payment or satisfaction of obligations, such as receipts, releases and
waivers of liens, claims, security interests or encumbrances arising
out of the Contract, to the extent and in such form as may be
designated by the Owner. If a Subcontractor refuses to furnish a
release or waiver required by the Owner, the Contractor may furnish a
bond satisfactory to the Owner to indemnify the Owner against such
lien. If such lien remains unsatisfied after payments are made, the
Contractor shall refund to the Owner all money that the Owner may be
compelled to pay in discharging such lien, including all costs and
reasonable attorneys' fees.
9.10.3 If, after Substantial Completion of the Work, final completion thereof
is materially delayed through no fault of the Contractor or by issuance
of Change Orders affecting final completion, the Owner shall, upon
application by the Contractor and certification by the Architect, and
without terminating the Contract, make payment of the balance due for
that portion of the Work fully completed and accepted.
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If the remaining balance for Work not fully completed or corrected is
less than retainage stipulated in the Contract Documents, and if bonds
have been furnished, the written consent of surety to payment of the
balance due for that portion of the Work fully completed and accepted
shall be submitted by the Contractor to the Architect prior to
certification of such payment. Such payment shall be made under terms
and conditions governing final payment. It shall not constitute a
waiver of claims.
9.10.4 Acceptance of Final Payment by the Contractor, a Subcontractor or
material supplier shall constitute a waiver of claims by that payee
except those previously made in writing and identified by that payee as
unsettled at the time of final Application for Payment. Such waivers
shall be in addition to the waiver described in Subparagraph 4.3.5.
ARTICLE 10
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PROTECTION OF PERSONS AND PROPERTY
10.1 SAFETY PRECAUTIONS AND PROGRAMS
10.1.1 The Contractor shall be responsible for initiating, maintaining and
supervising all safety precautions and programs in connection with the
performance of the Contract.
10.1.2 In the event the Contractor encounters on the site material reasonably
believed to be asbestos or polychlorinated biphenyl (PCB) which has not
been rendered harmless, the Contractor shall immediately stop Work in
the area affected and report the condition to the Owner and Architect
in writing. The Work in the affected area shall not thereafter be
resumed except by written agreement of the Owner and Contractor if in
fact the material is asbestos or polychlorinated biphenyl (PCB) and has
not been rendered harmless. The Work in the affected area shall be
resumed in the absence of asbestos or polychlorinated biphenyl (PCB),
or when it has been rendered harmless, by written agreement of the
Owner and Contractor, or in accordance with final determination by the
Architect on which adjudication or litigation has not been demanded, or
by adjudication or litigation under Article 4.
10.1.3 The Contractor shall not be required, pursuant to Article 7, to perform
without consent any Work relating to asbestos or polychlorinated
biphenyl (PCB).
10.1.4 To the fullest extent permitted by law, the Owner shall indemnify and
hold harmless the Contractor, Architect, Architect's consultants and
agents and employees of any of them from and against claims, damages,
losses and expenses, including by not limited to attorneys, fees,
arising out of or resulting from performance of the Work in the
affected
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area if in fact the material is asbestos or polychlorinated biphenyl
(PCB) and has not been rendered harmless, provided that such claim,
damage, loss or expense is attributable to bodily injury, sickness,
disease or death, or to injury to or destruction of tangible property
(other than the Work itself) including loss of use resulting therefrom,
but only to the extent caused in whole or in part by negligent acts or
omissions of the Owner, anyone directly or indirectly employed by the
Owner or anyone for whose acts the Owner may be liable, regardless of
whether or not such claim, damage, loss or expense is caused in part by
a party indemnified hereunder. Such obligation shall not be construed
to negate, abridge, or reduce other rights or obligations of indemnity
which would otherwise exist as to a party or person described in this
Subparagraph 10.1.4.
10.2 SAFETY OF PERSONS AND PROPERTY
10.2.1 The Contractor shall take reasonable precautions for safety of, and
shall provide reasonable protection to prevent damage, injury or loss
to:
.1 employees on the Work and other Persons who may be affected
thereby;
.2 the Work and materials and equipment to be incorporated
therein, whether in storage on or off the site, under care,
custody or control of the Contractor or the Contractor's
Subcontractors or Sub-subcontractors; and
.3 other property at the site or adjacent thereto, such as trees,
shrubs, lawns, walks, pavements, roadways, structures and
utilities not designated for removal, relocation or
replacement in the course of construction.
10.2.2 The Contractor shall give notices and comply with OSHA and all other
applicable laws, ordinances, rules, regulations and lawful orders of
public authorities bearing on safety of persons or property or their
protection from damage, injury or loss.
10.2.2.1 The Contractor shall, or, in the case of its Subcontractor, require
that the latter, conform any part of the Work, for which the Contractor
or its Subcontractor, as the case may be, is responsible, to any order
issued under OSHA.
10.2.2.2 If the Contractor is named as a defendant in any proceeding by the
Secretary of Labor under OSHA, and is contesting the proceeding and not
diligently proceeding with required corrections, the Owner may, after
three days' written notice to the Contractor, and without prejudice to
any other remedy he might have: (1) correct such violations pursuant to
Paragraph 2.4 of these General Conditions, or (2) terminate the
Contract pursuant to Paragraph 14.2 of these General Conditions, except
that in either instance, the applicable notice required shall be as set
forth in this Subsubparagraph. The Owner's
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rights under this Subsubparagraph shall not be affected by the result
of any applicable enforcement proceeding under OSHA.
10.2.3 The Contractor shall erect and maintain, as required by existing
conditions and performance of the Contract, reasonable safeguards for
safety and protection, including posting danger signs and other
warnings against hazards, promulgating safety regulations and notifying
owners and user of adjacent sites and utilities.
10.2.4 When use or storage of explosives or other hazardous materials or
equipment or unusual methods are necessary for execution of the Work,
the Contractor shall exercise utmost care and carry on such activities
under supervision of properly qualified personnel.
10.2.5 The Contractor shall promptly remedy damage and loss (other than damage
or loss insured under property insurance required by the Contract
Documents) to property referred to in Clauses 10.2.1.2 and 10.2.1.3
caused in whole or in part by the Contractor, a Subcontractor, a
Subsubcontractor, or anyone directly or indirectly employed by any of
them, or by anyone f or whose acts they may be liable and for which the
Contractor is responsible under Clauses 10.2.1.2 and 10.2.1.3, except
damage or loss attributable to acts or omissions of the Owner or
Architect or anyone directly or indirectly employed by either of them,
or by anyone for whose acts either of them may be liable, and not
attributable to the fault or negligence of the Contractor. The
foregoing obligations of the Contractor are in addition to the
Contractor's obligations under Paragraph 3.18.
10.2.6 The Contractor shall designate a responsible member of the Contractor's
organization at the site whose duty shall be the prevention of
accidents. This person shall be the Contractor's superintendent unless
otherwise designated by the Contractor in writing to the Owner and
Architect.
10.2.7 The Contractor shall not load or permit any part of the construction or
site to be loaded so as to endanger its safety.
10.3 EMERGENCIES
10.3.1 In an emergency affecting safety of persons or property, the Contractor
shall act, at the Contractor's discretion, to prevent threatened
damage, injury or loss. Additional compensation or extension of time
claimed by the Contractor on account of emergency, except Work required
under Subparagraph 10.2.2, Sub-subparagraphs 10.2.2.1 and 10.2.2.2,
shall be determined as provided in Paragraph 4.3 and Article 7.
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ARTICLE 11
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INSURANCE AND BONDS
11.1 CONTRACTOR'S LIABILITY INSURANCE
11.1.1 The Contractor shall purchase from and maintain in a company or
companies lawfully authorized to do business in the jurisdiction in
which the Project is located such insurance will protect the Contractor
from claims set forth below which may arise out of or result from the
Contractor's operations under the Contract and for which the Contractor
may be legally liable, whether such operations be by the Contractor, or
by a Subcontractor or by anyone directly or indirectly employed by any
of them, or by anyone for whose acts any of them may be liable:
.1 claims under workers, or workmen's compensation, disability
benefit and other similar employee benefit acts which are
applicable to the Work to be performed;
.2 claims for damages because of bodily injury, occupational
sickness or disease, or death of the Contractor's employees;
.3 claims for damages because of bodily injury, sickness or
disease, or death of any person other than the Contractor's
employees;
.4 claims for damages insured by usual personal injury liability
coverage which are sustained (1) by a person as a result of an
offense directly or indirectly related to employment of such
person by the Contractor, or (2) by another person;
.5 claims for damages, other than to the Work itself, because of
injury to or destruction of tangible property, including loss
of use resulting therefrom;
.6 claims for damages because of bodily injury, death of a person
or property damage arising out of ownership, maintenance or
use of a motor vehicle; and
.7 claims involving contractual liability insurance applicable to
the Contractor's obligations under Paragraph 3.18.
11.1.2 The insurance required by Subparagraph 11.1.1 shall be written for not
less than limits of liability specified in the Contract Documents or
required by law, whichever coverage is greater. Coverages, whether
written on an occurrence or claims-made basis, shall be maintained
without interruption from date of commencement of the Work until date
of final payment and termination of any coverage required to be
maintained after final payment.
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The Owner requires and has designated the following minimum limits of
insurance to be purchased and maintained by the Contractor:
Workmen's Compensation, Employer's Liability, Temporary Disability
Benefits and other similar employee benefit Acts as required by
statute. Limit of Liability for Employer's Liability coverage not less
than One Million Dollars ($1,000,000.00).
Comprehensive General Liability and Comprehensive Automobile Liability
including completed operations coverage and coverage for explosion,
collapse, and underground hazards;
(1) Bodily Injury Liability (including owned and nonowned
vehicles) minimum limits of Twenty Million Dollars
($20,000,000.00) each person and Twenty Million Dollars
($20,000,000.00) each occurrence.
Personal Injury- minimum limits of Twenty Million Dollars
($20,000,000.00) each claim and Twenty Million Dollars
($20,000,000.00) aggregate.
(2) Property Damage Liability (including owned and nonowned
vehicles) minimum limit of Twenty Million Dollars
($20,000,000.00) each occurrence.
(3) Contractual Liability - same limits as in (1) and (2).
The completed operations coverage feature of the Comprehensive General
Liability policy shall be maintained in force for a minimum of three
(3) years commencing with issuance of final Certificate for Payment.
The Contractor shall require each Subcontractor to maintain insurance
of like types and in amount mentioned in Subparagraph 11.1.2 above, and
also shall require the Subcontractors to indemnify and save harmless
the Owner and Architect as stated in Article 3, Paragraph 3.18.
The Contractor shall maintain such additional insurance and naming such
additional insureds as the Owner may reasonably require. The form of
insurance shall be subject to the Owner's approval. If there is any
additional cost of insurance, the Contract Price shall be increased
accordingly, subject to Owner's written approval of such increase.
Contractor's workers compensation policy shall also include an
alternate employment endorsement.
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11.1.3 Certificates of Insurance acceptable to the Owner shall be filed with
the Owner prior to commencement of the Work. These Certificates and the
insurance policies required by this Paragraph 11.1 shall contain a
provision that coverages afforded under the policies will not be
cancelled or allowed to expire until at least 30 days' prior written
notice has been given to the Owner. If any of the foregoing insurance
coverages are required to provided in the Contract Documents or
otherwise agreed in writing by all persons and entities who are
beneficiaries of such insurance, until final payment has been made as
remain in force after the final payment and are reasonably available,
all additional certificate evidencing continuation of such coverage
shall be submitted with the final Application for Payment as required
by Subparagraph 9.10.2. Information concerning reduction of coverage
shall be furnished by the Contractor with reasonable promptness in
accordance with the Contractor's information and belief.
11.1.4 Waiver of Subrogation. Contractor and its Subcontractors and
Sub-subcontractors shall each have included in all insurance policies
obtained by them under these General Conditions, a waiver by the
insurer of all rights of subrogation against the Owner and Architect in
connection with any loss or damage thereby insured against. To the full
extent permitted by law, Contractor, Subcontractors and
Sub-subcontractors, waive all rights of recovery against the Owner and
Architect for, and agree to release the Owner and Architect from
liability for loss or damage to the extent such loss or damage is
covered by valid and collectible insurance in effect at the time of
such loss or damage, or would be covered by the insurance required to
be maintained under the Agreement by the party seeking recovery. In the
event Contractor, Subcontractors and Sub-subcontractors are
self-insured for these coverages, Contractor, Subcontractors and
Sub-subcontractors agree to release Owner and Architect from all
liability for loss or damage to the full extent permitted by law.
11.2 OWNER'S LIABILITY INSURANCE
11.2.1 The Owner shall be responsible for purchasing and maintaining the
owner's usual liability insurance. optionally, the Owner may purchase
and maintain other insurance for self-protection against claims which
may arise from operations under the Contract. The Contractor shall not
be responsible for purchasing and maintaining this optional Owner's
liability insurance unless specifically required by the Contract
Documents.
11.3 PROPERTY INSURANCE
11.3.1 Unless otherwise provided, the Owner shall purchase and maintain, in a
company or companies lawfully authorized to do business in the
jurisdiction in which the Project is located, property insurance in the
amount of the initial Contract Sum as well as subsequent modifications
thereto for the entire Work at the site on a replacement cost basis
without deductibles. Such property insurance shall be maintained,
unless otherwise
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provided in Paragraph 9.10 or until no person or entity other than the
Owner has an insurable interest in the property required by this
Paragraph 11.3 to be covered, whichever is earlier. This insurance
shall include interests of the Owner, the Contractor, Subcontractors
and Subsubcontractors in the Work.
It shall be understood that Owner's Property Insurance, including Fire,
Extended Coverage, Theft, Vandalism and Malicious Mischief or other
endorsements, does not include coverage of glass breakage.
The Contractor shall be responsible for the replacement of all broken
glass, from any cause, until the date of Final Payment. This shall not
relieve the Contractor from the responsibility for glass breakage due
to faulty material and/or workmanship during the warranty period.
11.3.1.1 Property insurance shall be on an all-risk policy form and shall insure
against the perils of fire and extended coverage and physical loss or
damage including, without duplication of coverage, theft, vandalism,
malicious mischief, collapse, falsework, temporary buildings and debris
removal including demolition occasioned by enforcement of any
applicable legal requirements, and shall cover reasonable compensation
for Architect's services and expenses required as a result of such
insured loss. Coverage for other perils shall not be required unless
otherwise provided in the Contract Documents.
11.3.1.2 If the Owner does not intend to purchase such property insurance
required by the Contract and with all of the coverages in the amount
described above, the Owner shall so inform the Contractor in writing
prior to commencement of the Work. The Contractor may then effect
insurance which will protect the interests of the Contractor.
Subcontractors and Sub-subcontractors in the Work, and by appropriate
Change Order the cost thereof shall be charged to the Owner. If the
Contractor is damaged by the failure or neglect of the owner to
purchase or maintain insurance as described above, without so notifying
the Contractor, then the owner shall bear all reasonable costs properly
attributable thereto.
11.3.1.3 If the property insurance requires minimum deductibles and such
deductibles are identified in the Contract Documents, the Contractor
shall pay costs not covered because of such deductibles. If the owner
or insurer increases the required minimum deductibles above the amounts
so identified or if the Owner elects to purchase this insurance with
voluntary deductible amounts, the Owner shall be responsible for
payment of the additional costs not covered because of such increased
or voluntary deductibles. Since minimum property insurance deductibles
are not identified in the Contract Documents, the Owner shall pay costs
not covered because of deductibles.
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11.3.1.4 Unless otherwise provided in the Contract Documents, this property
insurance shall cover portions of the Work stored off the site after
written approval of the Owner at the value established in the approval,
and also portions of the Work in transit.
11.3.2 Boiler and Machinery Insurance. The Owner shall purchase and maintain
boiler and machinery insurance required by the Contract Documents or by
law, which shall specifically cover such insured objects during
installation and until final acceptance by the owner; this insurance
shall include interests of the Owner, Contractor, Subcontractors and
Sub-subcontractors in the Work, and the Owner and Contractor shall be
named insureds.
11.3.3 Loss of Use Insurance. The Owner, at the Owner's option, may purchase
and maintain such insurance as will insure the Owner against loss of
use of the Owner's property due to fire or other hazards, however
caused. The Owner waives all rights of action against the Contractor
for loss of use of the Owner's property, including consequential losses
due to fire or other hazards however caused.
11.3.4 If the Contractor requests in writing that insurance for risks other
than those described herein or for other special hazards be included in
the property insurance policy, the Owner shall, if possible, include
such insurance, and the cost thereof shall be charged to the Contractor
by appropriate Change Order.
11.3.5 If during the Project construction period the Owner insures properties,
real or personal or both, adjoining or adjacent to the site by property
insurance under policies separate from those insuring the Project, or
if after final payment property insurance is to be provided on the
completed Project through a policy or policies other than those
insuring the Project during the construction period, the Owner shall
waive all rights in accordance with the terms of Subparagraph 11.1.4
for damages caused by fire or other perils covered by this separate
property insurance. All separate policies shall provide this waiver of
subrogation by endorsement or otherwise.
11.3.6 Before an exposure to loss may occur, the Owner shall file with the
Contractor a copy of each policy that includes insurance coverages
required by this Paragraph 11.3. Each policy shall contain all
generally applicable conditions, definitions, exclusions and
endorsements related to this Project. Each policy shall contain a
provision that the policy will not be canceled or allowed to expire
until at least 30 days' prior written notice has been given to the
Contractor.
11.3.7 A loss insured under Owner's property insurance shall be adjusted by
the owner as fiduciary and made payable to the owner as fiduciary for
the insureds, as their interests
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may appear, subject to requirements of any applicable mortgagee clause
and of Subparagraph 11.3.10. The Contractor shall pay Subcontractors
their just share of insurance proceeds received by the Contractor, and
by appropriate agreements, written where legally required for validity,
shall require Subcontractors to make payments to their
Sub-subcontractors in similar manner.
11.3.8 The Owner shall deposit in a separate account proceeds so received,
which the Owner shall distribute in accordance with such agreement as
the parties in interest may reach. If after such loss no other special
agreement is made, replacement of damaged property shall be covered by
appropriate Change Order.
11.3.9 The Owner as fiduciary shall have the power to adjust and settle any
loss with the insurers.
11.3.10 Partial occupancy or use in accordance with Paragraph 9.9 shall not
commence until the insurance company or companies providing property
insurance have consented to such partial occupancy or use by
endorsement or otherwise. The Owner and the Contractor shall take
reasonable steps to obtain consent of the insurance company or
companies and shall, without mutual written consent, take no action
with respect to partial occupancy or use that would cause cancellation,
lapse or reduction of insurance.
11.3.11 Waiver of Subrogation. Owner shall have included all insurance policies
obtained by it under this Paragraph 11.3, a waiver by the insurer of
all rights of subrogation against the Contractor, its Subcontractors
and Sub-Subcontractors in connection with any loss or damage thereby
insured against.
11.4 PERFORMANCE BOND AND PAYMENT BOND
11.4.1 The Owner shall have the right to require the Contractor to furnish
bonds covering faithful performance of the Contract, the performance of
Warranty Work and payment of obligations arising under the Contract, as
stipulated in bidding requirements or specifically required in the
Contract Documents on the date of execution of the Contract. Bonds
shall be in such amount as the Owner may prescribe and shall be
furnished by a reputable corporate security satisfactory to the owner
and Architect. The Warranty Work Bond or letter of credit shall conform
to the requirements of Paragraph 17.5.
11.4.2 Upon the request of any person or entity appearing to be a potential
beneficiary of bonds covering payment of obligations arising under the
Contract, the Contractor shall promptly furnish a copy of the bonds or
shall permit a copy to be made.
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ARTICLE 12
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UNCOVERING AND CORRECTION OF WORK
12.1 UNCOVERING OF WORK
12.1.1 If a portion of the Work is covered contrary to the Owner's or
Architect's request or to requirements specifically expressed in the
Contract Documents, it must, if required in writing by the Owner or
Architect, be uncovered for the Owner's or Architect's observation and
be replaced at the Contractor's expense without change in the Contract
Time.
12.1.2 If a portion of the Work has been covered which the Owner or Architect
has not specifically requested to observe prior to its being covered,
the owner or Architect may request to see such Work and it shall be
uncovered by the Contractor. If such Work is in accordance with the
Contract Documents, costs of uncovering and replacement shall, by
appropriate Change Order, be charged to the owner. If such Work is not
in accordance with the Contract Documents, the Contractor shall pay
such costs unless the condition was caused by the Owner or a separate
contractor in which event the owner shall be responsible for payment of
such costs.
12.2 CORRECTION OF WORK
12.2.1 The Contractor shall promptly correct Work rejected by the Owner or
Architect or failing to conform to the requirements of the Contract
Documents, whether observed before or after Substantial Completion and
whether or not fabricated, installed or completed. The Contractor shall
bear costs of correcting such rejected Work, including additional
testing and inspections and compensation for the Architect's services
and expenses made necessary thereby.
12.2.2 If, within one year after the later of (a) the Warranty Date or (b) the
date for commencement of any warranty established under Subparagraph
9.8.2 or 9.9.1, or by terms of an applicable special warranty required
by the Contract Documents, any of the Work covered by that warranty is
found to be not in accordance with the requirements of the Contract
Documents, the Contractor shall correct it promptly after receipt of
written notice from the owner to do so unless the owner has previously
given the Contractor a specific written acceptance of such condition.
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This period of one year shall be extended with respect to portions of
Work first performed after the Warranty Date by the period of time
between Warranty Date and the date of payment for after performed Work,
as specified in paragraph 9.8.2. This obligation under this
Subparagraph 12.2.2 shall survive acceptance of the Work under the
Contract and termination of the Contract. The Owner shall give such
notice promptly after discovery of the condition. The one year warranty
period shall be longer for any portions of the Work for which a longer
warranty period is specifically provided elsewhere in this Contract or
in any Contract Document which establishes any longer warranty period.
12.2.3 The Contractor shall remove from the site portions of the Work which
are not in accordance with the requirements of the Contract Documents
and are neither corrected by the Contractor nor accepted by the Owner.
12.2.4 If the Contractor fails to correct nonconforming Work within a
reasonable time, the owner may correct it in accordance with Paragraph
2.4. if the Contractor does not proceed with correction of such
nonconforming Work within a reasonable time fixed by written notice
from the Owner or Architect, the Owner may remove it and store the
salvageable materials or equipment at the Contractor's expense. If the
Contractor does not pay costs of such removal and storage within ten
days after written notice, the Owner may upon ten additional days'
written notice sell such materials and equipment at auction or at
private sale and shall account for the proceeds thereof, after
deducting costs and damages that should have been borne by the
Contractor, including compensation for the Architect's services and
expenses made necessary thereby. If such proceeds of sale do not cover
costs which the Contractor should have borne, the Contract Sum shall be
reduced by the deficiency. If payments then or thereafter due the
Contractor are not sufficient to cover such amount, the Contractor
shall pay the difference to the Owner.
12.2.5 The Contractor shall bear the cost of correcting destroyed or damaged
construction, whether completed or partially completed, of the Owner or
separate contractors caused by the Contractor's correction or removal
of Work which is not in accordance with the requirements of the
Contract Documents.
12.2.6 Nothing contained in this Paragraph 12.2 shall be construed to
establish a period of limitation with respect to other obligations
which the Contractor might have under the Contract Documents.
Establishment of any time period as described in Subparagraph 12.2.2
(and/or any other term of the Contract Documents, ie Subparagraph
3.5.1) relates only to the specific obligation of the Contractor to
correct the Work, and has no relationship to the time within which the
obligation to comply with the Contract Documents may be sought to be
enforced, nor to the time within which proceedings may be commenced to
establish the Contractor's liability with respect to the Contractor's
obligations other than specifically to correct the Work.
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12.3 ACCEPTANCE OF NONCONFORMING WORK
12.3.1 If the Owner prefers to accept Work which is not in accordance with the
requirements of the Contract Documents, the owner may do so (by
specific written acceptance) instead of requiring its removal and
correction, in which case the Contract Sum will be reduced as
appropriate and equitable. Such adjustment shall be effected whether or
not final payment has been made.
ARTICLE 13
----------
MISCELLANEOUS PROVISIONS
13.1 GOVERNING LAW
13.1.1 The Contract shall be governed by the law of the place where the
Project is located.
13.2 SUCCESSORS AND ASSIGNS
13.2.1 The Owner and Contractor respectively bind themselves, their partners,
successors, assigns and legal representatives to the other party hereto
and to partners, successors, assigns and legal representatives of such
other party in respect to covenants, agreements and obligations
contained in the Contract Documents. Neither party to the Contract
shall assign the Contract as a whole without written consent of the
other. If either party attempts to make such an assignment without such
consent, that party shall nevertheless remain legally responsible for
all obligations under the Contract.
13.3 WRITTEN NOTICE
13.3.1 Written notice shall be deemed to have been duly served if delivered in
person to the individual or a member of the firm or entity or to an
officer of the corporation for which it was intended, or if delivered
at or sent by registered or certified mail to the last business address
known to the party giving notice.
13.4 RIGHTS AND REMEDIES
13.4.1 Duties and obligations imposed by the Contract Documents and rights and
remedies available thereunder shall be in addition to and not a
limitation of duties, obligations, rights and remedies otherwise
imposed or available by law.
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13.4.2 No action or failure to act by the Owner, Architect or Contractor shall
constitute a waiver of a right or duty afforded them under the
Contract, nor shall such action or failure to act constitute approval
of or acquiescence in a breach thereunder, except as may be
specifically agreed in writing.
13.5 TESTS AND INSPECTIONS
13.5.1 Tests, inspections and approvals of portions of the Work required by
the Contract Documents or by laws, ordinances, rules, regulations or
orders of public authorities having jurisdiction shall be made at an
appropriate time. Unless otherwise provided, the Contractor shall make
arrangements for such tests, inspections and approvals with an
independent testing laboratory or entity acceptable to the Owner, or
with the appropriate public authority, and shall bear all related costs
of tests, inspections and approvals. The Contractor shall give the
Owner and Architect timely notice of when and where tests and
inspections are to be made so the Owner and Architect may observe such
procedures. The Owner shall bear costs of tests, inspections or
approvals which do not become requirements until after bids are
received or negotiations concluded.
13.5.2 If the Architect, Owner or public authorities having jurisdiction
determine that portions of the Work require additional testing,
inspection or approval not included under Subparagraph 13.5.1, the
Architect will, upon written authorization from the Owner, instruct the
Contractor to make arrangements for such additional testing, inspection
or approval by an entity acceptable to the Owner, and the Contractor
shall give timely notice to the Owner and Architect of when and where
tests and inspections are to be made so the Owner and Architect may
observe such procedures. The Owner shall bear such costs except as
provided in Subparagraph 13.5.3.
13.5.3 If such procedures for testing, inspection or approval under
Subparagraphs 13.5.1 and 13.5.2 reveal failure of the portions of the
Work to comply with requirements established by the Contract Documents,
the Contractor shall bear all costs made necessary by such failure,
including those of repeated procedures, and compensation for the
Architect's services and expenses.
13.5.4 Required certificates of testing, inspection or approval shall, unless
otherwise required by the Contract Documents, be secured by the
Contractor and promptly delivered to the Owner and Architect.
13.5.5 If the Owner or Architect is to observe tests, inspections or approvals
required by the Contract Documents, the Owner or Architect will do so
promptly and, where practicable, at the normal place of testing.
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13.5.6 Tests or inspections conducted pursuant to the Contract Documents shall
be made promptly to avoid unreasonable delay in the Work.
13.6 INTEREST
13.6.1 Payments due and unpaid under the Contract Documents shall bear
interest from ten (10) days after the date payment is due at such rate
as the parties may agree upon in writing or, in the absence thereof, at
the legal rate prevailing from time to time at the place where the
Project is located.
13.7 COMMENCEMENT OF STATUTORY LIMITATION PERIOD
13.7.1 As between the Owner and Contractor:
.1 Before Substantial Completion. As to acts or failures to act
occurring prior to the relevant date of Substantial
Completion, any applicable statute of limitations shall
commence to run, and any alleged cause of action shall be
deemed to have accrued, in any and all events not later than
such date of Substantial Completion;
.2 Between Substantial Completion and Final Certificate. As to
acts or failures to act occurring subsequent to the relevant
date of Substantial Completion and prior to issuance of the
Final Certificate, any applicable statute of limitations shall
commence to run, and any alleged cause of action shall be
deemed to have accrued in any and all events not later than
the date of issuance of the Final Certificate; and
.3 After Final Certificate. As to acts or failures to act
occurring after the relevant date of issuance of the Final
Certificate, any applicable statute of limitations shall
commence to run, and any alleged cause of action shall be
deemed to have accrued, in any and all events not later than
the date of any act or failure to act by the Contractor
pursuant to any warranty provided under Paragraph 3.5 and/or
Article 17, the date of any correction of the Work or failure
to correct the Work by the Contractor under Paragraph 12.2, or
the date of actual commission of any other act or failure to
perform any duty or obligation by the Contractor or Owner,
whichever occurs last.
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ARTICLE 14
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TERMINATION OR SUSPENSION OF THE CONTRACT
14.1 TERMINATION BY THE CONTRACTOR
14.1.1 The Contractor may terminate the Contract if the Work is stopped for a
period of 30 days through no act or fault of the Contractor or a
Subcontractor, Sub-subcontractor or their agents or employees or any
other persons performing portions of the Work under contract with the
Contractor, for any of the following reasons:
.1 issuance of an order of a court or other public authority
having jurisdiction;
.2 an act of government, such as a declaration of national
emergency, making material unavailable;
.3 because the Owner has not made payment within the time stated
in the Contract Documents;
.4 if repeated suspensions, delays or interruptions by the Owner
as described in Paragraph 14.3 constitute in the aggregate
more than 100 percent of the total number of days scheduled
for completion, or 120 days in any 365-day period, whichever
is less; or
.5 the Owner has failed to furnish to the Contractor promptly,
upon the Contractor's request, reasonable evidence as required
by Subparagraph 2.2.1.
14.1.2 If one of the above reasons exists, the Contractor may, upon seven
additional days, written notice to the Owner and Architect, terminate
the Contract and recover from the Owner payment for Work executed and
for proven loss with respect to materials, equipment, tools, and
construction equipment and machinery, including reasonable overhead,
profit and damages.
14.1.3 If the Work is stopped for a period of 60 days through no act or fault
of the Contractor or a Subcontractor or their agents or employees or
any other persons performing portions of the Work under contract with
the Contractor because the Owner has persistently failed to fulfill the
Owner's obligations under the Contract Documents with respect to
matters important to the progress of the Work, the Contractor may, upon
seven additional days, written notice to the Owner and the Architect,
terminate the Contract and recover from the Owner as provided in
Subparagraph 14.1.2.
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14.2 TERMINATION BY THE OWNER FOR CAUSE
14.2.1 The Owner may terminate the Contract if the Contractor:
.1 persistently or repeatedly refuses or fails to supply enough
properly skilled workers or proper materials;
.2 fails to make payment to Subcontractors for materials or labor
in accordance with the respective agreements between the
Contractor and the Subcontractors;
.3 persistently disregard laws, ordinances, or rules, regulations
or orders of a public authority having jurisdiction; or
.4 otherwise is guilty of material breach of a provision of the
Contract Documents.
14.2.2 When any of the above reasons exist, the Owner may without prejudice to
any other rights or remedies of the Owner after giving the Contractor
and the Contractor's surety, if any, seven days' written notice,
terminate employment of the Contractor and may, subject to any prior
rights of the surety:
.1 take possession of the site and of all materials, equipment,
tools, and construction equipment and machinery thereon owned
by the Contractor;
.2 accept assignment of subcontracts pursuant to Paragraph 5.4;
and
.3 finish the Work by whatever reasonable method the owner may
deem expedient.
14.2.3 When the Owner terminates the Contract for one of the reasons stated in
Subparagraph 14.2.1, the Contractor shall not be entitled to receive
further payment until the Work is finished.
14.2.4 If the unpaid balance of the Contract Sum exceeds costs of finishing
the Work, including compensation for the Architect's services and
expenses make necessary thereby, such excess shall be paid to the
Contractor. If such costs exceed the unpaid balance, the Contractor
shall pay the difference to the Owner. This obligation for payment
shall survive termination of the Contract.
14.3 SUSPENSION BY THE OWNER FOR CONVENIENCE
14.3.1 The Owner may, without cause, order the Contractor in writing to
suspend, delay or interrupt the Work in whole or in part for such
period of time as the Owner may determine.
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14.3.2 An adjustment shall be made for increases in the cost of performance of
the Contract, including profit on the increased cost of performance,
caused by suspension, delay or interruption. No adjustment shall be
made to the extent:
.1 that performance is, was or would have been so suspended,
delayed or interrupted by another cause for which the
Contractor is responsible; or
.2 that an equitable adjustment is made or denied under another
provision of this Contract.
14.3.3 Adjustments made in the cost of performance may have a mutually agreed
fixed or percentage fee.
14.4 SUSPENSION BY THE OWNER FOR CAUSE
The Owner may, based upon cause, due to breach or failure by
Contractor, order the contractor in writing to suspend, delay or
interrupt the work in whole or in part for such period of time as the
Owner may determine. Neither the Contract sum nor the Contract time
shall be adjusted as a result of suspension of Work for cause.
ARTICLE 15
----------
WATCHMAN
15.1 The Contractor has the option of placing or not placing a watchman at
the site at all times when the buildings are not in the charge of the
Contractor's superintendent. The Contractor shall be responsible at all
times for all work and materials.
15.2 The Contractor shall place a watchman at the site at all times when the
buildings are not in the charge of the Contractor's Superintendent and
when fifty percent (50%) of the building perimeter precast concrete is
installed. Contractor shall coordinate its watchman services with
Owner's security force and shall comply with any coordination directive
received from Owner.
ARTICLE 16
----------
REMOVAL AND/OR RELOCATION OF EXISTING PIPES,
CONDUITS, ETC.
16.1 All existing pipes, conduits, ducts, etc. in the present building and
above and below grade at the site, whether or not shown on the
Drawings, interfering with new or
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altered construction, regardless of whether such construction is
General Construction, Plumbing,Heating, Fire Protection or Electrical
Work, shall be removed and/or relocated to suit new conditions. Such
work shall be performed by the respective trades whose pipes, conduits,
ducts, etc., are involved.
16.2 The Contractor and Subcontractors shall review Architectural Drawings
as well as those of other trades and visit the site to observe
conditions. No extra payments will be permitted for failure of
Contractor to have knowledge of existing conditions regardless of
whether or not existing pipes, conduits, ducts, etc., are specifically
shown on the Drawings, or references concerning same are stated in the
Specifications.
16.3 THE CONTRACTOR MUST INVESTIGATE AND VERIFY LOCATION AND ELEVATION OF
ALL EXISTING UTILITY AND DRAINAGE LINES BEFORE BEGINNING ANY EXCAVATION
AND/OR ROUGH GRADING WORK AND SHALL NOTIFY THE ARCHITECT IMMEDIATELY OF
ANY DISCREPANCIES BETWEEN THE EXISTING UTILITY AND DRAINAGE CONDITIONS
AND THOSE REQUIRED BY THE CONTRACT DRAWINGS. NO EXTRA CHARGE OR
ADDITIONAL COMPENSATION WILL BE PAID TO THE CONTRACTOR FOR EXTRA WORK
RESULTING FROM HIS FAILURE TO COMPLY WITH THE REQUIREMENTS HEREIN.
ARTICLE 17
----------
WARRANTIES
17.1 In addition to the requirements, inter alia, of Article 3, Paragraph
3.5 and Article 12, Paragraph 12.2 of the General Conditions, the
warranty requirements included herein shall be a part of the Contract
Documents.
17.2 Various Specification sections require specific written warranties from
either Subcontractors, suppliers or manufacturers.
17.3 Warranties required under Divisions 15 and 16 (a) shall be furnished by
the respective Subcontractors for those Divisions; (b) shall warrant
that all operating systems' installations, when operated in accordance
with instructions of manufacturer or the Contractor, will develop
capacities and characteristics indicated/specified, and will fulfill
every requirement; and (c) shall provide that should such
installations, in any way, fail to so perform, the Contractor shall
without delay and without additional cost to the Owner, provide
whatever additional equipment, material, and all labor necessary to
correct the fault and to comply with these requirements and meet with
the approval of the owner and Architect.
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Nothing contained in this Article shall be construed to establish a
period of limitation with respect to any other obligation which the
Contractor might have under the Contract Documents. The establishment
of the time period of one year after the date of commencement of the
warranty or such longer period of time as may be prescribed by law, by
any Subparagraph of the Contract Documents, or by the terms of any
warranty required by the Contract Documents relates only to the
specific obligation of the Contractor to correct the Work, and has no
relationship to the time within which the Contractor's obligation to
comply with the Contract Documents may be sought to be enforced, nor to
the time within which proceedings may be commenced to establish the
Contractor's liability with respect to the Contractor's obligations
other than specifically to correct the Work.
17.4 All warranties for any Work shall become effective from the date that
the Owner executes the Certificate of Substantial Completion for that
portion of the Work or from such other date as the Contract Documents
may specifically provide and shall continue for one (1) year or such
longer time as provided in this Contract, or in the Specifications or
other Contract Documents. In the event of any inconsistency in the
required time period for any warranty, the longer described warranty
period shall govern.
17.5 Warranty Bond. Prior to final payment, the Contractor shall post with
an independent counsel acceptable to both parties a letter of credit in
favor of the Owner and acceptable to the Owner in the amount of one
hundred thousand dollars ($100,000.00) securing for a period of one
year from the Warranty Date, as defined in Article 9.8.2, the
satisfactory performance and completion of all Warranty Work to be
performed by the Contractor, any Subcontractor and any
Sub-Subcontractor under this Contract. The letter of credit, shall
permit the Owner to draw on the letter of credit to pay for the repair
or replacement of unsatisfactory or defective work or materials
performed or supplied by Contractor which Contractor has failed to
correct or replace, during any warranty period subject to the following
preconditions:
(i) Owner, at least ninety (90) days prior to drawing on the
letter of credit, must have provided Contractor and independent Counsel
with written notice of the unsatisfactory or defective work or
materials, together with a request that Contractor correct or replace
the same.
(ii) Owner, at least fifteen (15) days prior to drawing on the
letter of credit, must have provided Contractor and independent Counsel
with written notice of costs, including removal costs and architectural
services, which Owner, based upon the receipt of reasonable written
estimates, intends to draw for the purpose of such correction
replacement.
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(iii) Contractor, by the date of such draw, must have either (a)
failed to commence the correction or replacement of the unsatisfactory
or defective work or materials or (b) ceased the diligent completion of
such corrective or replacement, once started. This precondition is
predicated on permitting the Contractor a reasonable time to obtain
replacement materials or equipment and to perform the work, which, at
times, may exceed the timeframes in (i) and (ii) above.
At any time or times that each of the aforesaid three (3) preconditions
exist, the Owner, based on Owner's sworn affidavit to the independent
Counsel that the aforesaid three (3) preconditions then exist, may draw
on the letter of credit as necessary for the costs, including removal
costs and architectural services, as noticed to Contractor in (ii)
above, for use by the Owner in making such correction or replacement.
Nothing contained herein shall: (A) relieve contractor of any warranty
obligation contained in any of the Contract Documents; (B) entitle
Owner to retain sums in excess of the actual costs incurred by Owner in
repairing or replacing any unsatisfactory or defective work or
materials, or (C) relieve Contractor of the obligation to reimburse
Owner for any amount by which the actual cost of such repair or
replacement exceeds the amount drawn from the line of credit therefor.
In the event that there is a dispute between the Contractor and the
Owner regarding the Contractor's responsibility under the Warranty,
then in that case, the dispute shall be settled in accordance with
Article 4.4 prior to the release of any letter of credit funds by
independent Counsel.
The cost for the letter of credit shall be borne by the Owner and is
not included in the Contract Sum. All costs for the independent Counsel
shall be borne by the Owner.
ARTICLE 18
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STANDARDS, REGULATIONS AND CODES
1 8.1 No provision of any referenced standard, standard specification,
manual, or code (whether or not specifically incorporated by reference
in the Contract Documents) shall be effective to change the duties and
responsibilities of the Owner, Contractor, or Architect, or any of
their consultants, agents, or employees from those set forth in the
Contract Documents, nor shall it be effective to assign to the
Architect or any of the Architect's consultants, agents, or employees,
any duty or authority to supervise or direct the furnishing or
performance of the work or any duty or authority to undertake
responsibility contrary to the provisions of Paragraph 4.2.3 of the
General Conditions.
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EXHIBIT (13)
Annual Report 1997
Adding
Value
[ART WORK APPEARS HERE]
[SMS LOGO APPEARS HERE]
<PAGE>
Our Vision:
To be the information solutions company of choice for the health industry and
its professionals -- working together to improve health worldwide.
Our Mission:
Through long-term partnerships in the health industry, we help our customers
improve their quality of care, financial performance, and strategic position by
providing superior, cost-effective solutions based on information systems and
services.
Our Beliefs:
Focus on people as our most important asset. Exceed the expectations of our
customers. Strive for excellence in all that we do.
A word about our Annual Report:
Images throughout this report illustrate SMS' technology leadership as well as
our focus on partnership and our shared vision of improving health worldwide.
The cover features SMS' tape robotics technology, which is housed in SMS'
Information Services Center.
(C) Copyright 1998 SMS
Shared Medical Systems Corporation
<PAGE>
SUPERIOR
SOLUTIONS
[PICTORIAL-COLLAGE ART WORK APPEARS HERE]
VERSATILITY
INTEGRATION
[PICTORIAL-COLLAGE ART WORK APPEARS HERE] EXPERTISE
PARTNERSHIPS
LEADERSHIP
EXPANSION [PICTORIAL-COLLAGE ART WORK APPEARS HERE]
LONG-TERM RESULTS
ADDING VALUE
[PICTORIAL-COLLAGE ART WORK APPEARS HERE] THROUGH SMS
<PAGE>
[SMS LOGO APPEARS HERE]
Annual Report 1997
<TABLE>
<CAPTION>
Financial Highlights
(Amounts in thousands, except per share amounts)
- ---------------------------------------------------------------------------------------------------------
Operating Results: 1997 1996* % Increase
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $896,235 $779,074 15.0%
- ---------------------------------------------------------------------------------------------------------
Income Before Income Taxes $97,454 $78,322 24.4%
- ---------------------------------------------------------------------------------------------------------
Net Income $60,422 $49,000 23.3%
- ---------------------------------------------------------------------------------------------------------
Net Income Per Share - Diluted $2.37 $1.93 22.8%
- ---------------------------------------------------------------------------------------------------------
Cash Dividends Declared Per Share $0.84 $0.84 -
- ---------------------------------------------------------------------------------------------------------
Weighted Average Common Shares - Diluted 25,489 25,404 0.3%
- ---------------------------------------------------------------------------------------------------------
Year End Position:
- ---------------------------------------------------------------------------------------------------------
Total Assets $599,632 $507,478 18.2%
- ---------------------------------------------------------------------------------------------------------
Retained Earnings $335,366 $295,915 13.3%
- ---------------------------------------------------------------------------------------------------------
Total Stockholders' Investment $327,862 $285,337 14.9%
- ---------------------------------------------------------------------------------------------------------
Common Stock Outstanding 25,086 24,800
- ---------------------------------------------------------------------------------------------------------
Number of Stockholders of Record 5,988 5,957
- ---------------------------------------------------------------------------------------------------------
</TABLE>
* Restated, except for cash dividends declared per share, to reflect the
acquisition of American Healthware Systems, Inc. in 1997, which was accounted
for as a pooling of interests.
[BAR GRAPHS OF 5-YEAR HISTORY FOR TOTAL REVENUES, NET
INCOME, AND NET INCOME PER SHARE-DILUTED APPEAR HERE]
2
<PAGE>
[PICTURE OF MARVIN S. CADWELL, DIRECTOR, PRESIDENT, AND CHIEF EXECUTIVE
OFFICER APPEARS HERE]
To Our Shareholders:
This year marked yet another in SMS' successful history of adding value for
customers, employees, and shareholders. By many counts, it was a tremendous
1997, as we achieved our financial objectives, extended new solutions offerings,
expanded our business in new and existing markets, and strengthened our
leadership position in worldwide health information solutions.
In financial terms, 1997 was a healthy year for SMS. Net income increased 23
percent compared to 1996 and was $60.4 million. Diluted net income per share was
$2.37, up 23 percent over the comparable period in 1996. Our 1997 total revenues
were $896 million, an increase of 15 percent compared to 1996.
Further, our 1997 consolidated gross sales exceeded $1.2 billion, topping last
year's sales, which were the highest in the Company's history. As we head into
1998, revenues under contract now exceed $2.1 billion, which is also the highest
in the Company's history.
SMS' successful financial results were not achieved by chance, but by the drive
and dedication of our people, who continuously raise performance standards for
themselves and for the Company. Restructuring was a key focus area for SMS in
1997, as we converged a number of similar functions to better leverage our
resources toward strategic goals.
Our focus on customer satisfaction paid dividends, as we, for the second year in
a row, retained 99 percent of our customers whose contracts neared expiration.
In the competitive environment of health information solutions, such performance
is rare.
SMS' high customer satisfaction is due, at least in part, to SMS' ability to
help customers adjust to technology challenges and change. Around the globe, SMS
leads the health information solutions industry in Century Date readiness,
preparing our customers in advance of the year 2000. This year, we will continue
the rollout of year 2000 upgrades to our customers, ensuring continued value
from their SMS solutions into the next millennium.
1997 Highlights
. Listed on the New York Stock Exchange
. Acquired American Healthware Systems, Inc.
. Expanded international business into the Asia Pacific region
. Achieved record sales
. Strengthened SMS' year 2000 compliance position
. Opened a state-of-the-art solution testing lab
. Added new features to SMS foundation and ancillary systems
. Delivered first NOVIUS(R) modules on schedule
. Realigned solutions as well as internal organization to better focus resources
. Introduced new technology, consulting, outsourcing, and education services to
customers
. Continued a high level of customer satisfaction and retention
. Received recognition as a worldwide industry leader in integration
3
<PAGE>
Customers also ranked SMS highly in terms of our systems integration ability. In
a survey by a leading industry publication, customers rated SMS among the top
systems integrators across all industries.
Our strong industry focus and commitment enabled SMS to enhance its competitive
standing in a number of new markets. In early 1997, the acquisition of American
Healthware Systems, Inc., cemented SMS' number one competitive position in the
challenging New York metropolitan area. SMS also moved into the Asia Pacific
market, signing a major agreement in New Zealand, where we are implementing
clinical and management information systems across a broad network of health
organizations.
SMS' European results fell short of expectations, largely due to the current
move to a common European currency. Until this challenge is resolved, there will
likely be tightened reins on spending within each participating country as
governments struggle to understand the short- and long-term economic
implications of a common currency. We may continue to see spending restrictions
in the health information systems arena until these issues have been resolved.
Despite the lagging European business environment, SMS continued to strengthen
its international leadership position in various countries with the sale and
implementation of a number of solutions, including new technology consulting
services, medical and document imaging systems, and new client/server systems.
New solutions were also a 1997 focus, and SMS continued to bring new offerings
to customers, which translates into greater opportunity for SMS with current and
prospective customers. Among our successes, we installed NOVIUS client/server-
based solutions at various customer sites in the US.
We also expanded service offerings, including Internet services, to help
customers manage their increasingly complex computing environments. In addition,
we grew our outsourcing business by adding new customer sites and expanding our
Provider Services Center, which provides outsourced managed care administration.
Through SMS subsidiary Healthcare Data Exchange (HDX), we continued to grow
electronic data interchange services so customers can more readily connect and
exchange patient coverage, billing, eligibility, and other information with
insurers, payers, and regulators. Today, HDX supports more than 370 providers
with access to over 160 payers. In 1997, HDX processed 47 million transactions,
a 38 percent increase over 1996.
Further, the Company enhanced existing solutions with new functions that will
revolutionize clinical data management in the health industry. For instance, the
addition of multimedia capabilities to SMS imaging systems will enable the
storage of not only digitized images, but audio and video data as well, so
health providers can store more complete patient records.
We are pleased with SMS' many accomplishments in 1997, and we are already well
under way toward achieving our 1998 objectives. We continue to look for ways to
streamline products and internal operations, extend service and system
offerings, and expand our base of expertise so customers can continue to find
choice and flexibility in their SMS solutions.
We remain focused in 1998 on providing creative solutions that add measurable
value for our customers and other partners, align our employees toward a common
vision of improving health worldwide, and provide healthy, long-term results for
our investors.
Sincerely,
/S/Marvin S. Cadwell
President and CEO
4
<PAGE>
Adding Value Through Superior Solutions
SMS shares a vision with our customers, a vision to improve health worldwide.
With innovative health information solutions, we enable health providers to
improve the quality of care while controlling costs and maximizing efficiency.
SMS has the broadest range of products and services available and significant
healthcare and technology expertise needed to create optimum solutions. Our
ability to quickly understand our customers' unique needs and respond
appropriately with the right mix of applications, technology, and services
places the Company at the forefront of the health information solutions
industry.
[ART WORK APPEARS HERE]
The profiles on the next pages are just a few illustrations of how SMS works
together with customers toward a common vision of improving health worldwide.
Company Profile
Shared Medical Systems (SMS) provides superior information solutions for the
worldwide health industry. Our more than 3,000 customers include hospitals,
physician offices, clinics, and major health provider networks and organizations
in 20 countries and territories in North America, Europe, and Asia Pacific.
SMS is focused first on service - that is, on understanding, anticipating, and
responding to our customers' continuously changing needs in the highly dynamic
environments of healthcare and technology. Through the appropriate combination
of applications, technology, and services, SMS provides solutions that best meet
our customers' performance objectives.
We provide superior service through our people - more than 6,000 dedicated and
skilled professionals who are committed to a common vision of improving health
worldwide. Our people are located in over 50 offices around the globe, enabling
them to service our customers worldwide.
With our combination of unparalleled service, dedicated professionals, and
comprehensive solutions, SMS is best positioned to address the information
solution needs of health providers today, whether those needs are in the
business office, the clinic, the physician's office, the emergency room, the
CEO's office, or at home.
5
<PAGE>
Jewish Hospital HealthCare Services
Louisville, Kentucky
In the early `80s, Jewish Hospital HealthCare Services (JHHS) formed a strategic
partnership with SMS to support its emerging integrated health network, which
now stretches from its home base in Louisville across the state and into
southern Indiana.
"Our strategy is to provide functionally rich, cost-effective applications for
the clinical and financial needs of all our hospitals," says David Pecoraro,
JHHS CIO. "We have been able to offer the stability of SMS systems, which is a
strong marketing tool for us, to hospitals that have joined our network. We are
also implementing SMS enterprise systems that will strengthen our regional
network by enabling patient information to be shared across facilities."
JHHS has also been preparing for the industry's next biggest hurdle - the year
2000. "We wanted to put the century date problem behind us early on," says
Pecoraro. "SMS is dealing with it in an aggressive manner, and we're going to be
ready in advance."
"The decision to go with SMS has proven to be the correct one," says Alan
Broude, JHHS Senior Vice President and CFO. "Over the past 10 to 15 years, many
of our competitors have changed information system vendors 3 and 4 times, and
they are still not performing at the level we are. SMS has given us a
competitive advantage."
Adding Value Through Versatility
SMS has amassed a broad range of systems, services, and expertise so customers
can find virtually all they need at SMS, including the ability to choose how,
when, and even where their solutions are provided. This versatility contributes
to very high customer satisfaction ratings and opens doors for SMS in terms of
new prospects and markets.
Our spectrum of application offerings helps health providers more effectively
care for their communities and control their costs. Health providers use SMS
systems for everything from tracking patient billing and insurance information
to managing clinical records, scheduling appointments, storing medical images,
and reviewing executive information, such as utilization rates across a health
system.
Technology choices are also varied, and SMS is adept at providing and supporting
customers with the right technology solutions. Customers can select technology
most appropriate for their needs, including the latest client/server technology,
in-house server computing, remote computing, or a distributed computing option.
No matter the choice, SMS has the expertise needed to effectively support our
customers' varied computing environments.
[ART WORK APPEARS HERE]
Diverse service offerings further enhance SMS' versatility and offer competitive
advantage. Many of these services are available at additional fees and represent
significant sales into the SMS customer base.
Beyond installation services and standard round-the-clock support, SMS offers
technology, consulting, outsourcing, and education services. SMS technology
services address the complex network and desktop requirements resulting from
today's computing environments, such as client/server and the Internet.
Consulting services provide planning, reengineering, integration, and management
assistance so health providers can optimize operational performance. Outsourcing
services enable customers to transfer to SMS all or part of their information
systems and/or business office functions. SMS also provides education services,
such as instructor-led or self-paced multimedia courses at SMS' corporate
headquarters, regional education centers, customer sites, or through
videoconferencing.
6
<PAGE>
SMS provides yet another important service for customers through electronic data
interchange, which enables customers to exchange patient information with
insurers and payers.
As an example of our continued emphasis on new service options, SMS this year
expanded Internet services to help customers more effectively use the Internet
as a business tool. In addition to providing customer services through the SMS
Web Site, SMS provides specialized Internet and intranet services such as Web
page design, maintenance, and hosting; "firewall" set-up; and secure Internet
access through SMS servers.
[ART WORK APPEARS HERE]
Adding Value Through Integration
Health providers are often faced with the formidable challenge of bringing
together disparate information systems. SMS provides the systems integration
needed to enable customers to work effectively and provide better care. For
example, SMS system functions
. enable varied systems to communicate with each other;
. standardize medical terminology across the network;
. provide clinical alerts and reminders (e.g., drug interaction precautions);
and
. allow the network to support multiple media formats, including text, imaging,
audio, and video.
In 1997, SMS' integration expertise was recognized by Computerworld, a leading
information technology publication, which named the Company a top information
systems integrator. In fact, SMS was the only health information systems company
ranked in the survey, which used customer survey data to rank systems
integrators across all industries.
[CUSTOMER CALL-OUT QUOTES]
Lifespan
Providence, Rhode Island
San Francisco Department of Public Health
San Francisco, California
Two non-profit integrated delivery systems, Lifespan and the San Francisco
Department of Public Health (SFDPH), see SMS' commitment to partnership as vital
to their missions.
When Lifespan searched for an information system, they were seeking more than a
product, says Carole Cotter, Vice President and CIO of Lifespan, which
encompasses multiple community and teaching hospitals, a visiting nurse
association, and a hospice. "We needed an information systems partner to support
Lifespan's vision of providing accessible healthcare throughout southern New
England. SMS has the applications, networking expertise, and services to support
our objectives and something more - an understanding of healthcare and a
dedication to helping us realize our vision. SMS is our partner, and we're
working together to improve the way we deliver healthcare."
CIO David Counter explains that at SFDPH, which includes the nation's leading
healthcare facility for treatment of AIDS, "Our ability to deliver quality care
is very much dependent upon gathering, managing, and making information
available to care providers throughout the health system, which includes over
250 locations throughout San Francisco County. SMS worked with us to integrate
our clinical and financial information and to build the network infrastructure
we needed to transition to an integrated delivery system. Partnering with SMS
has enabled SFDPH to use our information solutions as an integral part of
providing care to our community - changing how we deliver care, and how well we
do it."
7
<PAGE>
Pau Hospital
Pau, France
When the Pau Hospital in southwest France was challenged with implementing a new
strategic information system to help them integrate with other hospitals in the
region, they selected SMS.
Before the SMS system was installed, patient data was stored in separate
systems. In 1997, SMS installed a new hospital information system that
centralized patient administrative and clinical data into a common database. To
increase access to the new system, SMS installed 250 clinical workstations in
the hospital's nursing units, doctors' offices, and technical and administrative
departments, thus enabling hospital personnel to access data more quickly,
decrease redundancy, and position the hospital towards achieving a true
electronic patient record.
M.R. Duffaud, Director, Pau Hospital, says hospital administrators and
clinicians have gained many benefits. "The personnel of Pau Hospital, including
its doctors and nurses, believe the SMS information system improves their
efficiency and quality of care because of the immediate access to more accurate
information based on a unique patient record," he says. "We think that the
inclusion of clinical data and clinically oriented interfaces provides added
value to the health professionals who use the system."
In addition, Duffaud says the centralized system will offer strengths to other
hospitals in the region: "The Pau Hospital's location in a regional network will
give it and the other hospitals in the network the opportunity to use a tool
that will guarantee the practice of good healthcare in the region."
Integration is also key to SMS' internal success. In 1997, the Company further
integrated internal departments with like responsibilities and converged
resources to provide better focus on our goals. Our customer service areas
across all product lines, for instance, now reside in a single customer service
center. Likewise, implementation functions are centralized to allow for more
flexible deployment of resources according to demand. These and other internal
changes improve overall profitability and customer satisfaction by streamlining
internal processes and reducing redundancies and costs.
[ART WORK APPEARS HERE]
[CUSTOMER CALL-OUT QUOTE]
"Le personnel de l'hopital de Pau, y compris sees medecins et ses infirmier(e)s,
est convaincu de ce que le Systeme d'Information de SMS ameliore leur efficience
et la qualite des soins par l'accos immediat a une information plus fiable basee
sur un dossier patient unique. Nous pensons que l'inclusion des donnees
cliniques et des interfaces a orientation clinique apporte une valeur ajoutee
aux professionnels de sante qui utilise le systeme."
M.R. Duffaud
Director,
Pau Hospital
Adding Value Through Expertise
SMS' people are an important differentiator. Our team of over 6,000
professionals is dedicated to a vision of improving health worldwide, a focus
that adds value for the Company and for customers around the globe.
Our on-staff clinicians and health professionals - physicians; nurses; lab,
radiology, and pharmacy technicians; and other health professionals - are key to
developing clinical solutions that rise to the challenges of today's healthcare
environments. These experts have contributed to the development of such projects
as our integrated multimedia system, which digitally records and archives
radiology images and eliminates the need for costly film, as well as clinical
documentation, which collects and organizes patient health records to improve
clinical care.
Likewise, our technology expertise remains unsurpassed. SMS' networking and
systems experts are adept at using, developing, and supporting a variety of
technologies to meet our customers' needs. The SMS network is, in fact, the
largest health information systems network of its kind, and as of year-end 1997,
is supporting over 200,000 connections and providing 99.99 percent reliability.
8
<PAGE>
SMS' expert use of advanced technologies is providing customers with better
service. Through leading edge technology, SMS offers network management and
support services to identify and correct customers' on-site network problems
from the Information Services Center at SMS' headquarters. This solution keeps
customer costs down and system availability up. The Company also seeks
opportunities to use technology to improve other processes. In 1997, we
performed the first implementation using videoconferencing, saving customers the
expense of on-site assistance.
Customers also value SMS for our ability to quickly understand and employ new
technologies for their benefit. SMS is already supporting technologies that
improve efficiency, such as wireless local area network technology and
"streaming" technology, which allows a user to see or hear data clips as they
are being downloaded from the Internet, rather than waiting for an entire file
to download.
[ART WORK APPEARS HERE]
Adding Value Through Partnerships
In addition to long-term customer partnerships, SMS enhances the value of our
solutions with supplier partnerships that allow us to cost-effectively advance
SMS' goals and expand our offerings.
In 1997, the Company continued to develop its long-term strategic partnerships
with leaders such as IBM, AT&T, and Digital Equipment Corporation, and enhanced
relationships with partners such as Microsoft, Cisco Systems, and Computer
Associates. This year, for example, the Company expanded an existing healthcare
development alliance with Microsoft to include a project to focus on managing PC
ownership costs for SMS customers and accelerate the deployment and effective
use of client/server solutions.
Crozer-Keystone Health System
Springfield, Pennsylvania
Pinnacle Health System
Harrisburg, Pennsylvania
SMS Outsourcing Services played an integral role for two major health systems
that needed assistance in managing their complex information systems networks.
Crozer-Keystone Health System needed to link its 5 hospitals, 2 home health
agencies, a host of specialty clinics, and a network of nearly 400 physicians.
Realizing the task was more complex than they were prepared to handle
themselves, Crozer collaborated with SMS Outsourcing Services. The result was
substantial cost savings, far greater efficiency, and most of all, an
integrated, seamless environment. CEO John McMeekin says, "We could not have met
our strategic objective of being an integrated delivery system, building a
continuum of care, without a partner like SMS. We were confident in relying on
SMS' expertise to manage this complex need. SMS is our strategic partner."
Capital Health System consolidated three competing healthcare enterprises to
form Pinnacle Health System. According to Pinnacle CEO John Cramer, Pinnacle was
not equipped to reach the goal of coordinating the information systems needs of
these diverse facilities as well as upgrading nine major information systems in
the process. With SMS, they, too, achieved significant cost savings and a
consolidated information technology function. "By using SMS Outsourcing Services
to help blend 3 different IT departments, we expect to save $10 million in 5
years," says Cramer. "They made it possible for us to be fast on our feet. In
the past, we had to pursue IT projects one at a time. Now we can move in several
directions simultaneously."
9
<PAGE>
West Jersey Health System
Camden, New Jersey
As an integrated health network of 4 hospitals, a large number of family health
centers and affiliates, and over 1,000 physicians, West Jersey Health System
(WJHS) faces the usual pressures of managed care: steadily increasing
capitation, competition, and risk. Starting with shared visions, SMS and WJHS
are facing those pressures together, with an innovative partnership. "SMS'
vision is to improve health worldwide, and West Jersey's is to improve the
health of the community," says Marianne Charbonneau, Vice President and CIO.
"Each vision follows from the other, so we asked ourselves what we could do
beyond a traditional business relationship to help each other establish and
achieve specific goals."
The answer was to create task forces, comprising people from both SMS and WJHS,
to focus on areas such as physician involvement, communication, and community.
In one initiative, a task force is studying diabetes patterns in the WJHS
community by analyzing clinical data and creating new indicators where needed.
The goals are better detection and faster treatment, reduction of the impact
diabetes has on other conditions, and, ultimately, better community wellness and
reduced costs.
The success of these joint efforts is measured according to a "balanced
scorecard" of quality and outcomes, financial performance, customer
satisfaction, employee satisfaction, and growth. "The task forces have
solidified an already strong relationship between West Jersey and SMS. These, in
combination with NOVIUS, our SMS client/server information solution, are already
helping to improve health in our communities," says Charbonneau.
Through "Allied Partner" agreements with niche vendors, SMS enhances a full-
service approach by providing our customers with highly specialized services and
products, such as online clinical reference tools, health ID cards, and
point-of-care clinical charting capabilities.
In 1997, SMS and Orbis Broadcast Group formed CommuniHealth, a unique joint
venture that will provide health education resources for our customers that
they, in turn, can provide to consumers and health professionals through their
Web sites.
These important supplier partnerships ensure SMS continues to bring innovative
solutions to market by effectively using current and emerging technologies as
they become viable and cost effective.
[ART WORK APPEARS HERE]
Adding Value Through Leadership
Customers rely on SMS to be knowledgeable about advancements in the technology
and health industries and proactively respond with solutions that will meet
their needs today and into the future. SMS' leadership in the areas of current
and advanced technology issues as well as standards development fosters
confidence among our customers and ensures we not only meet, but exceed, their
expectations.
While many businesses are just awakening to the year 2000 business and computing
issues, SMS is already leading the way with year 2000 readiness, ensuring
compliance of our products and working with customers to raise their awareness
of the issues and to help make their operations compliant.
10
<PAGE>
The Company also invests significantly in research and development to bring new
solutions to market once they are viable. New technologies for identification
and security, such as signature, hand geometry, iris/retinal scan
identification, and speech recognition technologies, continue to be investigated
and will be brought to the market when practical. Fingerprint technology, for
example, is already in use today as a system security measure at an SMS customer
site. Advanced imaging technologies will also be offered soon, so customers will
be able to store multimedia data, such as video and audio data (e.g., fetal
heartbeats, video segments of physical therapy progress, etc.), within their SMS
systems.
[ART WORK APPEARS HERE]
SMS continues to be actively involved in more than 80 technology and healthcare
standards groups worldwide. Standards committees such as the World Health
Organization/Telemedicine Consultation Group, CEN (European Committee for
Standardization/Technical Communications), Health Level 7, the Computer-based
Patient Record Institute, and many others have benefited from SMS leadership as
we continue to refine standards for terminology, confidentiality, and security.
[CUSTOMER CALL-OUT QUOTE]
"Las relaciones con SMS han pasado de la tradicional formula cliente-proveedor a
una verdadera colaboracion que nos permite abordar los proyectos de forma
conjunta. La migracion de nuestro anterior sistema de informacion de SMS a la
nueva solucion cliente/servidor no habria sido posible sin este espiritu de
cooperacion. Nuestro hospital esta muy satisfecho y seguro, y sentimos que con
este producto estamos entrando en el futuro."
Dr. Jose Carlos Medina
General Manager,
Hospital Infanta Elena
Hospital Infanta Elena
Huelva, Spain
Located in southern Spain near Portugal, Hospital Infanta Elena's goal is to
provide better, more cost-effective, efficient health service to the population
it serves.
To reach this goal and position itself for future growth, the 360-bed public
hospital, part of Andalucia Health Services, implemented a new SMS client/server
system in 1997. The new system includes functions for admission/
discharge/transfer, scheduling, emergency room, outpatient registration,
operating room, medical records, and more. The new system also features a
relational database that allows the hospital to easily and quickly upgrade
application software. The system's open architecture helps the hospital
customize the system to the needs of the organization, providing flexibility in
interfacing as well as enabling the hospital to choose its own hardware,
software, and server operating system.
Dr. Jose Carlos Medina, General Manager of Hospital Infanta Elena, says the
hospital's relationship with SMS has evolved since first becoming a customer in
1986. "The relationship with SMS has changed from a traditional customer-
provider one to a true partnership that allows us to work together on joint
projects. The migration from our existing SMS health information system product
to the new client/server solution would not have been possible outside this
cooperative team spirit. Our hospital feels very satisfied and confident, and we
feel that with this product, we are stepping into the future."
11
<PAGE>
[CUSTOMER CALL-OUT QUOTES]
Baptist Health Systems
Birmingham, Alabama
North Broward Hospital District
Ft. Lauderdale, Florida
Baptist Health Systems and the North Broward Hospital District face similar
situations and comparable challenges. Both serve wide geographic areas, and both
recently enlisted SMS' help to centralize widely disparate business offices to
reduce the cost of care and improve customer satisfaction.
Baptist's 11 hospitals provide services across Alabama, Tennessee, and Georgia,
while North Broward Hospital District - Florida's largest public health system -
provides services over a 26-mile radius through physician group practices,
ambulatory clinics, and 4 acute-care hospitals.
Baptist Health Systems reduced its once typical 90 accounts receivable days to
46, reduced bad debt from 3 to 2 percent, and improved its collections,
according to Mitzi Winters, Corporate Vice President, Patient Business Services.
"To be sure that we are compliant with the extensive billing and reporting
requirements that exist, standardization across our hospital system was a
necessity. Centralization provided that standardization," she says. "SMS was
very flexible and spent a lot of time with us to understand our challenges. SMS
knew just what we needed and even anticipated our needs."
Rudy Braccili Jr., Assistant Vice President of Business Operations at North
Broward Hospital District, says North Broward experienced similar results. "We
reduced our net A/R days by 10 across the system, significantly reduced bad
debt, and increased cash collections," he says. "I think we're clearly partners
with SMS, and I know that SMS felt ownership in this project. I get the feeling
that our success is SMS' success, and that is a really good feeling to have."
Adding Value Through Expansion
SMS actively seeks opportunities that enable us to reach new customers in new
markets, expand our base of expertise, and thereby provide added value for
shareholders.
In 1997, the Company advanced its position in the challenging New York
metropolitan area market with the acquisition of American Healthware Systems,
Inc., a company that has become known for its agility in assessing and
addressing New York's changeable legislative regulations for its customers.
The Company also extended its reach to the Asia Pacific region by signing an
agreement to provide information systems for a network of health providers in
New Zealand.
In Europe, SMS extended new service offerings to enhance our presence with
current and prospective customers. The Company now provides remote
monitoring services in the Netherlands and is pursuing opportunities to offer
these services in other countries.
[ART WORK APPEARS HERE]
Consistent with our 29-year history, SMS will continue to seek out and secure
opportunities that will further advance the Company's leadership position in
health information solutions.
Adding Value Through Long-term Results
SMS continues to build value over time for customers, employees, and
shareholders. How? By establishing and maintaining long-term customer
partnerships, attracting and retaining the best talent in the industry, and
providing those who invest in SMS with healthy, long-term growth and return.
The Company's dedicated professionals enable SMS to provide superior integrated
solutions - the appropriate combination of applications, technology, and
services - that not only provide customers with the results they seek, but
advance a shared vision of improving health worldwide.
12
<PAGE>
<TABLE>
<CAPTION>
Shared Medical Systems Corporation
- ------------------------------------------------------------------------------------------------------------
Financial Statements
Index
- ------------------------------------------------------------------------------------------------------------
<S> <C>
Management's Discussion and Analysis of Financial Condition and Results of Operations 14
- ------------------------------------------------------------------------------------------------------------
Selected Financial Data 19
- ------------------------------------------------------------------------------------------------------------
Consolidated Balance Sheet 20
- ------------------------------------------------------------------------------------------------------------
Consolidated Statement of Income 21
- ------------------------------------------------------------------------------------------------------------
Consolidated Statement of Cash Flows 22
- ------------------------------------------------------------------------------------------------------------
Consolidated Statement of Stockholders' Investment 23
- ------------------------------------------------------------------------------------------------------------
Notes to Consolidated Financial Statements 24
- ------------------------------------------------------------------------------------------------------------
Report of Independent Public Accountants 31
- ------------------------------------------------------------------------------------------------------------
13
</TABLE>
<PAGE>
Shared Medical Systems Corporation
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations
- --------------------------------------------------------------------------------
Results of Operations - Overview
The Company provides information service and system solutions to health
organizations, such as integrated health networks, multientity health
corporations, community health information networks, hospitals, physician
groups, and other health providers worldwide.
The Company's revenues are derived primarily from service and system fees
for computer-based information systems, and related professional services. The
Company's professional services consist of a variety of services related to its
information processing systems, such as system installation and support,
software and network customization, information system planning and integration,
business office consulting, facilities management, and education. The remainder
of the Company's revenues are generated from sales of computer hardware.
Revenues recognized from the sale of computer hardware can fluctuate due to
variations in the mix of products sold and the timing of sales and
installations.
The Company's health information systems and related services are delivered
on computers that range from personal computers, to client/server networks, to
minicomputers, to mainframes, which can be operated at the customer's site, at
the Company's Information Services Center (i.e., remotely), or as part of a
distributed network, depending on the type of system or service selected.
Equipment utilized by the customer can be provided by the Company under fixed-
period lease or sales agreements.
As the information processing requirements of the health industry have
continued to grow, the business of providing information solutions has become
more complex. Changes in the way health organizations are structured and
reimbursed, combined with pressures to control costs, improve quality, and
increase market share have created new and increased demands for the Company's
services and systems.
The majority of the Company's business is focused on providing services to
customers through long-term service contracts. These long-term service contracts
range from one to ten years and generally allow price increases annually,
limited to the increase in the Consumer Price Index. The Company has increased
some of its prices under these contract provisions. Revenues under long-term
service agreements are recognized as they are earned over the life of the
contract.
A substantial portion of service revenues under long-term contracts are
recognized after installation is complete, in contrast to perpetual license
arrangements where revenue recognition, excluding related support fees,
generally occurs during the installation period.
The Company has a significant amount of revenues that will be realized in
the future as installation work is completed and processing services are
performed. Management estimates the total amount of future revenues under
contract at December 31, 1997 is in excess of $2.1 billion.
Prior period financial results have been restated to reflect the Company's
acquisition of American Healthware Systems, Inc., which was completed on
February 28, 1997 and accounted for as a pooling of interests.
Results of Operations for 1997 Compared to 1996
In 1997, revenues grew 15.0%, to $896,235,000, compared to 1996. Income
before income taxes and net income for the year ended December 31, 1997 were
$97,454,000, an increase of 24.4%, and $60,422,000, an increase of 23.3%,
respectively, compared to 1996.
. Service and system fees revenues were $784,308,000, an increase of 12.3% in
1997 compared to 1996. This increase was primarily due to higher levels of
professional services and software fees in the US. The higher level of
professional services was attributable to growth in facilities management,
system installations, and support fees. The increase in software fees was due
to higher levels of sales and installations to new and existing customers. The
increases in US revenues were partially offset by decreases in international
revenues due to a lower level of service and system fees that was generally
attributable to the negative impact on public spending in certain countries as
they strive to meet the economic requirements of the European Monetary Union,
and the negative impact of the stronger US dollar relative to certain foreign
currencies in 1997 when compared to 1996 of approximately $6,000,000. As
certain European governments continue their efforts to achieve the economic
criteria for entry into the European Monetary Union, pressure on public
spending in such countries may continue.
14
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Analysis of Changes in Consolidated Cost and Expenses
(Amounts in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Change Change
from from
1997 Prior Year 1996* Prior Year 1995*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating and development................................. $368,755 $34,435 $334,320 $45,283 $289,037
Percentage of service and system fees revenues.......... 47.0% 47.9% 47.9%
Marketing and installation................................ 263,655 31,503 232,152 31,671 200,481
Percentage of service and system fees revenues.......... 33.6% 33.2% 33.2%
General and administrative................................ 68,600 6,402 62,198 6,966 55,232
Percentage of service and system fees revenues.......... 8.8% 8.9% 9.1%
Interest.................................................. 3,931 342 3,589 546 3,043
Percentage of service and system fees revenues.......... 0.5% 0.5% 0.5%
--------------------------------------------------------------------
Total................................................. $704,941 $72,682 $632,259 $84,466 $547,793
====================================================================
Percentage of service and system fees revenues...... 89.9% 90.5% 90.7%
====================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
Cost of hardware sales.................................... $93,840 $25,347 $68,493 $20,621 $47,872
====================================================================
Percentage of hardware sales revenues................... 83.8% 84.9% 82.4%
====================================================================
* Restated to reflect the acquisition of American Healthware Systems, Inc. in
1997, which was accounted for as a pooling of interests.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
. Hardware sales revenues increased to $111,927,000 in 1997 from $80,695,000 in
1996, primarily due to the installation of IBM mainframe systems to new and
existing customers that process the Company's INVISION(R) product at their
sites, and changes in the timing and product mix of systems installed.
. Operating and development expenses decreased to 47.0% of service and system
fees revenues in 1997 from 47.9% in 1996. This change was largely due to a
lower rate of growth, as compared to the growth in service and system fees
revenues, for computer hardware and associated costs at the Company's
Information Services Center, partially offset by a higher rate of personnel
and related costs for software development and facilities management services
provided to customers.
. Marketing and installation expenses increased to 33.6% of service and system
fees revenues in 1997 from 33.2% in 1996. This increase was primarily due to a
higher rate of growth, as compared to the growth in service and system fees
revenues, for customer implementation costs.
. General and administrative expenses, as a percentage of service and system
fees revenues, decreased to 8.8% in 1997 from 8.9% in 1996. This change was
principally due to the Company's continuing efforts to leverage administrative
costs over an increasing revenue base, partially offset by provisions for bad
debts and costs incurred for the acquisition of American Healthware Systems,
Inc.
. Interest expense was $3,931,000 in 1997 compared to $3,589,000 in 1996. This
change was generally attributable to a higher level of average outstanding
borrowings in 1997 compared to 1996.
. Cost of hardware sales decreased to 83.8% of hardware sales revenues in 1997
from 84.9% in 1996. This change was primarily due to the different product
mixes of systems installed during 1997 when compared to 1996.
. Income taxes increased $7,710,000 in 1997 when compared to 1996. This change
was principally due to an increase of $19,132,000 in income before income
taxes. The Company's effective rate for federal, state, and foreign income
taxes was 38.0% in 1997, which was in line with the 1996 rate of 37.4%.
15
<PAGE>
Shared Medical Systems Corporation
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations
(Continued)
- --------------------------------------------------------------------------------
Results of Operations For 1996 Compared to 1995
In 1996, revenues grew 17.7%, to $779,074,000, compared to 1995. Income
before income taxes and net income for the year ended December 31, 1996 were
$78,322,000, an increase of 17.9%, and $49,000,000, an increase of 19.5%,
respectively, compared to 1995.
. Service and system fees revenues were $698,379,000, an increase of 15.6% in
1996 compared to 1995. This increase was primarily due to higher levels of
professional services, system processing fees, and system fees. The higher
level of professional services was generally attributable to system
installations, support, and facilities management fees. The increase in system
processing fees was primarily due to the higher level of customer applications
processed at the Company's Information Services Center. The increase in system
fees was due to the installation of systems to existing customers already
under contract and the sale of new and add-on systems during the current year.
. Hardware sales revenues increased to $80,695,000 in 1996 from $58,132,000 in
1995, primarily due to the installation of IBM mainframe systems to new and
existing customers that process the Company's INVISION(R) product at their
sites, and changes in the timing and product mix of systems installed.
. Operating and development expenses remained at 47.9% of service and system
fees revenues in 1996 compared to 1995. The growth in certain customer-related
expenses, as compared to the growth in service and system fees revenues, was
offset by efficiencies gained through a lower rate of growth for computer
hardware and associated costs at the Company's Information Services Center.
. Marketing and installation expenses were 33.2% of service and system fees
revenues in 1996 and 1995. A lower rate of growth for personnel and related
costs, as compared to the growth in service and system fees revenues, was
offset by a higher rate of growth in certain customer-related expenses caused
by increased system installations and support services provided to customers.
. General and administrative expenses, as a percentage of service and system
fees revenues, decreased to 8.9% in 1996 from 9.1% in 1995. This change was
principally due to the Company's continuing efforts to leverage administrative
costs over an increasing revenue base.
. Interest expense was $3,589,000 in 1996 compared to $3,043,000 in 1995. This
change was primarily due to a higher level of average outstanding borrowings
in 1996 compared to 1995, which was partially attributable to funds used to
acquire businesses in 1995.
. Cost of hardware sales increased to 84.9% of hardware sales revenues in 1996
from 82.4% in 1995. This change was primarily due to the different product
mixes of systems installed in each year.
. Income taxes increased $3,885,000 in 1996 when compared to 1995. This change
was principally due to an increase of $11,876,000 in income before income
taxes. The Company's effective rate for federal, state, and foreign income
taxes in 1996 and 1995 was 37.4% and 38.3%, respectively.
Inflation
Significant portions of the Company's expenses are inflation sensitive.
Rising costs for the years ended December 31, 1997, 1996, and 1995 have been
partially offset by increased employee and computer productivity.
Year 2000
In 1995, the Company began to modify its health information systems sold to
customers, and its internal computer systems to ensure that they will process
transactions in the year 2000. During this time the Company has also been
working with its customers to assist them in their efforts to address the year
2000 issue. Costs incurred modifying systems sold to customers have been
recorded in accordance with the Company's policy for internally produced
software. All expenses related to modifying internal computer systems have been
expensed as incurred. The Company anticipates that the remaining year 2000
software modifications will be completed in a timely manner, and that the
expenses associated with such modifications will not have a material impact on
its future results of operations. In the event that any of the Company's
significant suppliers or customers do not successfully and timely achieve year
2000 compliance, the Company's business or operations could be adversely
affected.
16
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Liquidity and Capital Resources
The Company's financial position remained strong in 1997. Total assets
increased from $442,518,000 at January 1, 1996 to $599,632,000 at December 31,
1997. Stockholders' investment increased from $253,267,000 to $327,862,000 over
the same period. This growth resulted primarily from operations. Most of the
Company's capital expenditures and working capital requirements were financed
from operations, supplemented from time to time with short-term borrowings. The
major uses of funds during this period were for investments in computer
equipment and software, and the payment of quarterly dividends. At December 31,
1997, cash and short-term investments were $29,164,000 compared to $25,473,000
at January 1, 1996.
Net cash flows from operating activities generated $37,769,000 in 1997
compared to $77,110,000 in 1996. Cash flows from operating activities in 1997
were primarily attributable to net income, adjusted for non-cash expenses such
as depreciation and amortization, of $98,587,000, partially offset by a
$41,078,000 increase in other assets, primarily due to the growth of long-term
financing arrangements, and a $38,603,000 increase in accounts receivable,
principally due to higher business levels.
Net cash flows from operating activities generated $77,110,000 in 1996
compared to $39,931,000 in 1995. Cash flows from operating activities in 1996
were primarily attributable to net income, adjusted for non-cash expenses such
as depreciation and amortization, of $87,763,000; increases in accounts payable
and accrued expenses of $14,712,000 mainly due to timing; and an increase in
deferred revenues of $13,898,000 for payments received in advance of performance
of services, partially offset by the growth of accounts receivable of
$37,928,000 caused by higher business levels.
The Company's investing activities were $57,137,000, $46,425,000, and
$44,248,000 in 1997, 1996, and 1995, respectively. During this period, the
Company's investments were primarily for equipment, computer software, and
business investments and acquisitions.
The following summarizes the Company's significant investments in computer
software and equipment for the three-year period ended December 31, 1997:
- --------------------------------------------------------------------------------
(Amounts in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
In-house computer and network
communications equipment.................. $14,373 $17,205 $11,514
Capitalized internally
produced software......................... 12,737 11,250 8,850
Purchased software.......................... 7,483 7,552 4,984
- --------------------------------------------------------------------------------
In-house computer and network communications equipment is used to process,
store, and retrieve customer information at the Company's Information Services
Center and to service and support customers from the Company's corporate
headquarters and branch offices. Capital expenditures for in-house computer
equipment can vary depending upon whether the equipment is purchased or obtained
under operating leases. Capitalized internally produced software and purchased
software expenditures can fluctuate based on business decisions regarding the
scope and timing of internal development projects and third-party agreements.
In 1997, the Company invested $10,280,000 for a 15% share in the equity of
Visteon Corporation, a provider of physician practice management software. In
1995, the Company purchased Professional Datacare (PDC), a provider of
processing services to health organizations in the United Kingdom, for
$8,497,000, and the health division of Atlas Datensysteme GmbH (ADS), a provider
of patient management and financial systems in Germany, for $3,611,000.
The most significant use of cash for financing activities was for the
payment of common stock dividends, which were $20,647,000 in 1997, $21,983,000
in 1996, and $20,685,000 in 1995. The most significant sources of cash provided
by financing activities were from short-term and long-term borrowings of
$25,789,000, $1,021,000, and $23,715,000 in 1997, 1996 and 1995, respectively;
and stock option exercises of $8,903,000 in 1997, $8,676,000 in 1996, and
$7,199,000 in 1995.
17
<PAGE>
Shared Medical Systems Corporation
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations
(Continued)
- --------------------------------------------------------------------------------
Management is not aware of any potential material impairments to the
Company's financial position. The most significant requirements for funds now
anticipated are as follows:
. Office building - The Company has initiated construction of a 230,000 square
foot office building at its corporate headquarters in order to consolidate
corporate-based personnel currently located in leased office space. The
approximate cost of this project is $38,000,000. This facility is expected to
be completed in 1999 and will be funded primarily through external financing.
. Equipment - During 1998, the Company anticipates that capital expenditures for
equipment will be in line with expenditures in recent years. Factors such as
business activity levels, buy versus lease decisions, and vendor pricing will
continue to affect capital equipment expenditures.
. Dividends - During 1997, cash dividends declared were $.84 per share. All
dividends were declared in the last month of each calendar quarter and paid
the following month. The Company anticipates paying approximately $24,000,000
in dividends in 1998.
. Stock repurchase - The Company's Board of Directors has authorized the
repurchase of up to 5,000,000 shares of the Company's common stock. As of
December 31, 1997, 2,873,500 shares, at a cumulative cost of $54,325,000 have
been repurchased. No shares were repurchased under this plan during the three-
year period ended December 31, 1997.
The Company expects to finance most of its capital requirements from
operations and from long-term and short-term borrowings. At December 31, 1997,
the Company had lines of credit with banks, primarily at their prime interest
rates, of approximately $71,400,000, of which approximately $23,700,000 of these
lines of credit were unused. In January 1998, the Company increased its lines of
credit with banks to approximately $121,000,000.
Cautionary Note Regarding Forward-Looking Statements
This Annual Report contains forward-looking statements. Such statements,
and any other forward-looking statements made by or on behalf of the Company,
are subject to certain risks and uncertainties that could cause actual results
to differ materially from those reflected in such statements. Among such factors
are changes in length and composition of sales cycles; non-renewals of customer
contracts; inability to keep pace with competitive, technological and market
developments; failure to protect proprietary software; delays in product
development; undetected errors or bugs in software products; customer reductions
caused by health industry consolidation; difficulties in product installation;
dependence on suppliers; interruption of availability of resources necessary to
provide products and services; difficulties encountered by the Company,
customers, or others in dealing with the year 2000 issue; inability to
successfully integrate acquired business operations; changes in economic,
political and regulatory conditions in the health industry; regulation of
additional products as medical devices by the federal Food and Drug
Administration; and fluctuations in foreign currencies, interest rates, and
taxes.
18
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Selected Financial Data
(Amounts in thousands, except per share amounts)
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996** 1995** 1994** 1993**
- ------------------------------------------------------------------------------------------------------------------------------------
Summary of Consolidated Operations
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues.............................................. $896,235 $779,074 $662,111 $559,793 $508,100
Cost and Expenses..................................... $798,781 $700,752 $595,665 $499,247 $454,968
Income Before Income Taxes............................ $97,454 $78,322 $66,446 $60,546 $53,132
Income Taxes.......................................... $37,032 $29,322 $25,437 $22,441 $20,665
Net Income............................................ $60,422 $49,000 $41,009 $38,105 $32,467
Net Income Per Share - Basic.......................... $2.42 $1.98 $1.68 $1.58 $1.36
Net Income Per Share - Diluted........................ $2.37 $1.93 $1.64 $1.55 $1.33
Weighted Average Common Shares - Basic................ 24,944 24,731 24,408 24,135 23,886
Weighted Average Common Shares - Diluted.............. 25,489 25,404 24,974 24,546 24,331
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Summary of Consolidated Financial Position
- ------------------------------------------------------------------------------------------------------------------------------------
Current Assets........................................ $306,818 $277,327 $225,614 $183,314 $168,584
Total Assets.......................................... $599,632 $507,478 $442,518 $388,054 $347,125
Current Liabilities................................... $217,936 $171,678 $134,818 $118,929 $94,716
Long-Term Debt and Capital Leases..................... $16,291 $15,361 $17,939 $6,379 $8,279
Total Liabilities..................................... $271,770 $222,141 $189,251 $164,356 $146,996
Stockholders' Investment.............................. $327,862 $285,337 $253,267 $223,698 $200,129
Common Shares Outstanding............................. 25,086 24,800 24,516 24,198 24,008
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Ratios and Other Selected Financial Data
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Margin...................................... 10.1% 9.5% 9.3% 10.2% 9.4%
Hardware Margin....................................... 16.2% 15.1% 17.6% 17.3% 20.4%
Pretax Margin......................................... 10.9% 10.1% 10.0% 10.8% 10.5%
Net Margin............................................ 6.7% 6.3% 6.2% 6.8% 6.4%
Effective Tax Rate.................................... 38.0% 37.4% 38.3% 37.1% 38.9%
Return on Average Investment.......................... 19.7% 18.2% 17.2% 18.0% 16.8%
Working Capital....................................... $88,882 $105,649 $90,796 $64,385 $73,868
Current Ratio......................................... 1.41:1 1.62:1 1.67:1 1.54:1 1.78:1
Stockholders' Investment Per Share.................... $13.07 $11.51 $10.33 $9.24 $8.34
Cash Dividends Declared Compared to Prior Year's
Net Income.......................................... 42.8% 53.8% 54.5% 59.2% 67.0%
Cash Dividends Declared Per Share..................... $.84 $.84 $.84 $.84 $.84
Research and Development.............................. $64,046 $54,665 $45,385 $39,226 $37,087
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Market Price and Dividends Declared Per Share *
- ------------------------------------------------------------------------------------------------------------------------------------
First Quarter
High............................................... $58 3/8 $62 7/8 $37 7/8 $29 3/8 $24 3/8
Low................................................ $44 3/4 $47 7/8 $30 7/8 $23 5/8 $20 3/4
Dividends Declared................................. $.21 $.21 $.21 $.21 $.21
Second Quarter
High............................................... $55 1/2 $72 1/8 $41 1/2 $28 1/4 $23 7/8
Low................................................ $36 3/4 $59 1/4 $32 $22 1/8 $19 1/2
Dividends Declared................................. $.21 $.21 $.21 $.21 $.21
Third Quarter
High............................................... $61 3/4 $66 3/4 $42 3/4 $28 1/2 $24 1/2
Low................................................ $47 1/2 $43 3/4 $35 5/8 $22 3/4 $17 1/2
Dividends Declared................................. $.21 $.21 $.21 $.21 $.21
Fourth Quarter
High............................................... $66 13/16 $58 3/4 $57 5/8 $34 1/2 $26
Low................................................ $52 $42 1/4 $37 3/8 $25 3/8 $21 1/2
Dividends Declared................................. $.21 $.21 $.21 $.21 $.21
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* As of December 31, 1997 there were 5,988 stockholders of record and
approximately 9,300 beneficial holders of the Company's common stock. The
Company's common stock began trading on the New York Stock Exchange (NYSE)
under the symbol SMS on September 18, 1997. Prior to being listed on the
NYSE, the Company's common stock was traded on the Nasdaq Stock Market under
the symbol SMED. The prices shown in the table above are the high and low
transaction prices for the last five years on the NYSE and the Nasdaq
National Market, as applicable.
** Restated, except for dividends declared per share information, to reflect the
acquisition of American Healthware Systems, Inc. in 1997, which was accounted
for as a pooling of interests.
19
<PAGE>
<TABLE>
<CAPTION>
Shared Medical Systems Corporation
- -------------------------------------------------------------------------------------------------
Consolidated Balance Sheet
(Amounts in thousands)
December 31
- -------------------------------------------------------------------------------------------------
1997 1996*
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets:
Cash and short-term investments................................ $ 29,164 $ 40,286
Accounts receivable, net....................................... 250,664 212,061
Prepaid expenses and other current assets...................... 26,990 24,980
-----------------------------
Total Current Assets.......................................... 306,818 277,327
Property and Equipment, net....................................... 106,096 102,532
Computer Software, net............................................ 60,466 51,331
Other Assets...................................................... 126,252 76,288
-----------------------------
$599,632 $507,478
=============================
Liabilities and Stockholders' Investment
Current Liabilities:
Notes payable.................................................. $ 47,730 $ 21,941
Current portion of long-term debt and capital leases........... 2,670 4,144
Dividends payable.............................................. 5,268 4,944
Accounts payable............................................... 31,516 27,042
Accrued expenses............................................... 71,499 56,323
Current deferred revenues...................................... 33,660 42,422
Accrued and current deferred income taxes...................... 25,593 14,862
-----------------------------
Total Current Liabilities..................................... 217,936 171,678
-----------------------------
Deferred Revenues................................................. 7,397 9,048
-----------------------------
Long-Term Debt and Capital Leases................................. 16,291 15,361
-----------------------------
Deferred Income Taxes............................................. 30,146 26,054
-----------------------------
Commitments
Stockholders' Investment:
Preferred stock, par value $.10; authorized 1,000,000 shares;
none issued.................................................. - -
Common stock, par value $.01; authorized 120,000,000 shares;
29,147,084 shares issued in 1997 and 28,835,333 in 1996...... 291 288
Paid-in capital................................................ 57,621 48,721
Retained earnings.............................................. 335,366 295,915
Common stock in treasury, at cost, 4,060,785 shares
in 1997 and 4,035,101 in 1996................................ (56,021) (55,782)
Cumulative translation adjustment.............................. (9,395) (3,805)
-----------------------------
Total Stockholders' Investment............................... 327,862 285,337
-----------------------------
$599,632 $507,478
=============================
- -------------------------------------------------------------------------------------------------
</TABLE>
* Restated to reflect the acquisition of American Healthware Systems, Inc. in
1997, which was accounted for as a pooling of interests.
The accompanying notes are an integral part of these statements.
20
<PAGE>
<TABLE>
<CAPTION>
Shared Medical Systems Corporation
- ----------------------------------------------------------------------------------------------------
Consolidated Statement of Income
(Amounts in thousands, except per share amounts)
Year Ended December 31
- ----------------------------------------------------------------------------------------------------
1997 1996* 1995*
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Service and system fees............................... $784,308 $698,379 $603,979
Hardware sales........................................ 111,927 80,695 58,132
----------------------------------------
896,235 779,074 662,111
----------------------------------------
Cost and Expenses:
Operating and development............................. 368,755 334,320 289,037
Marketing and installation............................ 263,655 232,152 200,481
General and administrative............................ 68,600 62,198 55,232
Cost of hardware sales................................ 93,840 68,493 47,872
Interest.............................................. 3,931 3,589 3,043
----------------------------------------
798,781 700,752 595,665
----------------------------------------
Income Before Income Taxes............................... 97,454 78,322 66,446
Provision for Income Taxes............................... 37,032 29,322 25,437
----------------------------------------
Net Income............................................... $ 60,422 $ 49,000 $ 41,009
========================================
Net Income Per Share:
Basic................................................. $2.42 $1.98 $1.68
========================================
Diluted............................................... $2.37 $1.93 $1.64
========================================
Number of shares used to compute per share amounts:
Basic................................................. 24,944 24,731 24,408
========================================
Diluted............................................... 25,489 25,404 24,974
========================================
- ----------------------------------------------------------------------------------------------------
</TABLE>
* Restated to reflect the acquisition of American Healthware Systems, Inc. in
1997, which was accounted for as a pooling of interests.
21
<PAGE>
<TABLE>
<CAPTION>
Shared Medical Systems Corporation
- --------------------------------------------------------------------------------------------------------------------------
Consolidated Statement of Cash Flows
(Amounts in thousands)
Year Ended December 31
- --------------------------------------------------------------------------------------------------------------------------
1997 1996* 1995*
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income................................................................. $ 60,422 $ 49,000 $ 41,009
Adjustments to reconcile net income to net cash provided by
operating activities -
Depreciation and amortization.......................................... 38,165 38,763 37,082
Asset (increase) decrease -
Accounts receivable................................................. (38,603) (37,928) (31,985)
Prepaid expenses and other current assets........................... (2,010) 1,028 (8,267)
Other assets........................................................ (41,078) (5,882) (3,100)
Liability increase (decrease) -
Accounts payable and accrued expenses............................... 19,650 14,712 6,086
Accrued and current deferred income taxes........................... 10,731 3,949 4,322
Deferred revenues................................................... (10,413) 13,898 (8,877)
Deferred income taxes............................................... 4,092 2,769 1,589
Other.................................................................. (3,187) (3,199) 2,072
----------------------------------------
Net cash provided by operating activities........................... 37,769 77,110 39,931
----------------------------------------
Cash Flows from Investing Activities:
Property and equipment additions........................................... (26,969) (28,232) (18,764)
Computer software additions................................................ (20,220) (18,802) (13,834)
Businesses and investments acquired........................................ (11,180) - (12,108)
Equipment dispositions..................................................... 1,232 609 458
----------------------------------------
Net cash used for investing activities.............................. (57,137) (46,425) (44,248)
----------------------------------------
Cash Flows from Financing Activities:
Dividends paid............................................................. (20,647) (21,983) (20,685)
Exercise of stock options.................................................. 8,903 8,676 7,199
Increase in notes payable.................................................. 25,789 1,021 8,537
Proceeds from long-term debt............................................... - - 15,178
Payments of long-term debt and capital lease obligations................... (5,560) (3,090) (3,694)
Change in treasury stock................................................... (239) (496) (170)
----------------------------------------
Net cash provided by (used for) financing activities................ 8,246 (15,872) 6,365
----------------------------------------
Net (Decrease) Increase in Cash and Short-Term Investments.................... (11,122) 14,813 2,048
Cash and Short-Term Investments, Beginning of Year............................ 40,286 25,473 23,425
----------------------------------------
Cash and Short-Term Investments, End of Year.................................. $ 29,164 $ 40,286 $ 25,473
========================================
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Restated to reflect the acquisition of American Healthware Systems, Inc. in
1997, which was accounted for as a pooling of interests.
The accompanying notes are an integral part of these statements.
22
<PAGE>
<TABLE>
<CAPTION>
Shared Medical Systems Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
Consolidated Statement of Stockholders' Investment*
For the Years Ended December 31, 1997, 1996, and 1995 (Amounts in thousands)
Cumulative
Common Stock Paid-in Retained Treasury Translation
--------------------
Shares Par Value Capital Earnings Stock Adjustment
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995....................................... 28,220 $282 $32,852 $248,701 $(55,116) $(3,021)
Common stock transactions -
Exercise of stock options and grant of restricted shares.. 324 3 4,544 (126)
Employee stock purchase plan.............................. (44)
Tax benefit from the exercise of non-qualified
stock options and vesting of restricted shares.......... 2,652
Dividends on common stock ($.84 per share).................. (20,752)
Net income.................................................. 41,009
Translation adjustment...................................... 2,283
------------------------------------------------------------------
Balance, December 31, 1995..................................... 28,544 285 40,048 268,958 (55,286) (738)
Common stock transactions -
Exercise of stock options and grant of restricted shares.. 291 3 4,354 (507)
Employee stock purchase plan.............................. 11
Tax benefit from the exercise of non-qualified
stock options and vesting of restricted shares.......... 4,319
Dividends on common stock ($.84 per share).................. (22,043)
Net income.................................................. 49,000
Translation adjustment...................................... (3,067)
------------------------------------------------------------------
Balance, December 31, 1996..................................... 28,835 288 48,721 295,915 (55,782) (3,805)
Common stock transactions -
Exercise of stock options and grant of restricted shares.. 312 3 5,189 (236)
Employee stock purchase plan.............................. (3)
Tax benefit from the exercise of non-qualified
stock options and vesting of restricted shares.......... 3,711
Dividends on common stock ($.84 per share).................. (20,971)
Net income.................................................. 60,422
Translation adjustment...................................... (5,590)
------------------------------------------------------------------
Balance, December 31, 1997..................................... 29,147 $291 $57,621 $335,366 $(56,021) $(9,395)
==================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Restated, except for dividends on common stock per share, to reflect the
acquisition of American Healthware Systems, Inc. in 1997, which was accounted
for as a pooling of interests.
23
<PAGE>
Shared Medical Systems Corporation
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
December 31, 1997, 1996, and 1995
- --------------------------------------------------------------------------------
1. Summary Of Significant Accounting Policies:
Principles of Consolidation - The consolidated financial statements include
the accounts of the Company and its subsidiaries. The financial statements of
the Company's foreign branches and subsidiaries are included in the accompanying
consolidated financial statements on the basis of their fiscal year ends, all of
which are within three months of the calendar year end. All significant
intercompany transactions and accounts have been eliminated. Investments in
affiliates between 20% and 50% are accounted for under the equity method.
Prior period financial results have been restated to reflect the Company's
acquisition of American Healthware Systems, Inc., which was completed on
February 28, 1997 and accounted for as a pooling of interests.
Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities, and the reported
amounts of revenues and expenses. Actual results could differ from these
estimates.
Recognition of Revenues - The Company's services and systems are provided
based upon contractual agreements. Service revenues, which include software,
processing, and professional service fees provided under term agreements, are
recorded as services are performed over the life of the agreement. Service
contracts have terms that range from one to ten years. System fees, consisting
of software applications provided under perpetual licensing agreements, are
recognized, when collection is deemed probable, primarily over the system's
installation period in order to properly match revenues with expenses incurred.
All service and system fees are billable according to the terms in each customer
contract. Hardware sales are recognized and invoiced generally upon installation
of the equipment at the customer site.
Current and noncurrent deferred revenues totaling $41,057,000 at December
31, 1997 and $51,470,000 at December 31, 1996, represent funds received by the
Company in advance of the performance of services or installation of systems,
which are deferred and recognized as revenues when earned.
Interest income from short-term investments included in revenues was
$343,000 in 1997, $328,000 in 1996, and $415,000 in 1995.
Accounts Receivable - Accounts receivable consists primarily of unsecured
amounts due from the Company's customers. Included in accounts receivable at
December 31, 1997 and 1996 were unbilled revenues recognized under certain
long-term software license, installation, and hardware contracts of $114,884,000
and $91,078,000, respectively. Such unbilled receivables arise from the
consistent application of the Company's revenue recognition policies. Invoicing
of unbilled receivables, which generally occurs within six months of the
recognition of the related revenues, is based upon the terms of the individual
customer contracts.
The Company's credit risk with respect to accounts receivable is
concentrated in the health industry, which is highly influenced by governmental
regulations. This concentration of credit risk is limited due to the number and
types of entities comprising the Company's customer base and their geographic
distribution. The Company routinely monitors its exposure to credit losses and
maintains an allowance for anticipated losses. At December 31, 1997 and 1996,
the allowance for doubtful accounts was $9,399,000 and $8,094,000, respectively.
The Company has provided long-term financing arrangements for services,
systems, and hardware to some of its customers. Some of these long-term
financing arrangements are partially collateralized by customer equipment. The
long-term portion of these financing arrangements, which are included in other
assets, have terms ranging from three to ten years and bear interest rates,
which may be stated or imputed, ranging from 5% to 12%. The long-term portion of
these financing arrangements, which approximate fair value, was $53,401,000 and
$30,037,000 at December 31, 1997 and 1996, respectively. Interest income earned
on long-term financing arrangements was $2,789,000, $2,670,000, and $2,642,000
in 1997, 1996, and 1995, respectively. The Company has had no material negative
collection experience associated with these long-term financing arrangements.
Prepaid Expenses and Other Current Assets - Included in prepaid expenses
and other current assets are deferred charges of $7,250,000 at December 31, 1997
and $9,113,000 at December 31, 1996, representing the cost of equipment, which
will be expensed when the related hardware revenues are earned.
24
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Property and Equipment - Property and equipment are stated at cost.
Depreciation and amortization are provided using the straight-line method over
the estimated useful lives, which range from two to fifteen years. The Company's
buildings, not including equipment therein, are being depreciated using a
45-year life. The major classes of property and equipment at December 31, 1997
and 1996 were as follows:
- --------------------------------------------------------------------------------
(Amounts in thousands) 1997 1996
- --------------------------------------------------------------------------------
Land and land improvements ....................... $ 11,615 $ 11,630
Buildings ........................................ 64,559 61,993
Equipment ........................................ 185,978 181,786
-------------------------
262,152 255,409
Less: accumulated depreciation
and amortization ............................ 156,056 152,877
-------------------------
$106,096 $102,532
=========================
- --------------------------------------------------------------------------------
Research and Development - The Company expenses all research and
non-capitalized development costs, which generally consist of costs incurred to
establish the technological feasibility of internally produced computer
software. These expenses, which were primarily for salaries of personnel and
computer costs, were $64,046,000 in 1997, $54,665,000 in 1996, and $45,385,000
in 1995.
Computer Software - The Company capitalizes the cost of certain internally
produced computer software and purchased software. Capitalization for internally
produced software begins when a project reaches technological feasibility and
ends when the software is available for general release to customers. The
Company amortizes computer software using the straight-line method over its
expected useful life, which is generally five years.
Capitalized internally produced software costs, net of accumulated
amortization, were $40,911,000 and $36,042,000 as of December 31, 1997 and 1996,
respectively. Amortization related to capitalized internally produced software
was $7,867,000 in 1997, $7,993,000 in 1996, and $7,722,000 in 1995. Purchased
software, net of accumulated amortization, was $19,555,000 and $15,289,000 as of
December 31, 1997 and 1996, respectively. Accumulated amortization of computer
software at December 31, 1997 and 1996 was $66,549,000 and $55,016,000,
respectively.
Businesses and Investments Acquired - On February 28, 1997, the Company
completed a merger with American Healthware Systems, Inc. (AHS), a provider of
financial information systems and outsourcing services. Under the terms of the
merger, the Company issued 1,255,325 shares of the Company's common stock in
exchange for all outstanding shares of AHS. This transaction was treated as a
pooling of interests. Separate operating results for the Company (SMS) and AHS
for 1996 and 1995 were as follows:
- --------------------------------------------------------------------------------
(Amounts in thousands) 1996 1995
- --------------------------------------------------------------------------------
Revenues:
SMS ........................................... $767,350 $650,641
AHS ........................................... 11,724 11,470
-------------------------
$779,074 $662,111
=========================
Net Income:
SMS ........................................... $47,038 $39,783
AHS ........................................... 1,962 1,226
-------------------------
$49,000 $41,009
=========================
- --------------------------------------------------------------------------------
On December 4, 1997, the Company acquired a 15% equity interest in Visteon
Corporation, a provider of practice management systems to physician groups, for
$10,280,000.
Goodwill - Included in other assets are amounts for goodwill, which
represent the excess of the purchase price of acquisitions over the fair value
of the net assets acquired. The Company periodically assesses the recoverability
of goodwill for potential impairment. Goodwill is amortized using the
straight-line method over twenty years. Goodwill included in other assets, net
of accumulated amortization, was $26,639,000 and $28,358,000 as of December 31,
1997 and 1996, respectively.
Accrued Expenses - Included in accrued expenses are incentive compensation
plan accruals of $28,130,000 at December 31, 1997 and $22,753,000 at December
31, 1996. Incentive compensation plan payments are primarily based on sales and
revenues generated from the signing of new and renewal contracts.
25
<PAGE>
Shared Medical Systems Corporation
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
December 31, 1997, 1996, and 1995
- --------------------------------------------------------------------------------
Income Taxes - The Company uses the liability method of accounting for
income taxes. Under this method, deferred income tax assets and liabilities are
recorded based upon temporary differences in the recognition of revenues and
expenses (principally accrued and deferred revenues, depreciation and
amortization, and the cost of capitalized internally produced computer software)
for tax and financial reporting purposes.
Translation of Foreign Currencies - Assets and liabilities of foreign
branches and subsidiaries are translated at current exchange rates, and the
effects of these translation adjustments are reported as a separate component of
stockholders' investment. Revenues and expenses of foreign branches and
subsidiaries are translated at the average exchange rates that prevailed over
the applicable year.
Foreign Currency Transactions - Transactions of the Company and its foreign
branches and subsidiaries are periodically made in currencies other than their
own and are included in income as they occur. The Company periodically hedges
these foreign currency transactions in order to minimize exposure to potential
fluctuations. There were no material gains or losses arising from foreign
currency transactions during 1997, 1996, and 1995.
Statement of Cash Flows - The Company's short-term investments have
original maturities of less than 91 days and are deemed to be cash equivalents
for purposes of reporting cash flows. At December 31, 1997 and 1996, the
carrying amount of cash and short-term investments approximates fair value. The
Company paid income taxes, net of refunds, of $18,389,000 in 1997, $17,984,000
in 1996, and $16,397,000 in 1995; and interest of $4,329,000 in 1997, $3,184,000
in 1996, and $2,936,000 in 1995. Capital lease obligations of $5,014,000, and
$1,917,000, were added by the Company in 1997 and 1996, respectively.
2. Net Income Per Share:
For each of the three years in the period ended December 31, 1997, the
reconciliation of basic and diluted net income per share was as follows:
- --------------------------------------------------------------------------------
(Amounts in thousands, Net Per Share
except per share amounts) Income Shares Amount
- --------------------------------------------------------------------------------
1997:
Basic net income per share..................... $60,422 24,944 $2.42
Dilutive Securities:
Stock Options................................ 545
-----------------------------
Diluted net income per share................... $60,422 25,489 $2.37
=============================
1996:
Basic net income per share..................... $49,000 24,731 $1.98
Dilutive Securities:
Stock Options................................ 673
-----------------------------
Diluted net income per share................... $49,000 25,404 $1.93
=============================
1995:
Basic net income per share..................... $41,009 24,408 $1.68
Dilutive Securities:
Stock Options................................ 566
-----------------------------
Diluted net income per share................... $41,009 24,974 $1.64
=============================
- --------------------------------------------------------------------------------
Prior period per share amounts have been restated in accordance with
Financial Accounting Standards No. 128 "Earnings Per Share."
3. Income Taxes:
The provision for income taxes consisted of:
- --------------------------------------------------------------------------------
(Amounts in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
Federal:
Current....................................... $18,259 $20,492 $17,900
Current deferred.............................. 11,302 3,111 3,277
Noncurrent deferred........................... 3,692 2,425 1,438
-----------------------------
33,253 26,028 22,615
-----------------------------
State and foreign:
Current....................................... 2,098 2,587 2,288
Current deferred.............................. 1,283 362 383
Noncurrent deferred........................... 398 345 151
-----------------------------
3,779 3,294 2,822
-----------------------------
Provision for income taxes..................... $37,032 $29,322 $25,437
=============================
- --------------------------------------------------------------------------------
26
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The provision for income taxes resulted in effective tax rates for the
years ended December 31, 1997, 1996, and 1995, which differ from the statutory
federal income tax rate as follows:
- --------------------------------------------------------------------------------
Percentage of Income
-----------------------------
1997 1996 1995
- --------------------------------------------------------------------------------
Statutory federal income tax rate............... 35.0% 35.0% 35.0%
State income taxes, net of
federal income tax benefit................... 2.3 2.3 2.6
Other........................................... 0.7 0.1 0.7
-----------------------------
38.0% 37.4% 38.3%
=============================
- --------------------------------------------------------------------------------
The significant components of the combined current and noncurrent net
deferred tax liability for the years ended December 31, 1997 and 1996 were as
follows:
- --------------------------------------------------------------------------------
(Amounts in thousands) 1997 1996
- --------------------------------------------------------------------------------
Capitalized internally produced software........ $14,693 $13,153
Depreciation and amortization................... 10,328 10,228
Accrued and deferred revenues, net.............. 18,899 9,464
Other temporary differences..................... 10,350 4,748
-------------------
$54,270 $37,593
===================
- --------------------------------------------------------------------------------
At December 31, 1997 the Company had foreign net operating loss
carryforwards of $15,300,000, of which $10,252,000 can be carried forward
indefinitely while the remainder will expire over the next seven years. The
Company also has approximately $9,800,000 of tax basis in excess of book value,
which may be utilized to offset taxable income in the future. Due to their
contingent nature, these deferred tax assets have been fully offset by a
valuation allowance.
The Company does not provide for US income and foreign withholding taxes on
the unremitted earnings of its foreign subsidiaries, which the Company considers
to be permanently invested. Cumulative unremitted foreign earnings were
$15,748,000 at December 31, 1997.
4. Employee Benefit Plan:
The Company has a Section 401(k) retirement savings plan. As part of this
plan, employees may contribute a portion of their earnings, which are then
invested, as specified by the employees, in the common stock of the Company or
in any of nine mutual investment funds. The Company matches a certain portion of
employee contributions under the plan. The Company's matching contributions
charged to expenses in 1997, 1996, and 1995 were $3,760,000, $3,327,000, and
$3,049,000, respectively.
5. Capital Stock:
The Board of Directors may authorize the issuance of one or more series of
preferred stock with dividend rates, redemption prices, conversion privileges,
and sinking fund requirements as determined by the Board.
During 1987 and 1988, the Board adopted resolutions authorizing, but not
requiring, the Company to repurchase up to a total of 5,000,000 shares of its
common stock from time to time. As of December 31, 1997, 2,873,500 shares had
been acquired, at a cumulative cost of $54,325,000. During 1997, 1996, and 1995
no additional shares were repurchased under these resolutions.
In 1991, the Board of Directors adopted a stockholder rights plan and
declared a dividend of one preferred stock purchase right for each outstanding
share of common stock. In general, such rights only become exercisable, or
transferable apart from the common stock, after a person or group (Acquiring
Person) acquires beneficial ownership of, or commences a tender or exchange
offer for, 15% or more of the Company's common stock. Each right then may be
exercised to acquire one one-thousandth of a share of a newly-created Series A
Junior Participating Preferred Stock at an exercise price of $80. Alternatively,
upon the occurrence of certain events (for example, if the Company is the
surviving corporation in a merger with an Acquiring Person), the rights entitle
holders other than the Acquiring Person to acquire common stock having a value
of twice the exercise price of the rights, or, upon the occurrence of certain
other events (for example, if the Company is acquired in a merger or other
business combination transaction in which the Company is not the surviving
corporation), to acquire common stock of the Acquiring Person having a value
twice the exercise price of the rights. In general, the rights may be redeemed
by the Company at $.001 per right at any time until the tenth day following
public announcement that a 15% position has been acquired. The rights will
expire on December 31, 2001.
27
<PAGE>
Shared Medical Systems Corporation
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
December 31, 1997, 1996, and 1995
- --------------------------------------------------------------------------------
6. Stock Options:
The Company has issued stock options to key employees and non-employee
directors under various non-qualified stock option plans. Stock options granted
under these plans may have terms ranging up to 20 years and may be exercisable
at prices no less than 75% of the fair market value of the Company's common
stock as determined on the date of the grant. All stock options granted under
these plans have exercise prices equal to the fair market value of the Company's
common stock on the date of grant.
The Company accounts for stock options under the intrinsic value method
and, accordingly, no compensation expense has been recorded in 1997, 1996, and
1995. The following pro forma amounts were determined as if the Company had
accounted for its stock options using the fair value method.
- --------------------------------------------------------------------------------
(Amounts in thousands,
except per share amounts) 1997 1996 1995
- --------------------------------------------------------------------------------
Net income:
As reported................................ $60,422 $49,000 $41,009
Pro forma.................................. $57,959 $48,127 $40,799
Net income per share:
As reported:
Basic.................................... $2.42 $1.98 $1.68
Diluted.................................. $2.37 $1.93 $1.64
Pro forma:
Basic.................................... $2.32 $1.95 $1.67
Diluted.................................. $2.27 $1.89 $1.63
- --------------------------------------------------------------------------------
Because the fair value method was not applied to stock options granted
prior to January 1, 1995, the resulting pro forma compensation cost may not be
representative of compensation cost to be disclosed in future years.
The fair value of stock options granted was $13.85 per option, $12.28 per
option, and $8.92 per option in 1997, 1996, and 1995, respectively. The fair
value was estimated at the date of grant using the Black-Scholes stock option
pricing model with the following average assumptions for 1997, 1996, and 1995,
respectively: risk free interest rates of 6.1%, 6.3%, and 6.3%; dividend yields
of 2.4%, 2.6%, and 3.7%; volatility factors of 33.3%, 31.6%, and 26.9%; and
expected lives of four, four, and six years.
The following table summarizes the activity of all stock option plans
during the three years ended December 31, 1997:
- --------------------------------------------------------------------------------
Stock Options
-----------------------
Average
Price
Shares Per Share
- --------------------------------------------------------------------------------
Outstanding - January 1, 1995........................ 1,894,505 $17.89
Granted........................................... 489,400 $36.95
Exercised......................................... (297,445) $14.01
Canceled.......................................... (51,335) $22.75
---------
Outstanding - December 31, 1995...................... 2,035,125 $22.88
Granted........................................... 484,000 $47.30
Exercised......................................... (265,066) $14.86
Canceled.......................................... (75,480) $20.42
---------
Outstanding - December 31, 1996...................... 2,178,579 $29.35
Granted........................................... 615,300 $48.06
Exercised......................................... (279,451) $18.11
Canceled.......................................... (178,763) $33.03
---------
Outstanding - December 31, 1997...................... 2,335,665 $35.39
=========
- --------------------------------------------------------------------------------
Exercisable stock options at December 31, 1997, 1996, and 1995 were as
follows:
- --------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------
Stock options.............................. 547,213 448,721 381,607
Average option
price per share.......................... $21.71 $15.09 $14.78
- --------------------------------------------------------------------------------
At December 31, 1997, exercise prices for stock options outstanding ranged
from $12.50 to $68.00 per share and the average term to expiration was seven
years. As of December 31, 1997 and 1996, respectively, a maximum of 900,080 and
1,454,748 of additional stock options were available for grant under the
Company's stock option plans. The outstanding stock options expire on various
dates through 2015.
The Company may also grant restricted shares of its common stock under two
of these plans. Restricted stock grants are recorded as compensation expense
during the vesting terms, which currently range from three to six years. As of
December 31, 1997, there were 49,077 restricted shares outstanding.
28
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7. Long-Term Debt and Lines of Credit:
In 1995 the Company entered into long-term borrowing agreements with a
bank, which are repayable through 2002. These loans were used to partially
finance acquisitions of businesses and for operations. Long-term debt consisted
of the following at December 31, 1997 and 1996:
- --------------------------------------------------------------------------------
(Amounts in thousands) 1997 1996
- --------------------------------------------------------------------------------
Payable in foreign currency:
7.87% Pound Sterling note due
through 2002......................................... $ 8,408 $ 9,129
6.75% Deutsche Mark note due
through 2002......................................... 2,432 3,224
Payable in US dollars:
5.47% note due through 2002.......................... 2,286 2,656
---------------------
13,126 15,009
Less current portion................................. 1,181 1,130
---------------------
$11,945 $13,879
=====================
- --------------------------------------------------------------------------------
Aggregate maturities of long-term debt are: 1998 - $1,181,000, 1999 -
$1,566,000, 2000 - $1,799,000, 2001 - $2,041,000, and 2002 - $6,539,000. At
December 31, 1997, the carrying amount of long-term debt approximates fair
value.
At December 31, 1997, the Company had lines of credit with banks totaling
$71,432,000, generally at their prime interest rates, of which $23,702,000 of
these lines of credit were unused.
8. Long-Term Leases and Commitments:
The Company leases equipment, which is primarily used at the Company's
Information Services Center, for periods ranging up to 60 months. Obligations
for this type of equipment for the next five years are as follows:
- --------------------------------------------------------------------------------
Operating Capital
(Amounts in thousands) Leases Leases
- --------------------------------------------------------------------------------
1998.................................................... $22,942 $1,876
1999.................................................... 19,405 1,708
2000.................................................... 13,904 1,708
2001.................................................... 5,355 1,209
2002.................................................... 448 302
---------------------
$62,054 6,803
=======
Less interest....................................................... 968
------
Present value of future capital
lease obligations................................................ $5,835
======
- --------------------------------------------------------------------------------
Rental expenses for the operating leases described above were $27,532,000
in 1997, $29,694,000 in 1996, and $29,031,000 in 1995.
Operating lease obligations for office space, primarily branch offices,
expiring at various dates through 2002 require minimum aggregate annual rentals
of: 1998 - $12,258,000, 1999 - $9,721,000, 2000 - $8,156,000, 2001 - $6,934,000,
2002 - $4,697,000. Rental expenses for these facilities amounted to $12,377,000
in 1997, $10,883,000 in 1996, and $10,421,000 in 1995.
In 1995 the Company entered into a resale agreement with a supplier of
client/server software applications. This agreement, which is renewable, expires
in 2005. The minimum payments due under this agreement are: 1998 - $3,100,000,
and 1999 - $2,600,000.
29
<PAGE>
Shared Medical Systems Corporation
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
December 31, 1997, 1996, and 1995
- --------------------------------------------------------------------------------
9. Business Segment Information:
The Company's only line of business is providing information service and
system solutions to health organizations in the US and internationally. Revenues
and operating profits for the three years ended December 31, 1997, and
identifiable assets at the end of each of those years, classified by geographic
area, were as follows:
- ------------------------------------------------------------------------------
(Amounts in thousands) 1997 1996 1995
- ------------------------------------------------------------------------------
Revenues:
US.................................... $802,713 $667,167 $569,347
International......................... 93,522 111,907 92,764
-----------------------------------
Consolidated........................ $896,235 $779,074 $662,111
===================================
Operating Profit (Loss):
US.................................... $108,116 $75,770 $61,956
International......................... (6,731) 6,141 7,533
-----------------------------------
Consolidated........................ 101,385 81,911 69,489
Interest expense....................... 3,931 3,589 3,043
-----------------------------------
Income before income taxes............. $ 97,454 $78,322 $66,446
===================================
Identifiable assets:
US.................................... $475,079 $369,257 $334,937
International......................... 95,389 97,935 82,108
Corporate assets...................... 29,164 40,286 25,473
-----------------------------------
Total assets....................... $599,632 $507,478 $442,518
===================================
- ------------------------------------------------------------------------------
Operating profit equals total revenues less operating expenses and cost of
hardware sales. In computing operating profit, interest expense is excluded.
Identifiable assets are those assets of the Company that are associated with the
operations in each geographic area. Corporate assets are cash and short-term
investments. In 1997, 1996, and 1995, no single customer accounted for 10% or
more of consolidated revenues.
10. Selected Quarterly Financial Data (Unaudited):
The following table summarizes quarterly financial data for 1997 and 1996:
- --------------------------------------------------------------------------------
(Amounts in thousands, except per share amounts)
Income Net
Before Income
Income Net Per Share
Quarter Revenues Taxes Income Diluted
- --------------------------------------------------------------------------------
1996:
First $173,094 $17,903 $11,168 $.44
Second 193,722 18,924 11,829 .46
Third 189,640 19,270 12,074 .48
Fourth 222,618 22,225 13,929 .55
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1997:
First $209,879 $22,736 $14,096 $.56
Second 213,394 23,420 14,521 .57
Third 224,732 24,174 14,987 .59
Fourth 248,230 27,124 16,818 .65
- --------------------------------------------------------------------------------
11. Subsequent Events:
On January 28, 1998, the Company completed a merger with Data-Plan
Software GmbH. Under the terms of this agreement, the Company issued 1,119,428
shares of the Company's common stock and will account for this transaction as a
pooling of interests. Pro forma information has not been provided due to
immateriality.
On January 31, 1998, the Company increased its ownership interest in Delta
Health Systems from 50% to 100% by purchasing the remaining equity for
$21,176,000 from Delta Computer Systems, Inc.
30
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Report Of Independent Public Accountants
To the Stockholders and Board of Directors, Shared Medical Systems Corporation:
We have audited the accompanying consolidated balance sheet of Shared
Medical Systems Corporation (a Delaware corporation) and subsidiaries as of
December 31, 1997 and 1996, and the related consolidated statements of income,
stockholders' investment and cash flows for each of the three years in the
period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Shared Medical Systems
Corporation and subsidiaries as of December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
Philadelphia, PA Arthur Andersen LLP
February 9, 1998
- --------------------------------------------------------------------------------
Directors
R. James Macaleer, Chairman of the Board
Mr. Macaleer has been Chairman since the Company's
founding in 1969. He also served as Chief Executive Officer
from the Company's founding in 1969 until 1995.
Raymond K. Denworth, Jr., Director
Mr. Denworth has been a Director since 1976. He is of counsel
to Drinker Biddle & Reath LLP, attorneys and counsel to the
Company.
Frederick W. DeTurk, Director
Mr. DeTurk has been a Director since 1981. He is President of
DeTurk Enterprises, Inc., a management consulting firm.
Josh S. Weston, Director
Mr. Weston has been a Director since 1987. He is Chairman of
Automatic Data Processing, Inc., an information processing
services company.
Jeffrey S. Rubin, Director
Mr. Rubin has been a Director since 1993. He is a partner of
Boles Knop and Company LLC, an investment banking company.
Marvin S. Cadwell, Director, President, and Chief Executive Officer
Mr. Cadwell has been a Director since 1995. He has served as
President and Chief Executive Officer since 1995. Mr. Cadwell
previously served in a variety of executive positions since
joining the Company in 1975.
Gail R. Wilensky, Ph.D., Director
Dr. Wilensky has been a Director since 1996. She is a Senior
Fellow at Project HOPE, an international health education
foundation. She serves as a formal and informal advisor to the
government and private sector on healthcare reform.
Executive Officers
R. James Macaleer, Chairman of the Board
Marvin S. Cadwell, President and Chief Executive Officer
James C. Kelly, Secretary
V. Brewster Jones, Senior Vice President
Terrence W. Kyle, Senior Vice President, Treasurer, and
Assistant Secretary
Francis W. Lavelle, Senior Vice President
David F. Ferri, Senior Vice President
Guillermo N. Ramas, Sr., Senior Vice President
and President of SMS International
Michael B. Costello, Vice President,
Administration and Corporate Communications
Edward J. Grady, Vice President, Controller, and
Assistant Treasurer
Bonnie L. Shuman, Vice President, General Counsel, and
Assistant Secretary
31
<PAGE>
Shared Medical Systems Corporation
- --------------------------------------------------------------------------------
SMS Office Locations
- --------------------------------------------------------------------------------
Corporate Headquarters
SMS
51 Valley Stream Parkway
Malvern, PA 19355
610-219-6300
www.smed.com
US Offices
Altoona, PA Nashville, TN
814-944-1651 615-377-1244
Atlanta, GA New Orleans, LA
770-993-2490 504-835-3894
Boston, MA New York, NY
781-224-0817 212-563-2380
Brooklyn, NY Oakland, CA
718-435-6300 510-444-0171
Charlotte, NC Philadelphia, PA
704-362-4802 610-640-4490
Chicago, IL Phoenix, AZ
847-806-0666 602-248-0328
Cleveland, OH Pittsburgh, PA
216-524-0313 412-921-6400
Columbus, OH Salt Lake City, UT
614-885-0198 800-243-8483
Dallas, TX San Francisco, CA
972-783-6737 510-463-9750
Detroit, MI San Juan, PR
248-449-2500 787-756-6700
Edison, NJ Santa Barbara, CA
732-906-8900 805-964-5561
Ft. Lauderdale, FL Seattle, WA
954-771-4880 425-827-4455
Herndon, VA St. Louis, MO
703-713-3490 314-542-0100
Indianapolis, IN Tulsa, OK
317-464-5148 918-524-5400
Kansas City, KS Wilmington, DE
913-384-4811 302-478-3242
Los Angeles, CA
562-596-4554
International Administration
Key House
Sarum Hill
Basingstoke, Hampshire RG21 8SR, England
011-44-1256-467556
Edificio Lariza
Avenida de los Encuartes, 21
28760 Tres Cantos
Madrid, Spain
011-34-1-807-7500
International Offices
Belgium Netherlands
Zaventem Nieuwegein
011-32-2-725-0407 011-31-30-60-52852
Czech Republic New Zealand
Brno Wellington
011-420-5-4222-1290 011-64-4-4711793
France Spain
Montpellier Barcelona
011-33-46704-1143 011-34-3-201-6811
Germany Sevilla
Berlin 011-34-5-450-1101
011-49-30-66-32034
United Kingdom
Eschborn Basingstoke
011-49-6196-924-0 011-44-1256-357100
Essen Belfast
011-49-201-8921-0 011-44-1232-664941
Hamburg Huntingdon
011-49-40-899668-0 011-44-1480-434141
Paderborn Manchester
011-49-5251-1811-0 011-44-1617-739211
Reichenbach Warrington
011-49-3765-5513-0 011-44-1925-851171
St. Wolfgang
011-49-8085-17-0
Hungary
Budapest
011-36-1-251-14540
Ireland
Dublin
011-353-1-806-0800
Italy
Rome
011-39-6-439-3350
32
<PAGE>
Annual Stockholders Meeting
The Annual SMS Stockholders Meeting will be held on Friday, May 15, 1998, at the
Union League of Philadelphia, 140 South Broad Street, Philadelphia,
Pennsylvania, at 11:30 a.m.
Common Stock
SMS common stock trades on the New York Stock Exchange under the symbol "SMS".
Transfer Agent
ChaseMellon Shareholder Services, L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07660
800-851-9677
www.chasemellon.com
Counsel
Drinker Biddle & Reath LLP
Philadelphia, PA
Independent Public Accountants
Arthur Andersen LLP
Philadelphia, PA
SMS Investor Relations
Investors and the financial community should direct inquiries to
MaryBeth Alvin
Director, SMS of Investor Relations
610-219-6528
[email protected]
MEMBER
AMERICAN
BUSINESS
CONFERENCE
SMS is an Equal Opportunity/Affirmative Action Employer.
[RECYCLE LOGO] This Annual Report is printed on recycled paper.
Design by Warkulwiz Design Associates. Photography on location at Crozer -
Keystone Health System and SMS by H. Mark Weidman. Printing by Tursack Printing.
<PAGE>
[SMS LOGO APPEARS HERE]
Shared Medical Systems
Corporation
51 Valley Stream Parkway
Malvern, PA 19355
610-219-6300
www.smed.com
<PAGE>
Exhibit (21)
Subsidiaries of the Registrant
------------------------------
SMS Enterprises, Incorporated (a Delaware corporation)
<PAGE>
Exhibit (23)
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Shared Medical Systems Corporation:
As independent public accountants, we hereby consent to the incorporation of our
report dated February 9, 1998 included (or incorporated by reference) in Shared
Medical Systems Corporation's 10-K for the year ended December 31, 1997, into
the Company's previously filed Registration Statements on Form S-8 (File Nos. 2-
83465, 2-85345, 2-85346, 2-96224, 2-96225, 33-18161, 33-25010, 33-34089, 33-
34410, 33-37742, 33-47572, 33-61967) and S-3 (File Nos. 333-23683 and 333-
47071).
/S/ Arthur Andersen LLP
Philadelphia, PA
March 27, 1998
<TABLE> <S> <C>
<PAGE>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 29,164
<SECURITIES> 0
<RECEIVABLES> 260,063
<ALLOWANCES> 9,399
<INVENTORY> 0
<CURRENT-ASSETS> 306,818
<PP&E> 262,152
<DEPRECIATION> 156,056
<TOTAL-ASSETS> 599,632
<CURRENT-LIABILITIES> 217,936
<BONDS> 16,291
0
0
<COMMON> 291
<OTHER-SE> 327,571
<TOTAL-LIABILITY-AND-EQUITY> 599,632
<SALES> 111,927
<TOTAL-REVENUES> 896,235
<CGS> 93,840
<TOTAL-COSTS> 632,410
<OTHER-EXPENSES> 68,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,931
<INCOME-PRETAX> 97,454
<INCOME-TAX> 37,032
<INCOME-CONTINUING> 60,422
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 60,422
<EPS-PRIMARY> 2.42
<EPS-DILUTED> 2.37
</TABLE>
