-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E4eZ/o9IAyGrhkMwhuJX9ZUZObYmX7kX+Gt2aWKDZctLH/rKgT54flI/4KK0P1aW ITbczYGEamfBsa7ull0bZw== 0001005477-97-001058.txt : 19970415 0001005477-97-001058.hdr.sgml : 19970415 ACCESSION NUMBER: 0001005477-97-001058 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970414 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GHS INC CENTRAL INDEX KEY: 0000791398 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 521373960 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-15586 FILM NUMBER: 97579836 BUSINESS ADDRESS: STREET 1: 1350 PICCARD DR STREET 2: SUITE 360 CITY: ROCKVILLE STATE: MD ZIP: 20850 BUSINESS PHONE: 3014179808 MAIL ADDRESS: STREET 1: 1350 PICCARD DR STREET 2: SUITE 360 CITY: ROCKVILLE STATE: MD ZIP: 20850 FORMER COMPANY: FORMER CONFORMED NAME: GLOBAL HEALTH SYSTEMS INC DATE OF NAME CHANGE: 19890509 10-K 1 ANNUAL REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended Commission File No. December 31, 1996 0-15586 GHS, INC. (Exact name of Registrant as specified in its charter) Delaware 52-1373960 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1350 Piccard Drive, Suite 360, Rockville, Maryland 20850 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: (301) 417-9808 Securities Registered Pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered None Not Applicable Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share Indicate by check mark whether the Registrant (1) has filed all reports required to be filed in Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES |X| NO |_| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K. [ X ]. The aggregate market value of Registrant's Common Stock held by non-affiliates was approximately $____________ on April 1, 1997, based upon the average of the bid and asked prices as reported on NASDAQ. The number of shares of Registrant's Common Stock, par value $.01 per share, outstanding as of March 14, 1997, was 6,947,828. DOCUMENTS INCORPORATED BY REFERENCE Certain exhibits (to this Annual Report on Form 10K for the Registrant's fiscal year ended December 31, 1996) are incorporated by reference as listed on the index of exhibits in Part IV, ITEM 14. 1 Part I ITEM 1. BUSINESS GHS, Inc. (the Company) provides management services, computer systems, technology, and management to the health care industry. The Company provides these products and services primarily via its two operating subsidiaries, Global Health Systems, Inc. and U.S. NeuroSurgical, Inc.(R). In addition the Company is a minority partner in Florida Specialty Networks, Ltd. As used herein, unless the context indicates otherwise, the term "Company", "Registrant" and "GHS, Inc." means GHS, Inc. and its subsidiaries. The Company, a Delaware corporation, was formed in December 1984 under the name "Global Health Systems, Inc." GHS, Inc. was given its present name in October 1988, when it assigned substantially all of its assets and liabilities to its wholly-owned subsidiary, Global Health Systems, Inc., a Delaware corporation formed in September 1988 to continue the business of the Company. The Company's executive offices are located at 1350 Piccard Drive, Suite 360, Rockville, Maryland 20850, and its telephone number is (301) 417-9808. Recent Events On March 10, 1997, GHS, Inc. and Health Management Systems, Inc. (HMS), announced that they entered into a definitive asset purchase agreement pursuant to which HMS will acquire substantially all of the assets of GHS' subsidiaries, Global Health Systems, Inc. and GHS Management Services. These subsidiaries provide computerized record-based processing systems and services for managed care, public health and ambulatory care facilities. The purchase agreement calls for consideration to GHS by HMS of $2,100,000 in cash, subject to certain closing adjustments. The closing is subject to certain conditions, including the receipt of consents required for the assignment of certain contracts and official notice to GHS' shareholders pursuant to federal securities and state laws. Stockholders of GHS holding a majority of the outstanding shares of GHS common stock have consented to this sale to HMS. GHS will retain its subsidiary, US NeuroSurgical, Inc., a company that owns and operates Gamma Knife Centers, as well as its interest in Florida Specialty Networks, Ltd., a company that manages medical specialty networks. Upon the closing of the sale, HMS will employ each of GHS' current employees, 2 including Mr. Alan Gold. Mr. Gold will also remain as the Chairman and President of GHS following the closing and run GHS's remaining operations. Global Health Systems, Inc. General Global Health Systems, Inc. (Global), provides computerized integrated patient record-based processing systems and services for managed care facilities in the public and private sector. The Company currently supports more than 100 client sites in 15 states and the Republic of Iceland. Global offers systems either as turnkey products or under facilities management agreements providing hardware, implementation, training, maintenance, and in some cases, billing, claims processing, and other operational support. The Company has expanded its scope of services to provide executive healthcare management services via long term contracts with health care plans including HMOs and newly emerging health systems like PSNs (Provider Service Networks), PHOs (Physician Hospital Organizations), and MSOs (Management Service Organizations). These services include planning and development, executive management, finance, information systems, membership services, claims processing, utilization management, provider relations, and quality assurance. Global Health Information System (GHiS) Global's major product, the Global Health Information System (GHiS), is a totally integrated, patient record-based information system designed, developed, and continuously tailored to meet the needs of managed care organizations. The system has evolved over more than a decade from an on-line ambulatory care system supporting FFS billing and electronic medical records, into a comprehensive information system for managed care organizations. The GHiS automates the financial, medical, and administrative functions of the facility in a single, integrated data base. The information in the data base is instantly available for displaying, printing, and reporting to any authorized user, within a facility or at geographically dispersed locations. 3 The GHiS contains on-line real time, integrated modules which can be sold as an integrated whole, or in some instances, as a separate stand-alone system. System modules include Registration/Enrollment/Eligibility; Claims Processing; Service Authorizations; Utilization Reports; Regimen Tracking/Protocols; Case Management; Laboratory; Pharmacy; Medical Records; Report Generator; Member Services; Billing/Capitation; Patient and Resource Scheduling; Credentialling; and Provider Contracts. Software Licensing and Product Protection Global's license agreements with clients contain provisions designed to prevent disclosure and unauthorized use of the Company's products. Because software applications generally cannot be patented, the Company relies upon such license agreements and confidentiality agreements to protect its proprietary knowledge. Clients are required to sign contracts restricting use to their own operations and prohibiting disclosure to third-parties. Further, clients are not provided with the software source code. Despite these restrictions it may be possible for competitors to obtain the Company's trade secrets, which could adversely affect the Company's business. Hardware Global's systems are hardware independent and are offered on a variety of hardware platforms from International Business Machines, Digital Equipment Corporation, Hewlett Packard, Data General, and other hardware companies that can support UNIX. The systems can operate on mini or mainframe computers. Hardware support services are not included with the systems, but clients are encouraged to obtain hardware maintenance coverage with the hardware vendor or with third-party maintenance vendors. 4 Implementation, Training, Warranty, Maintenance, Facilities Management, and Management Services Global offers systems either as turnkey products, facilities management agreements, or as part of a contingent fee/service bureau structure. As part of the turnkey system approach, Global provides customer support services from pre-installation through post-implementation. Global works with the customer to plan the implementation of the system and provides software modifications to customer specifications. Technical specialists install the software and train users on-site with a simulated training data base. Global provides annual maintenance contracts for software support and enhancements to maintain the integrity of the system after purchase. Under the facilities management approach, Global provides the services described above including claims processing and also employs one or more system managers who are responsible for operating and maintaining the system for the facility. Maintenance and facilities management contracts accounted for approximately 32% of the Company's revenues for the year ended December 31, 1996. Global provides management services to managed care organizations and public health agencies. These services are an expansion of Global's facilities management approach. Services are offered for a fixed price, a percentage of capitation or revenues, a rate per member per month, or a rate per system user. Product Development Changing client needs as well as technological changes in hardware necessitate constant software enhancement and/or expansion. In addition, government regulatory changes such as reimbursement schemes require the development of new software modules to support shifting needs of existing clients and new clients. For example, under a managed care scenario it is necessary to track costs, financial exposure, and utilization review. Product development projects have been undertaken primarily in response to 5 specific client requests and to satisfy needs of Global's management services clients. In the fiscal years ended December 31, 1996, 1995, and 1994 the Company expended approximately $231,000, $320,000, and $124,000, respectively, for research, development, and enhancement of computer software systems. Competition There are several hundred companies involved in the national medical information systems and services market. Many of these companies are considerably larger and financially stronger than the Company. These companies provide varying combinations of hardware, software and services. Major competitors include Shared Medical, IDX, and Computer Sciences Corporation. Marketing and Customers Global markets products and services from its headquarters in Rockville, Maryland, directly through a marketing staff and sales staff to large municipalities and managed care providers. The marketing department responds to Requests for Proposals (RFPs), exhibits at trade conventions, conducts direct mail, telemarketing and public relations campaigns, and advertises occasionally in health care computing publications. Clients are currently distributed geographically through 15 states, the District of Columbia and the Republic of Iceland. Systems are operating at more than 100 locations nationwide with approximately 25% of such locations in California. Global's turnkey contracts cover both the system sale and the ongoing maintenance. Revenue related to the system sale is generally recognized in accordance with the Company's revenue recognition policy. However, billings are made in installments based on milestones reached in accordance with the contract provisions. The maintenance portion of the contract extends 2 to 5 years after system installation with revenue recognized as billed, generally monthly. Global's facilities management and management service contracts are billed monthly for the life of the contract term, generally, two to five years. 6 Backlog As of December 31, 1996, Global's backlog was approximately $1,740,000 as compared to approximately $1,320,000 as of December 31, 1995. These backlog figures represent services deliverable under maintenance contracts. Maintenance contracts generally end at various times during the year, and are expected to be renewed for additional one year periods. Facilities management and management services contracts generally extend for a period of five years. Florida Specialty Networks The Company has installed the GHiS in Florida as part of a joint venture with Florida Specialty Networks (FSN). FSN is a managed care organization in the business of providing capitated medical specialty and subspecialty services to HMO patients. FSN processes claims for more than 3,000,000 patients of multiple HMOs, for 25 medical specialties. The Network version of the GHiS provides FSN the ability to segregate financial accounts by patient, by network, by HMO, while simultaneously creating a fully integrated on-line patient record of all data to facilitate Utilization Management and Quality Assurance. GHS has a 20% ownership of FSN. In 1996, GHS received $146,000 from FSN. FSN's business expanded in 1996 with new networks and contracts with a national managed care organization. Under these contracts, FSN develops specialty networks in cities where the organization has large enrollment. During 1996, FSN developed networks for this agreement in New York, New Jersey, Tennessee and Oklahoma. U. S. NeuroSurgical, Inc. US NeuroSurgical, Inc.(R) (USN) of which the Company owns 100%, was organized in July, 1993 to own and operate stereotactic radiosurgery centers, utilizing the Gamma Knife technology. USN's business strategy is to provide a mechanism whereby hospitals, physicians, and patients can have access to Gamma Knife treatment capability, 7 a high capital cost item. USN provides the Gamma Knife to medical facilities on a "cost per treatment" basis. USN owns the Gamma Knife units, and is reimbursed by the facility where it is housed, based on utilization. USN's principal target market is medical centers in major health care catchment areas that have physicians experienced with and dedicated to the use of the Gamma Knife. USN seeks cooperative ventures with these facilities. USN believes that, as of December 31, 1996, there were approximately thirty Gamma Knife treatment centers in the United States. In July 1993, USN purchased its first Leksell Gamma Knife from Elekta Instruments, Inc. (Elekta), for the purpose of installing it at the Research Medical Center (RMC) in Kansas City, Missouri. USN paid approximately $3,000,000 for the Gamma Knife. In September 1993, USN entered into a lease/purchase agreement with Financing for Science International, Inc. (FSI), a medical equipment leasing company, to finance the Gamma Knife purchase. FSI was acquired by FINOVA Capital Corporation in 1996 and they presently hold the lease. USN opened its first Gamma Knife Center on the premises of RMC in September 1994. RMC is part of Health Midwest, a consortium of eleven hospitals and numerous affiliates. USN formed a cooperative venture with RMC in September, 1993. Per an agreement with RMC, GHS, Inc. sold 500,000 shares of its common stock for $500,000 to RMC to secure additional working capital in order to enable USN to develop and construct a Gamma Knife Facility. USN has installed the Gamma Knife in the facility, where it is being utilized by neurosurgeons credentialled by RMC. USN is reimbursed for use of the Gamma Knife by RMC based on a percentage of the fees collected by RMC for Gamma Knife procedures. Pursuant to a ground lease agreement, RMC leased to USN the land on which to build the Gamma Knife facility. USN plans to open a second treatment center on the campus of New York University (NYU) Medical Center in New York, New York. The Company has secured a lease purchase agreement with DVI Financial Services, Inc.. In September 1996, DVI made a progress payment in the amount of $1,160,000 to Elekta and refunded the 8 $290,000 to USN that was made as a deposit. As a result, USN is currently paying interest only on $2,610,000. The Certificate of Need (CON) has been obtained from New York State allowing construction and operation of the Gamma Knife Center. The Company expects that the Center will open in the spring of 1997. The agreement with DVI provides for a $2,900,000 lease for the Gamma Knife and up to $900,000 in construction financing. In November 1996, DVI placed $825,000 in an escrow account to cover the estimated costs of completing the NYU Center. Of the $825,000, $300,000 is a three year term loan to USN and $525,000 was advanced as an accounts receivables credit line. Gamma Knife Technology The Leksell Gamma Knife is a unique stereotactic radiosurgical device used to treat brain tumors and other malformations of the brain without invasive surgery. The Gamma Knife delivers a single, high dose of ionizing radiation emanating from 201 cobalt-60 sources positioned about a hemispherical, precision machined cavity. The lesion is first targeted with precision accuracy using advanced imaging and three dimensional treatment planning techniques such as CT Scans, MR Scans, conventional X-rays, or angiography. Each individual beam is focused on a common target producing an intense concentration of radiation at the target site, destroying the lesion while spreading the entry radiation dose uniformly and harmlessly over the patient's skull . The mechanical precision at the target site is +/- 0.1mm (1/10 of 1 millimeter). Because of the steep fall-off in the radiation intensity surrounding the target, the lesion can be destroyed, while sparing the surrounding tissue. The procedure, performed in a single treatment, sharply reduces hospital stay and eliminates post-surgical bleeding and infection. When compared with conventional neurosurgery, Gamma Knife treatment is less expensive. However, not all patients are candidates for radiosurgery since the decision to use the Gamma Knife depends on the type, size, and location of the lesion. 9 Regulatory Environment The levels of revenues and profitability of companies involved in the health services industry, such as USN, may be affected by the continuing efforts of governmental and third party payors to contain or reduce the costs of health care through various means. Although the Company does not believe that the business activities of USN will be materially affected by changes in the regulatory environment, it is uncertain what legislative proposals will be adopted or what actions federal, state or private payors for healthcare goods and services may take in response to any healthcare reform proposals or legislation. The Company cannot predict the effects healthcare reform may have on USN's business, and no assurance can be given that any such reforms will not have a material effect on USN. In addition, the provision of medical services in the United States is dependent on the availability of reimbursement to consumers from third party payors, such as government and private insurance companies. Although, patients are ultimately responsible for services rendered, the Company expects that the majority of USN's revenues will be derived from reimbursements by third party payors. Medicare has authorized reimbursement for Gamma Knife treatment. Over the last several years, such third party payors are increasingly challenging the cost effectiveness of medical products and services and taking other cost-containment measures. Therefore, although treatment costs using the Gamma Knife compare favorably to traditional invasive brain surgery it is unclear how this trend among third party payors and future regulatory reforms affecting governmental reimbursement will affect procedures in the higher end of the cost scale. The Company is planning to establish future Gamma Knife centers. Completion of future centers will require approvals and arrangements with hospitals, health care organizations, or other third parties, including certain regulatory authorities. The Food and Drug Administration has issued the requisite pre-market approval for the Gamma Knife to be utilized by USN. In addition, many states require hospitals to obtain a Certificate of Need (CON) before they can acquire a significant piece of medical 10 equipment. The Company plans to enter into future ventures in which that "need" will be demonstrable, but it can have no assurance that Certificates of Need will be granted in every case. In addition, the Nuclear Regulatory Commission must issue a permit to USN to permit loading the COBALT at each Gamma Knife site. While the Company believes that it can obtain a NRC permit for each Gamma Knife machine, there is no assurance that it will. Liability Insurance Although the Company does not directly provide medical services, it has obtained professional medical liability insurance, and has general liability insurance as well. The Company believes that its insurance is adequate for providing treatment facilities and non-medical services although there can be no assurance that the coverage limits of such insurance will be adequate or that coverage will not be reduced or become unavailable in the future. Competition The health care industry, in general, is highly competitive and the Company expects to have substantial competition from other independent organizations, as well as from hospitals in establishing future Gamma Knife centers. There are other companies that provide the Gamma Knife on a "cost per treatment basis". In addition, larger hospitals may be expected to install Gamma Knife technology as part of their regular inpatient services. Some of these competitors have greater financial and other resources than the Company. Principal competitive factors include quality and timeliness of test results, ability to develop and maintain relationships with referring physicians, facility location, convenience of scheduling and availability of patient appointment times. The Company believes that cost containment measures will encourage hospitals to seek companies that are providing the technology, instead of incurring the capital cost of establishing their own Gamma Knife centers. 11 Gamma Knife Supply and Servicing Currently the only company that manufactures, sells, and services the Gamma Knife is Elekta Instruments, Inc., a subsidiary of AB Elekta of Stockholm, Sweden. Any interruption in the supply or services from Elekta would adversely affect USN's plans to open additional Gamma Knife treatment centers as well as to maintain those centers in existence. Gamma Knife Financing The Company secured financing from FSI for the first Gamma Knife installation at the RMC site, and obtained a lease commitment from DVI Financial Services for its second Gamma Knife installation planned for New York. The Gamma Knife is an expensive piece of equipment presently costing approximately $3,000,000. Therefore, the Company's development of new Gamma Knife centers is dependent on its ability to secure favorable financing. The Company believes that it will continue to be successful in obtaining financing but can give no absolute assurance that it will. New Technology/Possible Obsolescence Gamma Knife technology may be subject to technological change. Consequently, the Company will have to rely on the Gamma Knife's manufacturer, Elekta, to introduce improvements or upgrades in order to keep pace with technological change. Any such improvements or upgrades which the Company may be required to introduce will require additional financing. In addition, newly developed techniques and devices for performing brain surgery may render the Gamma Knife less competitive or obsolete. Employees GHS, Inc. has twenty-one full-time employees and five part-time employees. Of these employees, two are engaged in sales and marketing, eighteen in technical and functional site support and/or development, four in administration and office support, one 12 in site development, and one is a medical director. Upon the closing of the sale with HMS, all employees will be retained by HMS. ITEM 2. PROPERTIES The Company's base facility, from which it conducts substantially all of its operations, are located in Rockville, Maryland, and occupy approximately 2,350 square feet which is currently leased on a month to month basis. The current rent is approximately $34,000 per year. In December 1994, the Company opened a second office in Sacramento, California. This office occupies 1,600 square feet, and the annual rent is approximately $28,000. USN occupies approximately 1,600 square feet in its RMC facility. This facility is located on the campus of RMC in Kansas City, Missouri. The ground rent is not material. ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None 13 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS The Company's Common Stock trades in the over-the-counter market, NASDAQ symbol GHSI. The range of high and low bid quotations as reported by NASDAQ System for the two years ended December 31, 1996 are set forth below. Period High Bid Low Bid ------ -------- ------- January 1 - March 31, 1995 1.00 .75 April 1 - June 30, 1995 .75 .75 July 1 - September 30, 1995 .75 .75 October 1 - December 31, 1995 .625 .375 Period High Bid Low Bid ------ -------- ------- January 1 - March 31, 1996 $.625 $.50 April 1 - June 30, 1996 .625 .31 July 1 - September 30, 1996 .75 .375 October 1 - December 31, 1996 .56 .125 The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions. As of March 31, 1997, there were approximately 113 holders of record of the Company's Common Stock. To date the Company declared no dividends on its Common Stock and does not anticipate declaring dividends in the foreseeable future. ITEM 6. SELECTED FINANCIAL DATA Set forth below is the selected financial data pertaining to the financial condition and operations of the Company for the years ended December 31, 1992 through 1996. The latest financial statements of the Company are included in Item 14 in Part IV of this 14 report. The information set forth should be read in conjunction with such financial statements and the notes thereto.
Year Ended December 31, ---------------------------------------------------------------------- 1996 1995 1994 1993 1992 Statement of Operations Data: Revenue $ 4,232,000 $ 4,445,000 $ 2,335,000 $ 2,493,000 $ 2,062,000 Net income (loss) 168,000 (176,000) (666,000) 53,000 60,000 Net income (loss) per share .02 (.03) (.10) .01 .01 Weighted Average Common Shares 6,947,828 6,947,828 6,935,016 5,817,677 5,185,328 Outstanding As at December 31, ---------------------------------------------------------------------- 1996 1995 1994 1993 1992 Balance Sheet Data: Working Capital ($ 824,000) 579,000 883,000 1,861,000 $ 1,105,000 Total Assets 8,635,000 7,339,000 5,885,000 6,991,000 $ 2,012,000 Long term debt 3,944,000 2,838,000 2,236,000 2,694,000 -- Common Stock issued with put option 500,000 500,000 500,000 500,000 -- Total Stock- holders equity $ 2,097,000 1,929,000 2,105,000 2,748,000 $ 1,456,000
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Financial Statements and Notes set forth elsewhere in this report. 15 Results of Operations 1996 Compared to 1995 Total revenues declined 5% in 1996 to $4,232,000 from $4,445,000 in 1995. New systems sales decreased 50% to $884,000 from $1,777,000 in 1995. The decrease was attributable to lower hardware sales as the Company focused on services as compared to turnkey systems sales. Maintenance revenue increased 27% to $1,370,000 from $1,083,000 in 1995. This increase was attributable to the Company's success in selling facilities management to clients to expand the capability of the GHiS at their facilities. Claims processing increased by 74% to $526,000. Revenues of the Company's other subsidiary, US NeuroSurgical, Inc. (USN), grew 13% to $1,452,000 from $1,283,000 in 1995. The revenue growth reflects the increased acceptance of the Center and the community. Total expenses increased 5% to $4,361,000 from $4,140,000 1995. Systems costs dropped to $1,047,000 from $1,651,000 a year earlier. This decrease was a result of lower hardware purchases in 1996. Maintenance expense increased to $942,000 from $583,000 in 1995. This increase was caused by higher than anticipated expenses associated with the start up of new services for clients. Selling, general and administrative expenses increased by 57% to $1,571,000 from $999,000 a year earlier. The increase was caused by higher insurance costs related to USN and increased reserves for doubtful Global Health Systems, Inc. accounts receivable. Patient expenses associated with the operation of the Kansas City Center were $574,000 for the year, down from $751,000 in the prior year. The Company had interest expense of $309,000 in 1996 compared to $504,000 in 1995. An additional $249,000 of 1996 interest costs attributable to the NYU construction costs were capitalized. The company realized a deferred tax benefit from the pending HMS sale of $463,000 in 1996. The effect of the capitalized interest costs and deferred tax benefit was net income of $168,000 in 1996 against a $176,000 net loss in 1995. 16 1995 Compared to 1994 Total revenues increased 89% in 1995 to $4,445,000 from $2,335,000 in 1994. New systems sales increased 39% to $1,777,000 from $1,282,000 in 1994. The increase was attributable to a new contract with the Chicago Department of Health (CDOH) to set up and manage public health information systems for the city. Maintenance revenue increased 61% to $1,083,000 from $672,000 in 1994. This also was attributable to the contract with CDOH. The company continues to focus on using facilities management to expand the capability of the GHiS for its clients. The Company's other subsidiary, US NeuroSurgical, Inc. (USN) had its first full year of revenue from its center at the Research Medical Center in Kansas City, Missouri. There were revenues of $1,283,000 in 1995 from USN. Total expenses increased 47% to $4,140,000 from $2,801,000 in 1994. System costs increased to $1,651,000 from $847,000 a year earlier. This increase was caused by the large hardware order for CDOH. Maintenance expense increased to $583,000 from $487,000 in 1994. This increase is not significant when it is compared to the revenue increase in this area. Selling, general and administrative expense declined 14% to $999,000 from $1,161,000 a year earlier. The decrease is attributable to cost control measures implemented on travel, office expenses and some salary reductions. The higher revenues were achieved without any additions to administrative staff. Patient expenses associated with the operation of the Kansas City Center were $751,000 for the year. The Company had interest expense of $504,000 in 1995 compared to $308,000 in 1994. USN continued to pay down its lease in Kansas City and began interest payments on its second Gamma Knife. As a result of the increased interest payments the net loss was $176,000. Liquidity and Capital Resources The Company had a working capital ratio of .6 in 1996, as compared to 1.3 in 1995. This was due to an increase in operating expenses and a decrease in gross profit on software systems. As of December 31, 1996, net cash provided by operating activities was $145,000, as compared to net cash provided of $438,000 in 1995. 17 Depreciation and amortization expense was $631,000 in 1996, as compared to $617,000 in 1995. Accounts receivable decreased by $307,000 in 1996 from 1995. Unbilled accounts receivable decreased $545,000 in 1996. The decreases reflect improved billing and collections efforts. In 1995 unbilled accounts receivable increased by $465,000 and billed accounts receivable increased by $251,000 from 1994. In 1996, net cash used in investing activities was $1,517,000. The Company made a $1,160,000 progress payment on its second Gamma Knife and received back the $290,000 deposit on the NYU Gamma Knife from DVI. In 1995, net cash used in investing activities was $1,243,000. The Company made a $1,160,000 progress payment on the NYU Gamma Knife. In 1996, net cash provided by financing activities was $1,333,000. The Company paid $522,000 towards the lease obligations on its Kansas City Gamma Knife and made a $1,160,000 progress payment for NYU. In addition, the Company paid $825,000 into an escrow account to fund NYU construction. The Company also is responsible for making interest payments on the progress payment on its second Gamma Knife. In 1995, net cash provided by financing activities was $850,000. In 1995, the Company paid $430,000 towards the Kansas City lease. The Company made a $1,160,000 progress payment for the NYU Gamma Knife. USN has a five year operating lease for Kansas City that began in September 1994. The annual payments are $805,000. The Company is making interest payments on progress payments for its NYU Gamma Knife and on the construction loan for NYU. The progress payments have been for $2,610,000 plus $825,000 in the construction escrow account. The interest rate is 10% annually. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Financial Statements and Supplementary Data are listed under Item 14 in this Annual Report of Form 10-K and attached hereto. 18 ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The directors and executive officers of the Company are as follows: Name Age Position ---- --- -------- Alan Gold 52 President & Chairman Jerry M. Brown, Ph.D. 58 Director William F. Leimkuhler 45 Director Alan Gold has served as President and a director since the Company's formation. He was one of the founders of Global Health Systems, the predecessor of the Company, serving as its President since its formation in July 1983. From 1981 to 1983 he served as Executive Vice-President of Libra Group, a company located in Rockville, Maryland, engaged in health care automation, where he was President of Global Health Foundation and Libra Research and Executive Vice President of Libra Technology. Jerry M. Brown, Ph.D. He was elected to the GHS board in July, 1993, and served as President of US NeuroSurgical, Inc. until August, 1995. From 1990 to 1993 he was an independent consultant to the health care industry. Dr. Brown served in the US Army Medical Department from 1967 - 1990, retiring as a Lieutenant Colonel. William F. Leimkuhler has served as director of the Company since its incorporation in 1984. Since January 1994, Mr. Leimkuhler has been the Vice President of Allen & Company Incorporated, an investment banking firm. From 1984 to December, 1993, Mr. Leimkuhler was a partner with the law firm of Werbel McMillin & 19 Carnelutti, which has served as counsel to the Company on various matters since the Company's formation. Each director is elected for a one year period ending on the date of the next annual meeting of shareholders of the Company, and until his or her successor is duly elected and qualified. Officers serve at the will of the Board of Directors. ITEM 11 EXECUTIVE COMPENSATION The information below sets forth the compensation for the year ended December 31, 1995, for each executive officer of the Company: Summary Compensation Table -------------------------- Annual Compensation Name and ------------------- Principal Position Year Salary($) - ------------------ ---- --------- Alan Gold, President & Director 1996 $150,000 1995 $150,000 1994 $144,400 The Company and Mr. Gold are parties to an employment agreement giving either the Company or Mr. Gold the option to terminate the agreement by giving the other party 6 months written notice. Stock Option Plan Effective March 7, 1986, and as amended June 18, 1987, the Company adopted a 1986 Stock Option Plan (the "Plan") pursuant to which options to purchase up to 750,000 shares of the Company's Common Stock may be granted to directors, officers and other key employees of the Company. As of March 31, 1997, 360,000 options were outstanding under the Plan. The Plan is administered by the Board of Directors. The options may be either incentive stock options conforming to the provisions of Section 422A of the Internal Revenue Code, or non-qualified options. The purchase price for shares under each option, incentive or non-qualified, is determined by the Board but will 20 not be less than 100% and 90%, respectively, of the fair market value of the Common Stock at the time the option is granted. If an employee at the time the option is proposed to be granted owns more than 10% of the voting stock of the Company, the option price for incentive options will not be less than 110% of the fair market value of the Common Stock on the date of grant and the option will continue in effect for not more than five years. No options may be granted under the Plan after 1996. The exercise price must be paid in full upon exercise of an option, in cash or in shares of Common Stock of the Company. Options are nontransferable except by will or by the laws of descent and distribution. Aggregate Unexercised Options & Option Values at December 31, 1995 ------------------------------------------------------------------ Value of Unexercised In-The Number of Unexercised Options Money Options at December at December 31, 1996 (#) 31, 1996 ($) Name Exercisable/Unexercisable Exercisable/Unexercisable - ---- ------------------------- ------------------------- Alan Gold 137,000 / 12,000 $34,250/3,000 (1) ---------------- (1) Based on average of closing bid and asked prices of the Company's common stock on December 31, 1996. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of March 23, 1997 certain information with respect to each beneficial owner of more than 5% of the Company's Common Stock and each director and executive officer of the Company: Number of Shares Name and Address Beneficially Percent of of Beneficial Owner Owned (1) Class - ------------------- --------- ----- Alan Gold (2) 535,420 7.6% 1350 Piccard Drive Rockville, MD 20850 William F. Leimkuhler -- -- 711 Fifth Avenue New York, NY 10022 Jerry M. Brown, Ph.D. 28,500 0.4% 21 1205 Stratford Drive Anderson, SC 29621 Stanley S. Shuman (3) 1,071,250 15.4% 711 Fifth Avenue New York, NY 10022 Allen & Company Incorporated (4) 2,022,000 28.6% 711 Fifth Avenue New York, NY 10022 Research Medical Center 500,000 7.2% 2316 East Meyer Blvd. Kansas City, MO 64132 Charles Elsner 400,000 5.8% c/o The Forschner Group Inc. 151 Long Hill Crossroads Shelton, CT 96484 All Directors and Officers 563,920 8.0% as a group (three persons) (2) - ---------- (1) Unless otherwise indicated, all shares are beneficially owned and sole voting and investment power is held by the person named above. (2) Includes 420,500 shares held jointly by Mr. Gold and his wife, Ms. Susan Greenwald, as joint tenants with right of survivorship and 124,000 exercisable stock options. (3) Includes 210,250 shares held in certain trusts for the benefit of Mr. Shuman's children, of which shares Mr. Shuman disclaims beneficial interest. Also includes warrants to purchase 20,000 shares of Common Stock beneficially owned by Mr. Shuman. (4) In addition to those shares beneficially owned by Allen & Company, certain officers of Allen and their families, including Mr. Shuman, own 1,721,750 shares. Also includes warrants to purchase 120,000 shares of common stock. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In September 1996 the Company exercised its option to purchase the 20% interest in USN owned by A Hyman Kirshenbaum, M.D. and Jerry Brown, Ph.D.. Pursuant to an agreement with Messieurs. Kirshenbaum and Brown, the number of GHS, Inc. shares to be issued to such individuals, as a result of the exercise of such options, is 33,200. 22 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: Page No. -------- Financial Statements of the Company Report of Independent Auditors F-1 Balance Sheet as of December 31, 1996 and 1995 F-2 Statements of Operations for the years ended December 31, 1996, 1995, and 1994. F-3 Statement of Changes in Stockholders' Equity for the period January 1, 1994 through December 31, 1996 F-4 Statements of Cash Flows for the year ended December 31, 1996, 1995, and 1994. F-5 Notes to Financial Statements F-6 Report of Independent Auditors with respect to Supplementary Schedules S-1 Valuation and Qualifying Accounts S-2 All other schedules have been omitted as the conditions requiring their filing are not present or the information required therein has been included in the notes to the financial statements. (b) Reports on Form 8-K During the three months ended December 31, 1996, the Company did not file any reports on Form 8-K with the Securities and Exchange Commission. (c) Exhibits 3 Articles of Incorporation and By-laws (a) Restated Certificate of Incorporation and by-laws of the Company (incorporated by reference to exhibits 3.1 and 3.2 of the Company's Registration Statement No. 33-4532-W on Form S-18) (b) Certificate of Amendment dated June 18, 1987 (incorporated by reference to exhibit 3(b) of the Company's 1987 Annual Report on Form 10-K). (c) Certificate of Amendment dated November 17, 1989 (pursuant to which the Company changed its name to GHS, Inc.) (incorporated by reference to exhibit 3(c) of the Company's 1988 Annual Report on Form 10-K). 23 10 Material Contracts (a) Office Lease dated November 1, 1990 (incorporated by reference to Exhibit 10.2 of the Company's Registration Statement No. 33-4532-W on form S-18). (b) Employment Agreement dated December 14, 1984 between the Company and Alan Gold, as amended March 7, 1986 (incorporated by reference to Exhibit 10.3 of the Company's Registration Statement No. 33-4532-W on form S-18). (c) Stock Option Plan dated March 7, 1986 (incorporated by reference to Exhibit 10.4 of the Company's Registration Statement No. 33-4532-W on form S-18). (d) Asset Purchase Agreement dated as of December 13, 1984 between GHS Acquisition Corp., Datalab, Inc., Global Health Systems, Inc. and GHS, Inc. (pursuant to which the Company acquired substantially all the assets, and assumed certain liabilities, of Global Health Systems MD) (incorporated by reference to Exhibit 10.5 of the Company's Registration Statement No. 33-4532-W on form S-18). (e) Assignment and Assumption Agreement dated as of November 22, 1988 between Global Health Systems, Inc. and Global Health Computer Systems, Inc. (pursuant to which the parent transferred assets, liabilities and current operations to the subsidiary) (Incorporated by reference to exhibit 10(j) of the Company's 1988 Annual Report on Form 10K) (f) Gamma Knife Neuroradiosurgery Equipment Agreement dated August, 1993 between Research Medical Center and US NeuroSurgical (incorporated by reference to Exhibit 10h to the Company's Quarterly Report or Form 10-Q for the quarter ended September 30, 1993). (g) Agreement for Issuance and Sale of Stock dated August, 1993 between Research Medical Center and GHS, Inc. (incorporated by reference to Exhibit 10i to the Company's Quarterly Report or Form 10-Q for the quarter ended September 30, 1993). (h) Ground Lease Agreement dated August, 1993 between Research Medical Center and US NeuroSurgical (incorporated by reference to Exhibit 10j to the Company's Quarterly Report or Form 10-Q for the quarter ended September 30, 1993). (i) LGK Agreement dated July 12, 1993 between Elekta Instruments, Inc. and US NeuroSurgical (incorporated by reference to Exhibit 10k to 24 the Company's Quarterly Report or Form 10-Q for the quarter ended September 30, 1993). (j) Financing for Science International Commitment dated August 16, 1993 between Financing for Science International, Inc. and US NeuroSurgical (incorporated by reference to Exhibit 10l to the Company's Quarterly Report or Form 10-Q for the quarter ended September 30, 1993.) (k) Employment Agreement dated September 1, 1993 between US NeuroSurgical and Jerry M. Brown, Ph.D. (incorporated by reference to Exhibit 10m to the Company's Quarterly Report or Form 10-Q for the quarter ended September 30, 1993.) (l) Agreement dated July 23, 1993 between GHS, Inc., and A. Hyman Kirshenbaum, M.D., and Jerry M. Brown, Ph.D., (incorporated by reference to Exhibit 10n to the Company's Quarterly Report or Form 10-Q/A for the quarter ended September 31, 1993.) (m) Amendment dated October 27, 1994 to Employment Agreement between U.S. NeuroSurgical and Jerry Brown, Ph.D. (incorporated by reference to Exhibit 10m to the Company's 1994 Annual Report on Form 10-K). (n) Agreement dated October 28, 1994 between U.S. NeuroSurgical, Inc. and Financing for Science and Industry, Inc. (incorporated by reference 10n to the Company's 1994 Annual Report on Form 10-K). (o) Agreement dated December 29, 1993, between U.S. NeuroSurgical, Inc. and Elekta Instruments, Inc. (incorporated by reference 10o to the Company's 1994 Annual Report on Form 10-K). (p) Agreement dated November 26, 1996, between US NeuroSurgical, Inc. and New York University on behalf of New York University Medical Center. (q) Agreement dated August 1, 1996, between US NeuroSurgical, Inc. and DVI Financial Services, Inc. (r) Asset Purchase Agreement dated March 10, 1997 between Health Management Systems, Inc. and GHS, Inc.. 25 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: April 08, 1996 GHS, Inc. (Registrant) By /s/ Alan Gold ------------------------------------------------- Alan Gold President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. April 08, 1996 /s/ Alan Gold --------------------------------------------------- Alan Gold President and Director (Chief Executive, Financial Officer) April 08, 1996 /s/ William F. Leimkuhler --------------------------------------------------- William F. Leimkuhler Director April 08, 1996 ___________________________________________________ Jerry M. Brown, Ph.D. Director 26 REPORT OF INDEPENDENT AUDITORS Board of Directors and Stockholders GHS, Inc. Rockville, Maryland We have audited the accompanying consolidated balance sheets of GHS, Inc. and subsidiaries as at December 31, 1996 and December 31, 1995, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements enumerated above present fairly, in all material respects, the consolidated financial position of GHS, Inc. and subsidiaries at December 31, 1996 and December 31, 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996 in conformity with generally accepted accounting principles. New York, New York March 13, 1997 F-1 GHS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, ------------------------- A S S E T S 1996 1995 ----------- ----------- ----------- Current assets: Cash and cash equivalents ................................................ $ 159,000 $ 198,000 Accounts receivable (net of allowance for doubtful accounts of $164,000 in 1996 and $14,000 in 1995) ...................... 994,000 1,451,000 Unbilled accounts receivable ............................................. 31,000 576,000 Contract installments receivable ......................................... 15,000 Inventory ................................................................ 12,000 Refundable deposits ...................................................... 290,000 Other current assets ..................................................... 86,000 91,000 ----------- ----------- Total current assets .............................................. 1,270,000 2,633,000 Furniture and equipment ..................................................... 77,000 56,000 Software development costs .................................................. 180,000 291,000 Other assets ................................................................ 198,000 98,000 Deferred tax asset .......................................................... 463,000 Gamma Knife Venture assets: Gamma Knife .............................................................. 1,933,000 2,348,000 Progress payments - Gamma Knife .......................................... 2,610,000 1,160,000 Unamortized leasehold costs .............................................. 954,000 661,000 Deposits ................................................................. 43,000 65,000 Cash held in escrow ...................................................... 907,000 27,000 ----------- ----------- T O T A L ......................................................... $ 8,635,000 $ 7,339,000 =========== =========== L I A B I L I T I E S --------------------- Current liabilities: Accounts payable and accrued expenses .................................... $ 845,000 $ 1,337,000 Loans payable - officer .................................................. 20,000 Notes payable - other .................................................... 100,000 Accrued costs to complete contracts ...................................... 25,000 Loan payable - Gamma Knife - current portion ............................. 63,000 55,000 Obligation under capital lease - current portion: Demand loan ............................................................ 525,000 Gamma Knife Venture .................................................... 592,000 512,000 Equipment .............................................................. 69,000 5,000 ----------- ----------- Total current liabilities ......................................... 2,094,000 2,054,000 ----------- ----------- Obligation under capital lease: Gamma Knife .............................................................. 1,132,000 1,724,000 Equipment ................................................................ 265,000 9,000 ----------- ----------- 1,397,000 1,733,000 ----------- ----------- Loan payable - Gamma Knife .................................................. 2,547,000 1,105,000 ----------- ----------- Minority interest ........................................................... 18,000 ----------- Common stock - par value $.01; 500,000 shares issued with put option ............................................................... 500,000 500,000 ----------- ----------- Commitments and other matters STOCKHOLDERS' EQUITY -------------------- Preferred stock - 1,000,000 shares authorized; none issued Common stock - par value $.01; 25,000,000 shares authorized; 6,447,828 issued and outstanding in 1996 and 1995 ............................................................ 65,000 65,000 Additional paid-in capital .................................................. 3,082,000 3,082,000 (Deficit) .................................................................. (1,050,000) (1,218,000) ----------- ----------- Total stockholders' equity ........................................ 2,097,000 1,929,000 ----------- ----------- T O T A L ......................................................... $ 8,635,000 $ 7,339,000 =========== ===========
The accompanying notes to financial statements are an integral part hereof. F-2 GHS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, --------------------------------------- 1996 1995 1994 ----------- ----------- ----------- Revenue: Software systems .................. $ 884,000 $ 1,777,000 $ 1,282,000 Maintenance ....................... 1,370,000 1,083,000 672,000 Claims processing ................. 526,000 302,000 Patient revenue ................... 1,452,000 1,283,000 381,000 ----------- ----------- ----------- T o t a l .................. 4,232,000 4,445,000 2,335,000 ----------- ----------- ----------- Costs and expenses: Software systems .................. 1,047,000 1,651,000 847,000 Maintenance ....................... 942,000 583,000 487,000 Claims processing expense ......... 227,000 156,000 Patient expenses .................. 574,000 751,000 306,000 Selling, general and administrative .................. 1,571,000 999,000 1,161,000 ----------- ----------- ----------- T o t a l .................. 4,361,000 4,140,000 2,801,000 ----------- ----------- ----------- Income (loss) from operations before items below ................ (129,000) 305,000 (466,000) ----------- ----------- ----------- Interest expense ..................... (309,000) (504,000) (308,000) Interest income ...................... 2,000 1,000 23,000 Income from equity investee .......... 157,000 ----------- ----------- ----------- (150,000) (503,000) (285,000) ----------- ----------- ----------- (Loss) before income tax benefit and minority interest ............. (279,000) (198,000) (751,000) Deferred income tax benefit .......... 463,000 ----------- ----------- ----------- Income (loss) before minority interest .......................... 184,000 (198,000) (751,000) Minority interest .................... (16,000) 22,000 85,000 ----------- ----------- ----------- NET INCOME (LOSS) ................... $ 168,000 $ (176,000) $ (666,000) =========== =========== =========== Net income (loss) per share .......... $ .02 $ (.03) $ (.10) =========== =========== =========== Weighted average common shares outstanding ....................... 6,947,828 6,947,828 6,935,016 =========== =========== =========== The accompanying notes to financial statements are an integral part hereof. F-3 GHS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Common Stock * --------------------- Number Additional of Paid-in Shares Amount Capital (Deficit) Total --------- ------- ---------- ------------ ---------- Balance - January 1, 1994. . . . . . . . 6,424,328 $65,000 $3,059,000 $ (376,000) $2,748,000 Issuance of common stock for services rendered. . . . . . 23,500 23,000 23,000 Net (loss) for the year ended December 31, 1994 . (666,000) (666,000) --------- ------- ---------- ------------ ---------- Balance - December 31, 1994. . . . . . . . 6,447,828 65,000 3,082,000 (1,042,000) 2,105,000 Net (loss) for the year ended December 31, 1995 . (176,000) (176,000) --------- ------- ---------- ------------ ---------- Balance - December 31, 1995. . . . . . . . 6,447,828 65,000 3,082,000 (1,218,000) 1,929,000 Net income for the year ended December 31, 1996 . 168,000 168,000 --------- ------- ---------- ------------ ---------- BALANCE - DECEMBER 31, 1996. . . . . . . . 6,447,828 $65,000 $3,082,000 $(1,050,000) $2,097,000 ========= ======= ========== ============ ==========
* Excluding shares with put option The accompanying notes to financial statements are an integral part hereof. F-4 GHS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, -------------------------------------------------- 1996 1995 1994 ----------- ------------ ---------- Cash flows from operating activities: Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 168,000 $ (176,000) $(666,000) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . 631,000 617,000 341,000 Provision for bad debts. . . . . . . . . . . . . . . . . . . . . . . . 150,000 Gain from equity investee. . . . . . . . . . . . . . . . . . . . . . . (157,000) Minority interest in net income (loss) of consolidated subsidiary. . . 16,000 (22,000) (85,000) Changes in operating assets and liabilities: (Increase) decrease in accounts receivable . . . . . . . . . . . . . 307,000 (251,000) 84,000 (Increase) decrease in unbilled accounts receivable. . . . . . . . . 545,000 (465,000) 315,000 Decrease in contract installments receivable . . . . . . . . . . . . 15,000 19,000 15,000 Decrease in inventory. . . . . . . . . . . . . . . . . . . . . . . . 12,000 Decrease in other current assets . . . . . . . . . . . . . . . . . . 5,000 Decrease in refundable deposits. . . . . . . . . . . . . . . . . . . 290,000 Deferred tax assets. . . . . . . . . . . . . . . . . . . . . . . . . (463,000) (Increase) in cash held in escrow. . . . . . . . . . . . . . . . . . (880,000) (Increase) decrease in other assets. . . . . . . . . . . . . . . . . 57,000 (86,000) 62,000 (Decrease) increase in accounts payable and accrued expenses and accrued costs to complete contracts. . . . . . . . . . . . . . . . (551,000) 802,000 (159,000) ----------- ------------ ---------- Net cash provided by (used in) operating activities. . . . . . . 145,000 438,000 (93,000) ----------- ------------ ---------- Cash flows from investing activities: Furniture and equipment purchases. . . . . . . . . . . . . . . . . . . . . (39,000) (33,000) (24,000) Software development costs . . . . . . . . . . . . . . . . . . . . . . . . (50,000) (50,000) (350,000) Investment in joint venture. . . . . . . . . . . . . . . . . . . . . . . . (4,000) Refunds on Gamma Knife . . . . . . . . . . . . . . . . . . . . . . . . . . 22,000 148,000 Progress payments - Gamma Knife. . . . . . . . . . . . . . . . . . . . . . (1,450,000) (1,160,000) Cost incurred with leasehold improvements. . . . . . . . . . . . . . . . . (520,000) ----------- ------------ ---------- Net cash (used in) investing activities. . . . . . . . . . . . . (1,517,000) (1,243,000) (750,000) ----------- ------------ ---------- Cash flows from financing activities: Payments of capital lease obligations. . . . . . . . . . . . . . . . . . . (522,000) (430,000) (220,000) Loan payable - officer . . . . . . . . . . . . . . . . . . . . . . . . . . (20,000) 20,000 Notes payable - other. . . . . . . . . . . . . . . . . . . . . . . . . . . (100,000) 100,000 Loan payable - Gamma Knife . . . . . . . . . . . . . . . . . . . . . . . . 1,975,000 1,160,000 Release from escrow of proceeds from sale of common shares with put option 500,000 ----------- ------------ ---------- Net cash provided by financing activities. . . . . . . . . . . . 1,333,000 850,000 280,000 ----------- ------------ ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. . . . . . . . . . . . . (39,000) 45,000 (563,000) Cash and cash equivalents - beginning of period . . . . . . . . . . . . . . . 198,000 153,000 716,000 ----------- ------------ ---------- CASH AND CASH EQUIVALENTS - END OF PERIOD . . . . . . . . . . . . . . . . . . $ 159,000 $ 198,000 $ 153,000 =========== ============ ========== Supplemental disclosures of cash flow information: Cash paid for: Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 316,000 $ 510,000 $ 275,000 Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,000 3,000 3,000 Supplemental disclosures of noncash financing activities: Property acquired under capital lease obligations. . . . . . . . . . . . . 330,000 14,000 Issuance of common stock for services rendered . . . . . . . . . . . . . . 23,000
The accompanying notes to financial statements are an integral part hereof. F-5 GHS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (NOTE A) - The Company and its Significant Accounting Policies: [1] Basis of preparation: GHS, Inc. (the "Company") through its subsidiaries, Global Health Systems, Inc. and GHS Management Services Inc. develops, installs and maintains computerized processing systems for managed care, public health and ambulatory care facilities. The Company's subsidiary, U.S. Neuro Surgical, Inc. ("U.S. Neuro") owns and operates stereotactic radiosurgery centers, utilizing the Gamma Knife technology, which commenced operations in September 1994. During 1995, the Company formed a new subsidiary, U.S. Neurosurgical Physics, Inc. ("USNP") to administer the billing and collection of the Physicist's fee for operating the Gamma Knife. The consolidated financial statements include the accounts of GHS, Inc., its wholly owned subsidiaries, Global Health Systems, Inc., GHS Management Services, Inc., U.S. Neurosurgical Physics, Inc., and U.S. Neuro. The Company accounts for its investment in a computerized processing systems provider on the equity method. During March 1997 the Company entered into an asset purchase agreement pursuant to which Health Management Systems, Inc. will acquire substantially all of the assets, except for accounts receivable, of the Company's subsidiaries, Global Health Systems, Inc. and GHS Management Services, Inc. The purchase price is $2,100,000 subject to certain closing adjustments. The Company will retain its subsidiaries, US Neuro, which owns and operates the Gamma Knife Center, and USNP. The financial statements include the following, as at and for the year ended December 31, 1996, applicable to the assets to be sold: Assets $ 264,000 Revenue 2,780,000 (Loss) before taxes (620,000) [2] Revenue recognition: Revenue from sales of software systems is recognized when the product is delivered and obligations remaining after delivery are not considered to be significant. Estimated costs in connection with installing the systems are accrued when the revenue is recognized. Income from software maintenance agreements is recognized ratably over (continued) F-6 GHS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (NOTE A) - The Company and its Significant Accounting Policies: (continued) [2] Revenue recognition: (continued) the periods covered by such agreements. Contract installments receivable arising from sales of systems with extended payment terms are discounted to present value. Finance charges representing the discount to present value of the contract amount are credited to income over the term of the contract. Unbilled accounts receivable represent revenues which have been recognized, on delivery of the product, and will become billable at future dates in accordance with contract provisions. Patient revenue is recognized when the Gamma Knife procedure is rendered. [3] Inventories: Inventories are stated at the lower of cost (on the first-in, first-out method) or market and consist of computer equipment and peripheral devices. [4] Depreciation: The cost of furniture and equipment is depreciated on the straight-line method over the estimated useful lives of such assets. Leasehold improvements are amortized over the life of the lease. [5] Software development: Costs associated with product development subsequent to establishment of technological feasibility including enhancements to software products, are capitalized and amortized as required by Statement of Financial Accounting Standards No. 86. Costs incurred prior to achieving technological feasibility are expensed as incurred. Amortization is generally provided on the straight-line method over two to five years commencing when the product is available for general release to customers. [6] Earnings per share: Earnings per share is based on the net income divided by the weighted average number of common shares outstanding during the year. Common stock equivalents consisting of stock options and warrants are included when dilutive. (continued) F-7 GHS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (NOTE A) - The Company and its Significant Accounting Policies: (continued) [7] Statement of cash flows: For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. [8] Estimates and assumptions: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. [9] Fair values of financial instruments: The estimated fair value of financial instruments has been determined based on available market information and appropriate valuation methodologies. The carrying amounts of cash, accounts receivable, unbilled accounts receivable, other current assets and accounts payable approximate fair value at December 31, 1996 and December 31, 1995 because of the short maturity of these financial instruments. The estimated carrying value of the obligations under capital lease and loans payable approximate fair value because the interest rates on these instruments approximate the market prices at December 31, 1996 and December 31, 1995. The fair value estimates were based on information available to management as of December 31, 1996 and December 31, 1995. [10] Stock-based compensation: The Company accounts for employee stock option grants under the basis of Accounting Principles Board Opinion No. 25. In fiscal 1996 the Company adopted the "disclosures only" alternative available under Financial Accounting Standards Board No. 123 ("FASB 123") for its employee stock option grants. The pro forma net income and net earnings per share disclosure required by FASB 123 is not disclosed as there were no stock options granted during 1996 or 1995. (continued) F-8 GHS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (NOTE B) - Agreements With Research Medical Center ("RMC"): [1] Gamma Knife neuroradiosurgery equipment agreement: U.S. Neuro entered into a neuroradiosurgery equipment agreement (the "equipment agreement") with RMC for a period of 21 years which commenced with the completion of the neuroradiosurgery facility (the "facility") in September 1994. The equipment agreement, among other matters, requires U.S. Neuro to provide (i) the exclusive use of the Gamma Knife equipment (the "equipment") to RMC, (ii) the necessary technical personnel for the proper operation of the equipment, (iii) sufficient supplies for the equipment, (iv) the operation, maintenance and repair of the equipment, (v) all basic hardware and software updates to the equipment and, (vi) an uptime guarantee. In return, RMC will pay U.S. Neuro 80% of RMC's fees for the use of the equipment and the facility. The equipment agreement terminates automatically upon termination of the ground lease agreement (see Note B[2]) and may be terminated by mutual agreement in the sixth year of the ground lease term. [2] Ground Lease Agreement: U.S. Neuro entered into a lease with RMC for the premises, defined as land situated in Kansas City, Missouri together with the facility which the Company was required to construct thereon. The lease term is for a period of 21 years commencing September 1994. Rent at $2.25 per square foot is payable annually in advance. The terms of the lease include escalation clauses for increases in certain operating expenses and for payment of real estate taxes and utilities. Title to all improvements upon the land vest in RMC. (NOTE C) - Furniture and Equipment: Furniture and equipment is stated at cost and is summarized as follows: December 31, ------------------- 1996 1995 -------- -------- Equipment. . . . . . . . . . . $125,000 $181,000 Furniture. . . . . . . . . . . 38,000 41,000 -------- -------- T o t a l. . . . . . 163,000 222,000 Less accumulated depreciation. 86,000 166,000 -------- -------- B a l a n c e. . . . $ 77,000 $ 56,000 ======== ======== (continued) F-9 GHS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (NOTE C) - Furniture and Equipment: (continued) Equipment, under a capital lease, and leasehold interest, is stated at cost and is summarized as follows: December 31, ----------------------------------------------- 1996 1995 ----------------------- --------------------- Leasehold Leasehold Interest Equipment Interest Equipment ---------- ---------- -------- ---------- Cost. . . . . . . . . . . . . $1,036,000 $2,900,000 $708,000 $2,900,000 Accumulated depreciation and amortization . . . . . . . 82,000 967,000 47,000 552,000 ---------- ---------- -------- ---------- T o t a l . . . . . $ 954,000 $1,933,000 $661,000 $2,348,000 ========== ========== ======== ========== Depreciation aggregated approximately $433,000, $467,000 and $168,000 for the years ended December 31, 1996, December 31, 1995 and December 31, 1994, respectively. Included in the above depreciation expense is approximately $415,000, $414,000 and $138,000 for the years ended December 31, 1996, December 31, 1995 and December 31, 1994 for assets acquired under capital leases. (NOTE D) - Software Development Costs: Software development costs are summarized as follows: Year Ended December 31, --------------------------------- 1996 1995 1994 --------- --------- --------- Balance - beginning of period. . . . . . . . . $ 291,000 $ 389,000 $ 210,000 Additions for the period . 50,000 50,000 350,000 Amortization . . . . . . . (161,000) (148,000) (171,000) --------- --------- --------- Balance - end of period. . $ 180,000 $ 291,000 $ 389,000 --------- --------- --------- Research and development expense, exclusive of amortization of capitalized software development costs, was approximately $231,000, $320,000 and $124,000 for the years ended December 31, 1996, December 31, 1995 and December 31, 1994, respectively, and is included in software systems costs. (continued) F-10 GHS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (NOTE E) - Costs Incurred In Connection With Leasehold Interest: In a prior year, the Company granted a 20% interest in U.S. Neuro to two related parties ("related parties") for services rendered in connection with the leasehold interest, which it valued at $125,000 and credited to minority interest. Under the terms of the agreement between GHS and the related parties, GHS has the right to buy for cash or common stock the 20% interest owned by the related parties at any time during each of the third through sixth full fiscal years of the agreement. In September 1996, GHS decided to buy the minority interest for common stock. The number of shares for the purchase, has been estimated to be 33,200 by the Company which is subject to review by the related parties. The value of such shares approximated the minority interest and accordingly no adjustment was made to the basis of the Company's investment in U.S. Neuro. In 1996, the subsidiary earned $80,000 through September 30, 1996 of which $16,000 was allocated to the 20% interest. Such earnings are net of a management fee of $119,000 charged by GHS. In 1995, the subsidiary incurred a loss of $115,000 of which $22,000 was allocated to the 20% interest. In July 1994, the Company issued 24,000 shares of its common stock to an employee in consideration for services rendered in connection with the leasehold interest. The Company valued the shares at a fair value of $24,000 which it has included in leasehold cost. In connection with the grant of the 20% interest, the Company entered into an agreement with the related parties which provided for reimbursement to such parties of their reasonable expenditures towards establishing U.S. Neuro. The Company agreed to repay up to $250,000 of such valid, documented expenses by issuing up to 125,000 shares of GHS, Inc. common stock and up to $125,000 in U.S. Neuro notes payable from pre-tax earnings of U.S. Neuro. One of the parties (Dr. Brown) claims that GHS, Inc. will owe 62,500 shares of GHS, Inc. stock and interest bearing notes totaling $62,500, when he provides documentation to the Company. The Company has requested documentation of the claimed expenses since August 1993. No documentation has been produced. However, the Company acting in good faith issued 62,500 shares of GHS, Inc. common stock during 1993 and 1994. Dr. Brown has not documented any valid expenses. The Company has paid $30,000 for legal fees incurred prior to September 1, 1993 by Dr. Brown. The Company may take action to recover the 62,500 shares of GHS, Inc. stock issued to Dr. Brown. (continued) F-11 GHS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (NOTE E) - Costs Incurred In Connection With Leasehold Interest: (continued) Dr. Brown entered into a three year employment contract with the Company in September 1993. Dr. Brown claims that his contract was unilaterally modified by the Company in November of 1994 and he was terminated without proper authority in August 1995. Dr. Brown also claims that he has been denied reimbursement of legitimate expenses of more than $20,000. The Company believes that Dr. Brown's claims are completely without merit. Upon signing his employment agreement Dr. Brown requested a $60,000 pay advance. The advance was granted as a loan with monthly repayments culminating in December 1995. Dr. Brown still owes the Company $6,900 on this loan. In November 1994, the Company negotiated an incentive compensation plan with Dr. Brown whereby he was paid a salary of $150,000 per annum with quarterly adjustments against his salary if the Gamma Knife operation did not meet minimum performance standards. The agreement guaranteed Dr. Brown a minimum salary of $100,000 per annum. Dr. Brown was paid salary through August 1995 at which time he was terminated as an employee and removed from the U.S. Neuro Board of Directors. During the terms of his employment with U.S. Neuro, Dr. Brown was fully reimbursed for expenses which he submitted as incurred in connection with his responsibilities at U.S. Neuro; however, the Company did not reimburse him for travel and expenses that he incurred which were for personal business or not pre-authorized by the Company. (NOTE F) - Obligation Under Capital Lease and Loans Payable: Gamma Knife Venture: U.S. Neuro purchased a Gamma Knife ("Knife 1") from Elekta Instruments ("Elekta") for $2,900,000. The purchase was financed by Financing for Science International ("FFSI") under a 5 year capital lease bearing interest at approximately 12.7% per annum. During September 1996, Finova Capital Corp. bought out FFSI and became the lien holder. The lease is guaranteed by GHS, Inc. and Global Health Systems, Inc. On December 6, 1994, U.S. Neuro entered into an additional purchase agreement with Elekta to buy a second Gamma Knife ("Knife 2") for $2,900,000 for which it made a deposit of $290,000 in 1994. The knife initially was financed by Financing for Science, however, during 1996 the Company refinanced this knife with DVI Financial Services Inc. ("DVI") at which time the Company's deposit was returned. This equipment lease provides for the funding of the Gamma Knife of (continued) F-12 GHS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (NOTE F) - Obligation Under Capital Lease and Loans Payable: (continued) Gamma Knife Venture: (continued) $2,900,000. Interest to be charged on the equipment lease will be the higher of 12.7% or that rate adjusted for any increase in the thirty month Treasury Note rate. At December 31, 1996 the Company had a liability of $2,610,000 for progress payments for the Gamma Knife. In addition, the Company has entered into a three year loan with DVI for $300,000 and a demand loan of $535,000, both of which bear interest at approximately 13.7% per annum. These loans are secured by the accounts receivable of the Company and its subsidiaries. The two loans are to fund the leasehold improvements required to install the Gamma Knife at New York University Medical Center and are currently in an interest bearing escrow account. In November 1996 U.S. Neuro entered into an agreement to provide Knife 2 to a hospital for a fee based on the number of patient procedures performed. The agreement is for seven years. The Company anticipates the second Knife to be installed by June 1997 at which time the final payment of $290,000 will be made. In addition, the Company has two leases for computer equipment which bear interest at between 9% and 13%. Future lease payments on the equipment leases are as follows:
Year Ending Three Year Computer December 31, Knife 1 Knife 2 Loan Equipment Total --------------- ---------- ---------- -------- ------- ---------- 1997 . . . $ 805,000 $ 263,000 $ 84,000 $16,000 $1,168,000 1998 . . . 805,000 731,000 143,000 15,000 1,694,000 1999 . . . 472,000 731,000 143,000 10,000 1,356,000 2000 . . . 731,000 731,000 2001 . . . 731,000 731,000 2002 . . . 731,000 731,000 Thereafter 245,000 245,000 ---------- ---------- -------- ------- ---------- 2,082,000 4,163,000 370,000 41,000 6,656,000 Less interest. 358,000 1,263,000 70,000 7,000 1,698,000 Less: final payment . . 290,000 290,000 ---------- ---------- -------- ------- ---------- Present value of net minimum obligation. $1,724,000 $2,610,000 $300,000 $34,000 $4,668,000 ========== ========== ======== ======= ==========
(continued) F-13 GHS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (NOTE G) - Common Stock Issued With Put Option: In a prior year the Company issued 500,000 shares of its common stock for $1.00 per share to RMC. If the fair market value ("FMV") of the shares is equal to or less than $1.25 per share, RMC has the right to resell the shares to GHS, Inc. at $1.00 per share. If the FMV exceeds $1.25, GHS, Inc. has the right of first refusal to repurchase the shares at a price equal to 80% of the FMV ("Transaction Price"). If GHS, Inc. elects not to exercise its right of first refusal and RMC is unable to obtain a buyer for the shares at the Transaction Price, RMC has the right to resell the shares to GHS, Inc. at a purchase price equal to the greater of $1.00 per share or the Transaction Price. However, in no event shall the Company be required to purchase shares of stock after the earlier of 2003 or such time as U.S. Neuro, Inc. no longer occupies the premises (the "facility"). (NOTE H) - Stockholders' Equity: [1] Stock options: The Company has a stock option plan (the "Plan") for officers and other key personnel of the Company. The Plan authorizes the granting of incentive and nonqualified stock options to purchase up to 750,000 shares of the Company's common stock at a price not less than 100% (90% as to nonqualified) of the fair market value of the common stock on the date of grant. All options outstanding were granted to employees of the Company and shall terminate immediately upon the termination of employment of the employee by the Company or its subsidiaries or its parent. No part of any option granted under the Plan will be exercisable less than one year or more than ten years after the date of grant. Listed below is information as to options granted and exercisable. As of December 31, 1996 no options have been exercised. Number of Shares ------------------------- Exercisable 1996 1995 1994 Price ------- ------- ------- ------------ Outstanding January 1. . 430,000 430,000 430,000 $1.00 Options expired. . . . . 70,000 1.00 ------- ------- ------- Options outstanding. . . 360,000 430,000 430,000 1.00 ======= ======= ======= Options exercisable. . . 338,375 364,875 307,750 ======= ======= ======= (continued) F-14 GHS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (NOTE H) - Stockholders' Equity: [2] Preferred stock: The Company has authorized 1,000,000 shares of preferred stock, none of which is issued. The rights and preferences of preferred stock are established at the discretion of the Board of Directors upon issuance. [3] Issuance of warrants: On November 30, 1993, the Company granted warrants to a stockholder to purchase 200,000 shares of the Company's common stock at a purchase price of $1.00 per share, which equaled fair value at the date of grant. Such warrants were granted as consideration for services rendered in connection with a private placement of securities. The warrants contain registration and certain anti-dilution rights and are exercisable through November 30, 1998. (NOTE I) - Commitments and Other Matters: [1] In 1995 the Company entered into a lease for office premises which expires in 2000. The terms of the lease include escalation clauses for increases in certain operating expenses. The Company has a three year lease for an office facility in Sacramento, California at a yearly rental of approximately $27,000. Minimum future obligations under operating leases as described above are as follows: Year Ending December 31, ------------ 1997. . . . . . . . . . $ 68,000 1998. . . . . . . . . . 36,000 1999. . . . . . . . . . 34,000 2000. . . . . . . . . . 33,000 -------- $171,000 ======== Total rent expense aggregated $62,000, $61,000 and $33,000 for the years ended December 31, 1996, December 31, 1995, and December 31, 1994, respectively. [2] The Company maintains the majority of its cash at one bank. [3] The Company was contingently liable on an equipment lease of a customer which provided for an annual rental of approximately $95,000 per year. This lien was removed during February 1996. (continued) F-15 GHS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (NOTE J) - Taxes: Income tax (benefit) is comprised of the following: Year Ended December 31, -------------------------- 1996 1995 1994 --------- ------ ------ Current: Federal. . . . . . . . $ - 0 - $- 0 - $- 0 - State. . . . . . . . . - 0 - - 0 - - 0 - --------- ------ ------ - 0 - - 0 - - 0 - --------- ------ ------ Deferred: Federal. . . . . . . . (404,000) - 0 - - 0 - State. . . . . . . . . (59,000) - 0 - - 0 - --------- ------ ------ (463,000) - 0 - - 0 - --------- ------ ------ Income tax benefit. . . . $(463,000) $- 0 - $- 0 - ========= ====== ====== The difference between income tax benefit at the statutory federal income tax rate and income tax benefit reported in the statement of operations is as follows: Year Ended December 31, -------------------------- 1996 1995 1994 --------- -------- --------- Income tax (benefit) at the federal statutory rate. . . $(100,000) $(67,000) $(255,000) State income tax (benefit), net of federal taxes. . . . (15,000) (10,000) (38,000) Change in valuation allowance. (348,000) 77,000 293,000 --------- -------- --------- $(463,000) $ - 0 - $ - 0 - ========= ======== ========= Temporary differences which give rise to deferred tax asset are as follows: Year Ended December 31, -------------------------------- 1996 1995 1994 ---------- --------- --------- Net operating loss carryforwards . . . . . . . $1,013,000 $ 730,000 $ 570,000 Allowance for doubtful accounts. . . . . . . . . . 64,000 6,000 6,000 Unbilled accounts receivable . 77,000 37,000 Excess of tax depreciation over book depreciation. . . (344,000) (195,000) (72,000) Valuation allowance. . . . . . (270,000) (618,000) (541,000) ---------- --------- --------- Deferred tax asset - net . . . $ 463,000 $ - 0 - $ - 0 - ---------- --------- --------- (continued) F-16 GHS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (NOTE J) - Taxes: (continued) In 1996 the Company reevaluated its deferred income tax asset and reversed part of the valuation allowance related to this asset of $348,000. The reevaluation was based on the fact that the Company entered into a contract in March 1997 (see Note A) which, if closed, will result in a substantial gain. Accordingly, management has concluded that it is more likely than not that part of the deferred tax asset will be realized. At December 31, 1996, the Company has net operating loss carryforwards for income tax purposes aggregating approximately $2,708,000, which expire in the years 2008 through 2011. (NOTE K) - Major Customers: For the year ended December 31, 1996, the Company earned revenues from a municipality which accounted for 23% of revenues. Two customers represent 15% and 48% of receivables at December 31, 1996. These sales and receivables are from the computerized processing systems. For the year ended December 31, 1995, the Company earned revenues from a municipality which accounted for 43% of revenues. Two customers represent 35% and 27% of receivables at December 31, 1995. These sales and receivables are from the computerized processing system segment. Also, one customer represents 72% of the unbilled accounts receivable. For the year ended December 31, 1994, the Company earned revenues from one customer which accounted for 21% of revenues. Two customers represent 42% and 15% of receivables at December 31, 1994. These sales and receivables are from the computerized processing system segment. (continued) F-17 GHS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (NOTE L) - Business Segments: The Company's business segments are the development, installation and maintenance of computerized integrated processing systems and the operation of stereotactic radiosurgery centers, utilizing the Gamma Knife technology. Corporate assets are principally cash and cash equivalents. The following is the Company's business segment data: Year Ended December 31, ------------------------------------ 1996 1995 1994 ---------- ---------- ---------- Revenue: Computerized processing systems. . . . . . . . . . $2,780,000 $3,162,000 $1,954,000 Gamma Knife. . . . . . . . . 1,452,000 1,283,000 381,000 ---------- ---------- ---------- T o t a l . . . . . . $4,232,000 $4,445,000 $2,335,000 ========== ========== ========== Operating income (loss): Computerized processing systems. . . . . . . . . . $ (463,000) $ (136,000) $ (327,000) Gamma Knife. . . . . . . . . 491,000 441,000 (139,000) ---------- ---------- ---------- Operating income (loss). . . 28,000 305,000 (466,000) ---------- ---------- ---------- Interest (expense). . . . . . . (309,000) (504,000) (308,000) Investment income . . . . . . . 2,000 1,000 23,000 ---------- ---------- ---------- T o t a l . . . . . . (307,000) (503,000) (285,000) ---------- ---------- ---------- Loss before income tax benefit and minority interest. . . . $ (279,000) $ (198,000) $ (751,000) ========== ========== ========== December 31, ------------------------------------ 1996 1995 1994 ---------- ---------- ---------- Assets: Computerized processing systems. . . . . . . . . . $1,307,000 $2,505,000 $1,966,000 Gamma Knife. . . . . . . . . 6,623,000 4,834,000 3,889,000 Corporate assets . . . . . . 705,000 30,000 ---------- ---------- ---------- T o t a l . . . . . . $8,635,000 $7,339,000 $5,885,000 ========== ========== ========== Capital expenditures: Computerized processing systems. . . . . . . . . . $ 89,000 $ 80,000 $ 367,000 Gamma Knife. . . . . . . . . 330,000 3,000 544,000 ---------- ---------- ---------- T o t a l . . . . . . $ 419,000 $ 83,000 $ 911,000 ========== ========== ========== Depreciation and amortization: Computerized processing systems. . . . . . . . . . $ 179,000 $ 168,000 $ 191,000 Gamma Knife. . . . . . . . . 452,000 449,000 150,000 ---------- ---------- ---------- T o t a l . . . . . . $ 631,000 $ 617,000 $ 341,000 ========== ========== ========== F-18 REPORT OF INDEPENDENT AUDITORS WITH RESPECT TO SUPPLEMENTARY SCHEDULES Board of Directors and Stockholders GHS, Inc. Rockville, Maryland The audits referred to in our report dated March 13, 1997 includes Schedule II. In our opinion, this schedule presents fairly the information set forth therein in relation to the financial statements taken as a whole and in compliance with the applicable accounting regulation of the Securities and Exchange Commission. New York, New York March 13, 1997 S-1 SCHEDULE II GHS, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E Additions Balance (1) (2) at Charged to Balance beginning Charged to other at of costs and accounts - Deductions - end of Description period expenses describe (A) describe (B) period Allowance for doubtful accounts: 1996 . . . . . . . . . . . . . . . . . . . . .$14,000 $150,000 $164,000 ======= ======== ======== 1995 . . . . . . . . . . . . . . . . . . . . .$14,000 $ 14,000 ======= ======== 1994 . . . . . . . . . . . . . . . . . . . . .$14,000 $ 14,000 ======= ======== Reserve for inventory obsolescence: 1996 . . . . . . . . . . . . . . . . . . . . .$15,000 $15,000 (B) $ - 0 - ======= ======== 1995 . . . . . . . . . . . . . . . . . . . . .$15,000 $ 15,000 ======= ======== 1994 . . . . . . . . . . . . . . . . . . . . .$15,000 $ 15,000 ======= ========
(B) Liquidation of obsolete inventory. The accompanying notes to financial statements are an integral part hereof. S-2 EX-10.P 2 EQUIPMENT AGREEMENT GAMMA KNIFE NEURORADIOSURGERY EQUIPMENT AGREEMENT THIS AGREEMENT is made and entered into this 26th of November, 1996 by and between NEW YORK UNIVERSITY on behalf of NEW YORK UNIVERSITY MEDICAL CENTER (hereinafter referred to as "NYU"), a New York education corporation, whose Medical Center's principal offices are located at 550 First Avenue, New York, New York, and U.S. NEUROSURGICAL, INC., a Delaware corporation with its principal office at 1350 Piccard Drive, Suite 360, Rockville, Maryland 20850 (hereinafter referred to as "U.S. Neuro"). WITNESSETH: WHEREAS, U.S. Neuro has entered into the LGK Purchase Agreement, dated as of December 29, 1993 (the "Purchase Agreement"; all capitalized terms used herein without definition shall have the respective meanings set forth in the Purchase Agreement), pursuant to which U.S. Neuro has agreed to purchase from Elekta Instruments, Inc. ("Elekta") a "Leksell Gamma Knife" (including the cobalt supply therefor) which meets the specifications set forth in Exhibit A attached hereto and made a part hereof and to otherwise provide the equipment described on Exhibit A (hereinafter, collectively, referred to as the "Gamma Knife Equipment"); WHEREAS, U.S. Neuro has assigned its right to purchase the Gamma Knife Equipment under the Purchase Agreement to DVI Financial Services Inc. ("DVI") and Elekta has consented to such assignment; WHEREAS, U.S. Neuro and DVI have entered into the Master Equipment Lease Agreement, dated as of August 1, 1996 (the "DVI Lease Agreement"), pursuant to which (i) DVI has agreed to take title to the Gamma Knife Equipment and lease it to U.S. Neuro and (ii) U.S. Neuro has agreed to lease the Gamma Knife Equipment from DVI and make certain fixed rental payments therefor, all in accordance with the terms and conditions of the DVI Lease Agreement; WHEREAS, U.S. Neuro and NYU desire to provide for (i) the installation of the Gamma Knife Equipment at NYU for use by NYU in the treatment of its patients, (ii) maintenance, insurance and other matters with respect to U.S. Neuro's leasehold interest in the Gamma Knife Equipment to be the responsibility of U.S. Neuro and (iii) the fees payable by NYU for patient procedures undertaken using the Gamma Knife Equipment; -2- NOW, THEREFORE, in consideration of the mutual covenants and promises herein contained and intending to be legally bound, the parties agree as follows: ARTICLE I 1.01 CON; Licenses. NYU and U.S. Neuro will work cooperatively to prepare and file (i) with the Department of Health of the State of New York an application for a Certificate of Need supporting the installation and use in patient care of the Gamma Knife Equipment at NYU and any amendments or supplements thereto that may be necessary (the "CON") and (ii) with New York City an application for all necessary permits, licenses and/or permissions for the use of radioactive materials for medical purposes in connection with the Gamma Knife Equipment. The parties acknowledge that the preparation of such applications is dependent upon the cooperation of Elekta and DVI and receipt of all information and documentation necessary to complete such applications. The costs associated with preparation and submission of such applications shall be paid by U.S. Neuro. 1.02 Conditions Precedent; Preparation of Facility. (a) Upon: (i) obtaining the CON; (ii) delivery to NYU of an agreement of Elekta (a) to provide maintenance services for the Gamma Knife Equipment including, without limitation, the replenishment of the cobalt installed in the Gamma Knife Equipment at such time as is required in accordance with law and the operating procedures in place with respect to the Gamma Knife Equipment and the removal and disposal of any such cobalt and (b) consenting to the assignment by U.S. Neuro to NYU of all of the warranties, licenses and other rights with respect to the Gamma Knife Equipment and any related software or documentation available to the "purchaser" under the Purchase Agreement, all in form and substance reasonably satisfactory to NYU and U.S. Neuro; (iii) DVI having (A) taken title to the Gamma Knife Equipment and leased such Equipment to U.S. Neuro under the DVI Lease Agreement and (B) delivered to NYU an agreement of DVI consenting to the terms of this Agreement and offering to NYU the right to assume the DVI Lease Agreement upon the occurrence of an event of default on the part of U.S. Neuro, all in form and substance reasonably satisfactory to NYU and U.S. Neuro; (iv) U.S. Neuro and NYU obtaining all necessary permits, licenses and approvals with respect to the use of the -3- Gamma Knife Equipment as contemplated by this Agreement from New York City and any other relevant governmental authority; (v) U.S. Neuro providing to NYU, at the sole expense of U.S Neuro, all necessary sublicenses and other rights necessary to enable NYU to possess and operate the Gamma Knife Equipment including, without limitation, all software licenses; (vi) delivery to NYU of a copy of the Test Report delivered by Elekta under the Purchase Agreement showing compliance of the Gamma Knife Equipment with the Specifications; (vii) compliance by U.S. Neuro with all of the conditions precedent to delivery of the Gamma Knife Equipment under the Purchase Agreement; (viii) U.S. Neuro causing to be established (x) an escrow account with a bank satisfactory to NYU in the amount of $825,000 and (y) a firm commitment on the part of DVI or other third party satisfactory to NYU to fund an additional $100,000, in each case to fund the cost of constructing the Neuroradiosurgery Facility in accordance with the terms of this Agreement (including, without limitation, the infrastructure expenses referred to in Section 1.02(b)), all on terms and conditions satisfactory to NYU; and (ix) delivery to NYU of the construction drawings and specifications for the Neuroradiosurgery Facility (as defined below) issued by Albert Schunkewitz & Partners ("Schunkewitz") on July 3, 1996; U.S. Neuro shall take, or shall cause third persons to take, all steps which may be necessary or requested by NYU to have prepared, constructed and made ready NYU's facility located at 530 First Avenue, Cellar Level, New York, New York (the "Neuroradiosurgery Facility") for installation of the Gamma Knife Equipment in compliance with the terms of the Purchase Agreement, the drawings and specifications delivered pursuant to Section 1.02(a)(ix) and all applicable law and regulations including, without limitation, any construction or alteration of the physical premises, wiring, working with NYU to prepare a safety plan, providing any temporary and permanent shielding for the Charging of the Gamma Knife Equipment and its use, building foundations for the Gamma Knife Equipment, shielding, walls, alignment of the facility, installation of radiation monitoring equipment, the performance of any testing required by applicable law and regulations and any resulting modifications or alterations to the Gamma Knife Equipment and the Neuroradiosurgery Facility. As between U.S Neuro and NYU, U.S Neuro shall bear all costs and expenses of such preparation and any liability -4- associated therewith; provided that U.S. Neuro shall not bear liability for any action or failure to act on the part of NYU which constitutes willful misconduct or negligence. (b) U.S. Neuro shall construct the Neuroradiosurgery Facility in a timely manner and in accordance with applicable law and regulations, the requirements of the Purchase Agreement and the drawings and specifications issued by Schunkewitz on July 3, 1996. All construction, architecture, engineering and other work conducted in connection with the construction of the Neuroradiosurgery Facility shall be performed by third-party contractors selected by U.S. Neuro and satisfactory to NYU. U.S. Neuro shall contract with such third-party contractors pursuant to NYU's standard form contracts for such services modified to reflect the relevant parties and appropriate insurance coverage for NYU and, in each case, such contracts shall be satisfactory to NYU. U.S. Neuro shall be solely responsible for payment of all amounts owing to the third-party contractors under the contracts entered into by U.S. Neuro. U.S. Neuro shall, at its sole cost, hire a contractor to work on-site to supervise and administer the construction of the Neuroradiosurgery Facility and coordinate such construction with other construction projects at NYU. In addition to reporting to U.S. Neuro, the on-site contractor shall report regularly to the Vice President for Facilities Management of NYU on the progress of construction and any outstanding issues relating thereto, and shall consult with such Vice President as to all decision-making with respect to the construction. U.S. Neuro shall deliver to NYU copies of all documentation relating to the construction received by it or prepared by it and NYU shall at all times retain final authority over all decision-making by U.S. Neuro with respect to the construction. U.S. Neuro shall reimburse NYU for a portion of the cost of certain infrastructure work being undertaken by NYU to support the Neuroradiosurgery Facility and other facilities of NYU located nearby consisting of the installation of a new HVAC unit and related construction. The actual portion for which U.S. Neuro shall be responsible shall be determined by Schunkewitz and shall be binding upon both U.S. Neuro and NYU. Within five (5) business days following delivery by Schunkewitz to U.S. Neuro and NYU of an allocation of such costs between U.S. Neuro and NYU, U.S. Neuro shall pay the amount so allocated to it in immediately available funds to NYU. In the event that U.S. Neuro does not pay such amounts when due, such amounts shall accrue interest at the rate of 12% per annum from the date on which such payment was due to and including the date on which such payment is actually made. NYU may in addition to other remedies hereunder, but shall not be under any obligation to, offset such amounts against any amounts then payable by NYU to U.S. Neuro under this Agreement -5- and apply such amounts to reimburse itself for the payment of such expenses. (c) Notwithstanding the provisions of Section 1.02(a), in the event that construction of the Neuroradiosurgery Facility is begun prior to all of the conditions precedent to such construction having been satisfied in full, such conditions shall not be deemed to have been waived or modified and U.S. Neuro shall use its best efforts to satisfy each such condition in full on the earliest possible date. In the event that (i) all conditions precedent set forth in Section 1.02(a) shall not have been met by June 30, 1997 or (ii) construction of the Neuroradiosurgery Facility shall not have been completed in accordance with the terms of this Agreement, then in each case, this Agreement shall automatically, without notice or other action, terminate and be of no further force or effect and U.S. Neuro shall, subject to applicable law and regulations, provide for any work performed on the Neuroradiosurgery Facility to be dismantled, any Gamma Knife Equipment to be removed and the premises to be restored to their original condition, in each case at the sole cost, expense and liability of U.S. Neuro. In the event that applicable law and regulations prevent the closing of the Neuroradiosurgery Facility, this Agreement shall continue on the same terms and conditions until the earliest date upon which the Facility may be closed in accordance with applicable law and regulations. (d) In the event that NYU determines that amounts are (i) owed to contractors employed by U.S. Neuro to construct the Neuroradiosurgery Facility and such contractors are likely to either cease work on the Facility or impose a lien or other encumbrance upon any property or asset of NYU or (ii) required to be expended in order to complete the Neuroradiosurgery Facility in accordance with Section 1.02(b) and U.S. Neuro has not made provision for such expenditures in a manner that is reasonably satisfactory to NYU, then NYU may (but shall not be under any obligation to), in addition to its other remedies hereunder, pay such amounts itself and offset such amounts against any amounts then payable by NYU to U.S. Neuro under this Agreement. If there are no payments owing under this Agreement for NYU to offset against, upon written notice from NYU, U.S. Neuro shall immediately reimburse NYU for the amount of such payment, together with interest thereon at the rate of 12% per annum from the date on which NYU made the payment to and including the date on which NYU is actually reimbursed therefor. 1.03 Delivery; Installation. Upon completion of the Neuroradiosurgery Facility to the extent necessary for installation of the Gamma Knife Equipment, to the satisfaction of NYU, U.S. Neuro shall take all steps necessary to deliver, or cause third persons to deliver, the Gamma Knife Equipment, together with all related software and user manuals, to the NYU facility -6- and to undertake all procedures and tasks as are necessary to enable the Gamma Knife Equipment to be properly subjected to the Acceptance Tests, including Charging the Gamma Knife Equipment with its Cobalt Supply. As between U.S. Neuro and NYU, U.S. Neuro shall bear all costs and expenses of such delivery and installation and any liability associated therewith. 1.04 Acceptance Testing. (a) Promptly upon completion of the installation of the Gamma Knife Equipment in accordance with the terms of this Agreement and the Purchase Agreement, U.S. Neuro shall cause Elekta to perform the Acceptance Tests in the presence of U.S. Neuro and NYU and under the supervision of such radiation safety personnel as may be required by applicable law. U.S. Neuro shall be deemed to have accepted the Gamma Knife Equipment under the Purchase Agreement upon the completion of the Acceptance Tests and the demonstration that the Gamma Knife Equipment complies with the Specification. (b) NYU shall have the option of (but shall be under no obligation to) performing an inspection or causing a third party to perform an inspection on its behalf to confirm that the Gamma Knife Equipment and the Neuroradiosurgery Facility satisfy NYU's requirements under this Agreement. Any such inspection shall be fully supervised by U.S. Neuro and shall occur promptly following the testing conducted by Elekta. (c) Upon satisfactory completion of the inspection conducted by Elekta and any inspection conducted by or on behalf of NYU, NYU shall accept the Gamma Knife Equipment under this Agreement. 1.05 Documentation. U.S. Neuro shall promptly forward to NYU copies of all reports, documentation, notices, certificates, diagrams and other materials prepared by or on behalf of U.S. Neuro or Elekta relating to the delivery, installation and testing of the Gamma Knife Equipment. Upon any termination of this Agreement other than a termination resulting from NYU's exercise of its right to purchase the Gamma Knife Equipment or its right to terminate this Agreement pursuant to Section 8.01(b), NYU shall, upon written request of U.S. Neuro, return to U.S. Neuro all such documentation. ARTICLE II 2.01 Term. The term of NYU's possession and use of the Gamma Knife Equipment under this Agreement (the "Term") shall begin on the date on which NYU accepts the Gamma Knife Equipment pursuant to Section 1.04(c) and shall terminate on the seventh anniversary of such date, unless earlier terminated pursuant to this Agreement. -7- 2.02 Renewal Option. Upon the expiration of the Term in accordance with Section 2.01 and upon the expiration of any Renewal Term (as defined below), NYU shall have the option, exercisable by giving written notice to U.S. Neuro within 90 days prior to the expiration of the Term, of extending the Term for successive three year periods (each, a "Renewal Term"). 2.03 Purchase Option. (a) At the end of the Term and at the end of each Renewal Term, NYU shall have the option of purchasing the Gamma Knife Equipment at a price equal to the then fair market value of the Gamma Knife Equipment as established by an appraiser chosen by NYU and reasonably satisfactory to U.S. Neuro. Any such sale shall be pursuant to instruments and documentation satisfactory to NYU including, without limitation, an express retention by U.S. Neuro of all liability for the installation, testing, maintenance and operation of the Gamma Knife Equipment prior to such transfer, other than liability in connection with the operation of the Gamma Knife Equipment resulting from action or inaction on the part of NYU which constitutes willful misconduct or negligence. NYU may exercise such option no later than 120 days prior to the end of the Term or any Renewal Term by notifying U.S. Neuro thereof in writing. (b) Notwithstanding clause (a) of this Section 2.03, within 10 days after delivery to U.S. Neuro of an appraisal pursuant to clause (a), U.S. Neuro may deliver written notice to NYU that it elects to in good faith negotiate the purchase price with NYU. In such event, U.S. Neuro shall bear half of the costs associated with the obtaining of the appraisal and the parties shall in good faith negotiate a purchase price for the Gamma Knife Equipment. Upon failure of the parties to agree to a purchase price prior to the end of the Term or such Renewal Term, U.S. Neuro may request that the Neuroradiosurgery Facility be closed. Upon receipt of a request of U.S. Neuro to close the Neuroradiosurgery Facility, NYU and U.S. Neuro shall negotiate in good faith to close the Facility subject to applicable law and regulations, provide for the Neuroradiosurgery Facility to be dismantled, the Gamma Knife Equipment to be removed and the premises to be restored to their original condition, in each case at the sole cost, expense and liability of U.S. Neuro. In the event that applicable law and regulations prevent the closing of the Neuroradiosurgery Facility, this Agreement shall continue on the same terms and conditions until the earliest date upon which the Facility may be closed in accordance with applicable law and regulations. ARTICLE III 3.01 The NYU Facility. The Neuroradiosurgery Facility shall be available for patient care and staffed by NYU personnel during NYU's normal hospital business hours. NYU acknowl- -8- edges that the availability of the Gamma Knife Equipment for patient care is subject to preventive maintenance work and unavoidable equipment failures. The Neuroradiosurgery Facility shall at all times be under the sole control of NYU and NYU may institute such policies and procedures concerning access to the Facility or otherwise as it may deem necessary or appropriate. 3.02 Personnel; Training. The Neuroradiosurgery Facility shall be staffed with physicists, nurses, technologists and clerical personnel as may be deemed necessary by NYU for the operation of the Neuroradiosurgery Facility. U.S. Neuro shall provide, or shall cause Elekta to provide, to the staff designated on Exhibit B hereto the training necessary for the proper operation of the Gamma Knife Equipment including, without limitation, all initial, upgrade and refresher training which is provided by Elekta. Such training shall be at the sole expense of U.S. Neuro except that U.S. Neuro shall not be responsible for payment of the travel and living expenses of NYU personnel incurred in connection with such training. 3.03 Physician and Physicist Training. U.S. Neuro shall provide, or shall cause Elekta to provide, comprehensive training on the use of the Gamma Knife Equipment for the physicians and physicists designated on Exhibit B hereto. Such training shall be at the sole expense of U.S. Neuro, except that U.S. Neuro shall not be responsible for payment of the travel and living expenses of NYU personnel incurred in connection with such training, and shall be provided at clinically operating sites which utilize equipment comparable to the Gamma Knife Equipment. 3.04 Medical and Office Supplies. U.S. Neuro shall purchase and maintain sufficient inventories of Gamma Knife Equipment supplies as may be necessary to ensure continuous availability of the Gamma Knife Equipment during the business hours of the Neuroradiosurgery Facility. U.S. Neuro shall not be responsible hereunder for the purchase of expendable supplies used in the operation of the Neuroradiosurgery Facility (e.g. sponges, office supplies, medications and solutions). 3.05 Physician Relationships. NYU shall direct and administer all physician services provided at the Neuroradiosurgery Facility. U.S. Neuro shall have no oversight or other role in directing or administering such physician services or the operation of the Neuroradiosurgery Facility. NYU shall provide to U.S. Neuro a copy of the curriculum vitae of each physicist and physician operating the Gamma Knife Equipment. 3.06 Information. U.S. Neuro and NYU shall cooperate in an effort to provide information to the general public about the Gamma Knife Equipment and the Neuroradiosurgery Facility. The cost of materials produced pursuant to this Section 3.06 shall be shared equally by U.S. Neuro and NYU. -9- ARTICLE IV 4.01 Maintenance of Gamma Knife Equipment. (a) U.S. Neuro shall, at its sole cost and expense, be responsible for (i) the maintenance, repair and insuring of the Gamma Knife Equipment in accordance with the terms of this Agreement, the Purchase Agreement, the DVI Lease Agreement, applicable law and regulations and any directives issued by Elekta, and otherwise in good, safe and efficient operating repair, appearance and condition including, without limitation, keeping all components properly calibrated and aligned and making all required adjustments, replacements and repairs (except that (A) NYU shall perform such daily and routine calibration, alignment and cleaning with respect to which U.S. Neuro has provided training to the staff of the Neuroradiosurgery Facility pursuant to Section 3.02 and 3.03 and (B) U.S. Neuro shall not bear the cost of, but shall otherwise be responsible for, repairs resulting from action on the part of NYU which constitutes willful misconduct or negligence), and (ii) full compliance with all of the terms and conditions of the Purchase Agreement and the DVI Lease Agreement, and, in each case, NYU hereby expressly disclaims any such responsibility. At a minimum, U.S. Neuro shall purchase a preventive maintenance contract from Elekta or from a vendor approved by Elekta, which contract shall provide for a remote service diagnostic program, replenishment of radioactive cobalt 60 as necessary for the proper operation of the Gamma Knife Equipment and removal and disposal of such cobalt, and updating/upgrading of computer software as new updates/upgrades which are clinically efficacious and financially feasible become available. (b) NYU shall have no duty to inspect the Gamma Knife Equipment or perform any maintenance or other tasks described in Section 4.01(a) (except the daily and routine calibration, alignment and cleaning referred to therein) and U.S. Neuro shall perform such regular inspections of the Gamma Knife Equipment as it shall deem necessary to comply with its obligations under Section 4.01(a). However, in the event that a maintenance or other problem is brought to the attention of NYU, NYU shall promptly notify U.S. Neuro thereof and U.S. Neuro shall immediately take all steps which may be required to ensure compliance with Section 4.01(a). (c) All repairs and preventive maintenance will be performed during regular business hours and pursuant to a schedule agreed upon by U.S. Neuro and NYU to minimize delays, interruptions and disruptions of service to patients of the Neuroradiosurgery Facility and its medical staff. Emergency maintenance and repairs will be performed by U.S. Neuro at such times as U.S. Neuro and NYU may agree. - 10 - 4.02 Updates, upgrades and enhancements. U.S. Neuro will purchase and arrange for installation of all hardware and software updates to the Gamma Knife Equipment at its sole cost and expense. U.S. Neuro shall notify NYU in writing promptly upon receipt of notice from Elekta of the availability of any optional and/or mandatory upgrades or enhancements of the Gamma Knife Equipment (other than the hardware and software contained therein) and NYU and U.S. Neuro shall mutually determine whether acquisition of such upgrade or enhancement is necessary for the Neuroradiosurgery Facility to remain competitive with other neuroradiosurgery facilities. If purchase and installation of such upgrade or enhancement is determined to be necessary for the Neuroradiosurgery Facility to remain competitive with other neuroradiosurgery facilities, then U.S. Neuro will purchase and arrange for installation of such upgrade and/or enhancement. If any such upgrade or enhancement is not determined to be necessary for the Neuroradiosurgery Facility to continue to be competitive but NYU requests in writing that U.S. Neuro acquire such upgrade or enhancement, then (a) U.S. Neuro shall purchase and arrange for installation of such upgrade or enhancement and such upgrade or enhancement shall, upon installation, become part of the Gamma Knife Equipment covered by this Agreement and (b) the schedule of charges set forth in Section 5.01 shall be increased by an amount sufficient for U.S. Neuro to recover the cost of such upgrade or enhancement over a period of time together with a reasonable profit, such increases and payment schedule to be acceptable to NYU and U.S. Neuro. 4.03 Uptime. U.S. Neuro shall use its best efforts to obtain an uptime guaranty for the benefit of U.S. Neuro and NYU from Elekta which assures that the Gamma Knife Equipment will be fully operational for patient use at all times except such times which, in the aggregate, do not exceed 5% of the total business hours of the Neuroradiosurgery Facility in any calendar year. 4.04 Purchase Agreement. U.S. Neuro shall, at its sole expense, exercise all rights as "purchaser" under the Purchase Agreement, or shall cause DVI to exercise such rights, and obtain all benefits with respect to the Gamma Knife Equipment thereunder, as may be required in order for U.S. Neuro to comply with its obligations under this Agreement or as may be requested in writing by NYU in connection with the operation of the Gamma Knife Equipment or the Neuroradiosurgery Facility or the performance by NYU of its obligations under this Agreement. 4.05 Risk of Loss. As between U.S. Neuro and NYU, U.S. Neuro shall exclusively bear all risk of loss, requisition, damage, theft or destruction with respect to the Gamma Knife Equipment, except that U.S. Neuro shall not bear any such risks which result from any action or failure to act on the part of NYU which constitutes willful misconduct or negligence. - 11 - 4.06 Removal of Equipment. If, for any reason other than an exercise of remedies by NYU pursuant to Section 8.01(b), the Gamma Knife Equipment is to be removed from the Neuroradiosurgery Facility, NYU shall be given at least 90 days advance written notice of such proposed removal, together with a written plan describing the steps to be taken to remove the Equipment, to restore the Neuroradiosurgery Facility to its original condition and to cover the costs of such removal including, without limitation, appropriate insurance and indemnification of NYU. NYU shall have the right to review and give its prior approval (such approval not to be unreasonably withheld or delayed) of any such plan and the work to be taken pursuant to such plan. Any removal of the Gamma Knife Equipment from the Neuroradiosurgery Facility shall be (a) subject to applicable law and regulations and (b) at the sole cost and liability of U.S. Neuro. In the event that applicable law and regulations prevent the removal of the Gamma Knife Equipment from the Neuroradiosurgery Facility, this Agreement shall continue on the same terms and conditions until the earliest date upon which the Equipment may be removed in accordance with applicable law and regulations. ARTICLE V 5.01 U.S. Neuro Compensation. As U.S. Neuro's sole compensation for the provision of the Gamma Knife Equipment for the Neuroradiosurgery Facility and all related services provided hereunder, NYU agrees to pay to U.S. Neuro a fee based on the number of patient procedures performed with the Gamma Knife Equipment in accordance with the following schedule: Consecutive Number of Patient Procedures Fee per Procedure - ---------------------------------------- ----------------- first through 150th (inclusive) patient procedures $10,000 151st through 200th (inclusive) patient procedures $ 8,000 200th and subsequent patient procedures $ 7,000; provided that (a) with respect to any patient procedure using the Gamma Knife Equipment for which NYU is not reimbursed for the full DRG inpatient amount: (i) because NYU and U.S. Neuro have both participated in an agreement by NYU with a third-party or the New York State governmental authorities that determine DRG reimburse- - 12 - ment (the "Governmental Authorities") to a negotiated fee that is lower than the full DRG inpatient reimbursement, NYU shall be required to pay to U.S. Neuro the percentage of the actual amount received by NYU as payment for such patient procedure agreed by NYU and U.S. Neuro; (ii) because NYU has, without participation by U.S. Neuro, agreed with a third-party or with the Governmental Authorities to a negotiated fee that is lower than the full DRG inpatient reimbursement, NYU shall be required to pay to U.S. Neuro the full fee set forth above; (iii) because NYU has determined in its sole discretion to provide charity care using the Gamma Knife Equipment to a patient, NYU shall be required to pay to U.S. Neuro 50% of the actual amount received by NYU, if any, as payment for such patient procedure; and (iv) because a determination has been made by a third party or the Governmental Authorities to reimburse NYU with respect to such patient procedure at a rate applicable to ambulatory surgery procedures or "short-stay" hospital procedures, NYU shall be required to pay to U.S. Neuro 50% of the actual amount received by NYU as payment for such patient procedure; and (b) any patient procedure using the Gamma Knife Equipment for which NYU is not reimbursed for the full DRG inpatient amount (other than pursuant to clause (ii) of the proviso to this Section 5.01) shall not be counted for purposes of calculating the consecutive number of patient procedures referenced above; provided, further, that (x) in the event the number of patient procedures for which NYU is not reimbursed for the full DRG inpatient amount for the reason specified in clause (iii) of the immediately preceding proviso during any calendar quarter exceeds 10% of all patient procedures performed using the Gamma Knife Equipment during such calendar quarter, U.S. Neuro may request that U.S. Neuro and NYU consult in good faith as to appropriate adjustments to the provisions of Section 5.01 covering such procedures and (y) in the event the number of patient procedures for which NYU is not reimbursed for the full DRG inpatient amount for the reasons specified in clauses (iii) and (iv) of the immediately preceding proviso during any calendar quarter exceeds 40% of all patient procedures performed using the Gamma Knife Equipment during such calendar quarter, U.S. Neuro shall have the option, exercisable upon delivery of written notice to NYU, to request that the Neuroradiosurgery Facility be closed. Upon receipt of a request of U.S. Neuro to close the Neuroradiosurgery Facility, NYU and U.S. Neuro shall negotiate in good faith to either (I) substitute a revised payment scheme taking into account the actual number of reduced-fee patient procedures or (II) subject to applicable law and regulations, provide for the - 13 - Neuroradiosurgery Facility to be dismantled, the Gamma Knife Equipment to be removed and the premises to be restored to their original condition, in each case at the sole cost, expense and liability of U.S. Neuro. In the event that applicable law and regulations prevent the closing of the Neuroradiosurgery Facility, this Agreement shall continue on the same terms and conditions until the earliest date upon which the Facility may be closed in accordance with applicable law and regulations. U.S. Neuro acknowledges and agrees that (a) its participation in any negotiations with third parties or the Governmental Authorities as to reimbursement for Gamma Knife procedures may occur indirectly through NYU and U.S. Neuro agrees to use reasonable efforts to consult with NYU in a timely manner with respect to any such negotiations and (b) ultimately, NYU shall have the right to make agreements with such third parties and the Governmental Authorities as NYU shall deem necessary or appropriate and if U.S. Neuro shall not have participated in the negotiation of any such agreement, the fee payable to U.S. Neuro shall be determined in accordance with clause (a) (ii) of the first proviso to Section 5.01. NYU and U.S. Neuro agree that, in the event the Governmental Authorities implement changes to the DRG reimbursement scheme that materially effect the reimbursement rates for patient procedures using the Gamma Knife Equipment, NYU and U.S. Neuro will negotiate in good faith to substitute a revised payment scheme corresponding to such changes and maintaining, to the extent possible, the allocation of amounts received as reimbursement between NYU and U.S. Neuro set forth in Section 5.01. 5.02 Billing and Collection. NYU shall be the only party entitled to bill and collect from third party payors and patients for patient procedures using the Gamma Knife Equipment and for the use of the Neuroradiosurgery Facility. Physicians who perform patient procedures using the Gamma Knife Equipment shall be responsible for billing and collection of fees for their services to patients, and U.S. Neuro shall have no interest in such fees. 5.03 Payment Procedures. (a) Payement Procedure. Within ten (10) days after the end of each month in which patient procedures are performed by NYU using the Gamma Knife Equipment in the Neuroradiosurgery Facility (the "Current Month"), NYU shall pay to U.S. Neuro an amount equal to (i) the number of patient procedures performed by NYU during the Current Month for which NYU expects to receive full DRG reimbursement multiplied by the appropriate fee or fees stated in 5.01 above for such procedures plus (ii) with respect to patient procedures performed by NYU during the Current Month or prior months for which NYU did not receive the full DRG - 14 - inpatient reimbursement amount, the amount, if any, determined to be payable by NYU pursuant to the first proviso to Section 5.01 (and which are not covered by fees payable pursuant to clause (i) of this Section 5.03). (b) Right of Set Off. Notwithstanding the provisions of Section 5.03(a) and in addition to any other offset rights contained in this Agreement, in the event that NYU makes a payment to U.S. Neuro in error or based on a reimbursement payment which is later denied, rescinded, revoked or in an amount less than originally expected by NYU, NYU shall have the right to offset the amount of such erroneous payments against any amounts due and payable to U.S. Neuro under Section 5.03(a). If, for any reason, there are no payments under Section 5.03(a) against which NYU may offset such amounts, U.S. Neuro will pay such amounts to NYU in immediately available funds promptly upon receipt of a written statement from NYU therefor. 5.04 Taxes. Any taxes or other similar charges with respect to the Gamma Knife Equipment shall be payable by U.S. Neuro. Upon written request of U.S. Neuro, NYU will provide to U.S. Neuro a copy of any applicable exemption certificate for sales, use or similar taxes which may otherwise be assessable. 5.05 Patient Procedure Record; Inspection. (a) NYU shall maintain a record in which NYU shall list the number of patient procedures at the Neuroradiosurgery Facility using the Gamma Knife Equipment. Such record shall be available for inspection by duly authorized representatives of U.S. Neuro during normal business hours of the Neuroradiosurgery Facility upon advance written notice to NYU delivered at least 5 business days prior to the proposed date of inspection; provided that any such inspection shall not interfere with the normal operations of the Neuroradiosurgery Facility. (b) On no more than two occasions per calendar year, U.S. Neuro shall have the right to perform an audit of NYU's books and records pertaining to NYU's reimbursement for patient procedures performed using the Gamma Knife Equipment to verify NYU's compliance with Article V of this Agreement. Any such audit shall be conducted during NYU's normal business hours upon advance written notice to NYU delivered at least 30 days prior to the proposed date of audit; provided that any such audit shall not interfere with the normal operations of the Neuroradiosurgery Facility or NYU. (c) Any inspection or audit performed pursuant to this Section 5.05 shall be subject to such limitations and procedures as NYU shall deem necessary or appropriate to protect the confidentiality of information concerning NYU's patients and proprietary information of NYU in accordance with all applicable laws and NYU policies. - 15 - ARTICLE VI INDEMNITY AND INSURANCE 6.01 Indemnification. (a) U.S. Neuro shall protect, indemnify, defend and hold NYU, its employees and trustees harmless from and against any and all cost, loss, damage, liability, obligation, penalty, claim, action, suit and/or expense including, but not limited to, reasonable attorneys fees, (whether or not on the basis of negligence, strict or absolute liability, liability in tort or otherwise) in any way arising out of or resulting from (i) the design and construction of the Neuroradiosurgery Facility, (ii) the design, manufacture, maintenance, purchase, acceptance, condition or operation of the Gamma Knife Equipment, (iii) this Agreement, the Purchase Agreement, the DVI Lease Agreement or any other agreement entered into by U.S. Neuro, any affiliate of U.S. Neuro, DVI and/or NYU relating to lease or other financing or securitization arrangements made with respect to the Gamma Knife Equipment and/or the construction of the Neuroradiosurgery Facility or (iv) any failure by the Neuroradiosurgery Facility or the Gamma Knife Equipment to comply with applicable laws and regulations. (b) NYU shall protect, indemnify, defend and hold U.S. Neuro and its employees harmless from and against any and all cost, loss, damage, liability, obligation, penalty, claim, action, suit which is solely and directly the result of (i) negligence on the part of NYU or (ii) a breach by NYU of its obligations under this Agreement. (c) The terms of this Section 6.01 shall survive the termination of this Agreement. 6.02 General Liability. Throughout the term of this Agreement, U.S. Neuro shall procure and maintain at its cost (and shall cause each subcontractor to maintain) a policy or policies of insurance providing coverage against all liability resulting from injury to persons or property attributable to the Gamma Knife Equipment and/or U.S. Neuro personnel or agents on which U.S. Neuro and NYU are named as additional insureds. Such insurance shall include products/completed operations liability as well as broad form blanket contractual liability coverage and professional liability coverage. Coverage under such insurance shall be in the amount of $5,000,000 per occurrence/$5,000,000 aggregate and shall be underwritten by insurance companies reasonably acceptable to NYU's Director of Insurance. 6.03 Fire and Extended Coverage Insurance. Throughout the term of this Agreement, U.S. Neuro shall procure and maintain at its cost (and shall cause each subcontractor to maintain), fire and extended coverage insurance underwritten by insurance - 16 - companies authorized to do business in the State of New York on the Gamma Knife Equipment to the extent of its full replacement value protecting against loss by fire, the elements, and other casualties customarily covered by standard fire and extended coverage insurance policies within the State of New York. 6.04 Automobile Liability Insurance. If U.S. Neuro will be using automobiles (including vans, buses or similar vehicles) in connection with its performance of services under this Agreement, U.S Neuro shall procure and maintain at its cost (and shall cause each subcontractor to procure and maintain), during the life of this Agreement, Automobile Liability Insurance in an amount not less than $1,000,000 for bodily injury or death resulting therefrom for each occurrence, and property damage in an amount not less than $1,000,000 for each occurrence. This insurance shall apply to all owned, non-owned, leased or hired vehicles. 6.05 Construction. The contracts covering the construction of the Neuroradiosurgery Facility which are executed by U.S. Neuro shall require certain types and amounts of insurance to be procured and maintained by U.S. Neuro and the subcontractors thereunder at the cost of U.S. Neuro and/or such subcontractor, including, without limitation, blanket explosion, collapse and underground coverage, professional liability coverage, general and commercial liability coverage (including, without limitation, premises operations liability, occurrence bodily injury and broad form property damage liability, broad form contractual liability and independent contractors liability coverage). All such insurance shall be satisfactory to NYU in all respects. 6.06 Other Insurance. Throughout the term of this Agreement, U.S. Neuro shall procure and maintain at its cost (and shall cause any subcontractor to procure and maintain), insurance coverage mandated by law for worker's compensation, occupational diseases, and employer's liability. Such insurance shall be underwritten by companies authorized to do business in the State of New York. 6.07 Insurance Policies; Certificates. All insurance policies (except worker' compensation) shall be endorsed (i) to include NYU as an additional insured, (ii) to provide that each underwriter thereof agrees that it shall have no right of recovery or subrogation against NYU, (iii) to provide that any "other insurance provisions" in any such policy shall not apply to NYU, (iv) to provide that such insurance companies shall have no recourse against NYU for payment of any premium or for assessments under any mutual form of policy and (v) that any and all deductibles in such insurance policies shall be assumed by, for the account of, and at the sole risk of U.S. Neuro (or the relevant subcontractor). NYU shall be furnished on an annual - 17 - basis upon renewal or expiration of each policy, and upon request at any time, a current certificate evidencing each such policy or policies and all additions and amendments thereto, and all policies shall bear endorsements to the effect that the insurer will notify NYU not less than 60 days prior to any modification or cancellation thereof. U.S. Neuro shall cause NYU to be furnished with complete copies of any policies referred to in this Article upon request of NYU. ARTICLE VII 7.01 Exclusive Rights. The Purchase Agreement contains a provision for the benefit of U.S. Neuro which prevents Elekta, for a period of twelve months following delivery of the Gamma Knife Equipment to the Neuroradiosurgery Facility, from delivering any gamma knife equipment to any third person for installation in any of the four following boroughs of New York City: Manhattan, Bronx, Brooklyn and Queens; and Westchester County; without having first given U.S. Neuro a right of first refusal to purchase such equipment. U.S. Neuro acknowledges and agrees that NYU is intended to be a third-party beneficiary of such agreement. In the event that Elekta offers to U.S. Neuro the right to purchase a gamma knife (as described above), U.S. Neuro shall within twenty-four hours thereafter notify NYU in writing thereof and shall provide to NYU such details relating to the gamma knife, the proposed sale to a third person and the terms of U.S. Neuro's right of first refusal as NYU may request. At the election of NYU, U.S. Neuro and NYU shall negotiate in good faith to structure and consummate a transaction involving the purchase or lease (and financing, if applicable) of such gamma knife equipment by U.S. Neuro and an agreement for its use at NYU or, if the demand for gamma knife procedures is significantly greater at another location within such area, at such location as NYU and U.S. Neuro shall agree; provided that in the event that NYU and U.S. Neuro shall have negotiated in good faith during the period that is twenty days following delivery of notice by U.S. Neuro to NYU hereunder and no agreement on the basic terms of the transaction have been reached (x) U.S. Neuro shall request that Elekta extend the period during which the right of first refusal may be exercised and (y) if Elekta refuses such request or upon the expiration of one-half of the period of any extension granted by Elekta beyond the original thirty-day period offered by Elekta to U.S. Neuro under the purchase Agreement, the parties shall have no further obligation to continue negotiating and U.S. Neuro may proceed to effect such a transaction without involvement of NYU. 7.02 Representations and Warranties. U.S. Neuro represents and warrants that (i) it is duly organized, validly existing and in good standing under the laws of the jurisdiction - 18 - of its organization, and is qualified and in good standing to do business wherever necessary to carry on its present business and operations, including New York State, (ii) it has the power to enter into the Purchase Agreement, the DVI Lease Agreement and this Agreement and the other instruments and documents executed by U.S. Neuro in connection therewith and herewith (the "Transactional Documents") and to pay and perform its obligations under this Agreement and the other Transactional Documents), (iii) this Agreement and the other Transactional Documents have been duly authorized, executed and delivered by U.S. Neuro, and constitute the valid, legal and binding obligations of U.S. Neuro enforceable in accordance with their terms, (iv) no vote or consent of, or notice to, the holders of any class of stock of U.S. Neuro is required, or if required, such vote or consent has been obtained or given, to authorize the execution, delivery and performance of this Agreement and the other Transactional Documents by U.S. Neuro, (v) neither the execution and delivery by U.S. Neuro of this Agreement or the other Transactional Documents, nor the consummation by U.S. Neuro of the transactions contemplated hereby or thereby, nor compliance by U.S. Neuro with the provisions hereof or thereof, conflicts with or results in a breach of any of the provisions of any Certificate of Incorporation or By-law or partnership or trust agreement or certificate of U.S. Neuro, or of any applicable law, judgment, order, writ, injunction, decree, award, rule or regulation of any court, administrative agency or other governmental authority, or of any indenture, mortgage, deed of trust, lease, equipment purchase agreement or other agreement or instrument of any nature to which U.S. Neuro is a party or by which it or its property is bound or affected or pursuant to which it is constituted, or constitutes a default under any thereof or will result in the creation of any lien, charge, security interest or other encumbrance upon the Gamma Knife Equipment other than the interests therein of DVI and Elekta, or upon any other right or property of U.S. Neuro, (vi) no consent, approval, withholding of objection or other authorization of or by any court, administrative agency, other governmental authority or any other person is required, except such consents, approvals or other authorizations which have been duly obtained and are in full force and effect and copies of which have been furnished to NYU, in connection with the execution, delivery or performance by U.S. Neuro, or the consummation by U.S. Neuro, of the transactions contemplated by this Agreement and the other Transactional Documents, (vii) there are no actions, suits or proceedings pending, or, to the knowledge of U.S. Neuro, threatened, in any court or before any administrative agency or other governmental authority against or affecting U.S. Neuro, which, if adversely decided would or could, individually or in the aggregate, materially and adversely affect the financial or other condition, business, operations, properties, assets or prospects of U.S. Neuro or the ability of U.S. Neuro to perform any of its obligations under this Agreement or under the other Transactional Documents, except for any such actions, suits - 19 - or proceedings that U.S. Neuro has described in writing to NYU, (viii) no event of default or event or condition which upon the passage of time, the giving of notice, or both, would constitute an event of default hereunder or under any Transactional Document, exists or is continuing, (x) there has been no material adverse change or threatened change in U.S. Neuro's financial or other condition, business, operations, properties, assets or prospects since the date of U.S. Neuro's most recent financial statements reported on by an independent public accounting firm prior to the date of this Agreement, or from the written information that has been supplied to NYU by U.S. Neuro and (x) all information supplied to NYU by U.S. Neuro is correct and does not omit any statement necessary to make the information supplied not misleading. ARTICLE VIII 8.01 Default by U.S. Neuro; Remedies. (a) Event of Default Defined. If any of the following events occurs, then such event shall be considered an "Event of Default" with respect to U.S. Neuro under this Agreement: (i) Failure to Perform. If (A) U.S. Neuro fails to observe or perform any of the covenants, terms or conditions set forth in this Agreement or (B) DVI or any bank or other third party fails to observe or perform its obligations with respect to U.S. Neuro's lease or other financing of the Gamma Knife Equipment or the construction of the Neuroradiosurgery Facility, and in each case such failure continues for a period of thirty (30) days after written notice thereof is given by NYU to U.S. Neuro (unless such failure cannot reasonably be cured within such 30-day period and U.S. Neuro commences to cure such failure within such 30-day period and continues diligently without interruption to pursue the curing of the same until completed); or (ii) Breach of Representations. If any representation or warranty of U.S. Neuro contained in this Agreement shall be incorrect or false in any material respect; or (iii) Bankruptcy of U.S. Neuro. U.S. Neuro shall consent to the appointment of or taking possession by a receiver, assignee, custodian, sequestrator, trustee or liquidator (or other similar official) of itself or of a substantial part of its property, or U.S. Neuro shall admit in writing its inability to pay its debts generally as they come due or shall fail generally to pay its debts as they become due or shall make a general assignment for the benefit of its creditors, or U.S. Neuro shall file a voluntary petition in bankruptcy or a voluntary petition or answer seeking or consenting to liquidation, reorganization or - 20 - other relief with respect to itself or its debts under the Federal bankruptcy laws, as now or hereafter constituted or any other applicable Federal or State bankruptcy, insolvency or other similar law, or shall consent to the entry of an order for relief in an involuntary case under any such law or U.S. Neuro shall file an answer admitting the material allegations of a petition filed against it in any such proceeding, or otherwise seek relief or consent to the granting of relief under the provisions of any existing or future Federal or State bankruptcy, insolvency or other similar law providing for the reorganization or winding-up of corporations, or providing for an arrangement, agreement, composition, extension or adjustment with its creditors, or U.S. Neuro shall take or publicly announce its intention to take corporate action in furtherance of any of the foregoing; or (iv) Default in Other Agreements. If a default occurs under any agreement between U.S. Neuro and any third party providing equipment, services or financing to U.S. Neuro in connection with the Gamma Knife Equipment, which default is not cured within the applicable cure period set forth under such agreement. (b) Remedies. Upon the occurrence of an Event of Default as defined in Section 8.01(a), NYU shall be entitled without any further notice to U.S. Neuro, to elect to exercise one or more remedies then available including, without limitation (i) exercising one or more of its options under any separate agreement between DVI and NYU, (ii) terminating this Agreement and requiring U.S. Neuro to remove the Gamma Knife Equipment from the Neuroradiosurgery Facility, or (iii) exercising any remedies which may be available to NYU under applicable law, and/or to seek any other remedies to which it may be entitled at law or equity. Further, if the Event of Default is bankruptcy of U.S. Neuro, then NYU shall be entitled to relief from any automatic stay imposed by Section 362 of Title 11 of the U.S. Code, as amended, or otherwise, on or against the exercise of the rights and remedies otherwise available to NYU. In the event of any bankruptcy filing by or against U.S. Neuro, U.S. Neuro agrees that neither U.S. Neuro nor the debtor in possession nor the bankruptcy trustee shall seek to assume nor shall any of them be entitled to assume this Agreement and in such event NYU may immediately seek to exercise any of its rights and remedies under this Agreement. 8.02 Default by NYU; Remedies. (a) Event of Default Defined. If any of the following events occurs, then such event shall be considered an "Event of Default" with respect to NYU under this Agreement. - 21 - (i) Nonpayment. If NYU fails to make any payment within forty-five (45) days of the date such payment was due to U.S. Neuro hereunder, and such failure of payment continues for more than fifteen (15) days following written notice from U.S. Neuro; or (ii) Failure to Perform. If NYU fails to observe or perform any of the covenants, terms or conditions set forth in this Agreement and such failure continues for a period of thirty (30) days after written notice thereof is given by U.S. Neuro to NYU (unless such failure cannot reasonably be cured within such 30-day period and NYU commences to cure such failure within such 30-day period and continues diligently without interruption to pursue the curing of the same until completed); or (iii) Bankruptcy of NYU. NYU shall consent to the appointment of or taking possession by a receiver, assignee, custodian, sequestrator, trustee or liquidator (or other similar official) of itself or of a substantial part of its property, or NYU shall admit in writing its inability to pay its debts generally as they come due or shall fail generally to pay its debts as they become due or shall make a general assignment for the benefit of its creditors, or NYU shall file a voluntary petition in bankruptcy or a voluntary petition or answer seeking or consenting to liquidation, reorganization or other relief with respect to itself or its debts under the Federal bankruptcy laws, as now or hereafter constituted or any other applicable Federal or State bankruptcy, insolvency or other similar law, or shall consent to the entry of an order for relief in an involuntary case under any such law or NYU shall file an answer admitting the material allegations of a petition filed against it in any such proceeding, or otherwise seek relief or consent to the granting of relief under the provisions of any existing or future Federal or State bankruptcy, insolvency or other similar law providing for the reorganization or winding-up of corporations, or providing for an arrangement, agreement, composition, extension or adjustment with its creditors, or NYU shall take or publicly announce its intention to take corporate action in furtherance of any of the foregoing. (b) Remedies. Upon the occurrence of an Event of Default as defined in Section 8.02(a), U.S. Neuro shall be entitled, without any further notice to NYU, to terminate this Agreement, to remove the Gamma Knife Equipment from the Neuroradiosurgery Facility in accordance with Section 4.06, to exercise any remedies which may be available to U.S. Neuro under this Agreement, and to seek any other remedies to which it may be entitled at law or equity. - 22 - ARTICLE IX 9.01 Notices. All notices under this Agreement shall be delivered in hand or sent by registered mail or certified mail, return receipt requested, postage prepaid, addressed as follows: If to NYU: New York University Medical Center 550 First Avenue New York, NY 10016 Attn: Vice President for Finance If to U.S. Neuro: U.S. Neurosurgical, Inc. Attn: President 1350 Piccard Drive Suite 360 Rockville, MD 20850 or to such other addresses as may from time to time be designated by any party by like notice. ARTICLE X 10.01 Waiver. A waiver by either party of any breach or breaches, default or defaults, of the other party hereunder shall not be deemed or construed to be a continuing waiver of such breach or default, nor as a waiver or permission, express or implied, of any subsequent breach or default, unless such waiver be in writing. 10.02 Remedies Cumulative. NYU's and U.S. Neuro's rights and remedies shall be cumulative and may be exercised and enforced concurrently. Any right or remedy conferred upon either party under this Agreement shall not be deemed to be exclusive of any other right or remedy it may have. 10.03 Compliance with Laws, Etc. Each party shall comply with all laws and regulations applicable to the performance of its obligations hereunder and U.S. Neuro shall make available to NYU requested data or information necessary to comply with requirements of regulatory agencies (including, but not limited to, Medicare, Medicaid, the Nuclear Regulatory Commission, and the New York State Department of Health), and the Joint Commission on the Accreditation of Health Care Organization and other accrediting bodies, as applicable. - 23 - 10.04 No Practice of Medicine by U.S. Neuro. Neither U.S. Neuro nor any of its personnel shall in any way undertake the practice of medicine, render medical opinions or services, or in any way deal with patients in connection with the operation of the Gamma Knife Equipment or the Neuroradiosurgery Facility hereunder, other than to provide those specific ancillary and technical services required for proper operation of the Gamma Knife Equipment. Further, U.S. Neuro covenants that it will not, directly or indirectly, employ or contract for use or operation of the Gamma Knife Equipment by any physician, group of physicians, physician organization or organization providing physician services. 10.05 Assignment. (a) By NYU. NYU may, without consent or approval by U.S. Neuro, assign this Agreement to (i) a parent, subsidiary, affiliate or related entity to NYU; (ii) an entity that acquires substantially all of the ownership interests or assets of NYU or the NYU Medical Center (or any successor to the foregoing) or (iii) an entity formed by NYU or NYU Medical Center (or any successor to the foregoing) and other institutions, and upon delivering notice of any such assignment, NYU shall be released from any further obligation to U.S. Neuro hereunder, except for payment for services rendered through the date of assignment. Except as provided in the preceding sentence, NYU may assign this Agreement only with the prior written consent of U.S. Neuro, which consent will not be unreasonably withheld or delayed. U.S. Neuro may condition its consent upon reasonable assurances of performance received from NYU's assignee. Unless U.S. Neuro's consent to assignment specifically releases NYU, no such assignment shall release NYU from liability to U.S. Neuro under this Agreement for periods prior to such assignment. (b) By U.S. Neuro. U.S. Neuro may assign this Agreement only with prior written consent of NYU. (c) Subcontracts. U.S. Neuro may not assign, delegate or subcontract any of its obligations under this Agreement to a third person without obtaining the prior written consent of NYU. 10.06 HHS Requirements. Pursuant to the provisions of Section 952, Section 1861(v) (1) of the United States Social Security Act as amended, U.S. Neuro agrees for a period of up to four (4) years after furnishing service under this Agreement, to make this Agreement and certain of its books, documents, and records available, upon written request of the Secretary of the United States Department of Health and Human Services, or upon the written request of the United States Controller General, or their representatives, for the purpose of determining the nature and extent of the reasonable cost under this Agreement. U.S. Neuro further agrees that should it be permitted to subcontract - 24 - any of the services it performs under this Agreement, U.S. Neuro will require its subcontractors to agree to a similar provision to make available books, documents and records until the expiration of four (4) years after furnishing such services under this Agreement in the same manner as set forth above. 10.07 Partial Invalidity. If any term, covenant, condition or provision of this Agreement or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, all other provisions of this Agreement, or the application of such terms or provisions to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each and every other term, covenant, condition and provision of this Agreement shall be valid and be enforced to the fullest extent permitted by law. 10.08 Successors. All rights and liabilities herein given to or imposed upon the respective parties hereto shall, except as may be otherwise herein restricted, prohibited or provided, extend to and bind the respective successors and permitted assigns of the parties. 10.09 No Partnership or Agency. In connection with the rights, obligations and performance of this Agreement, NYU shall in no event be construed or held to be a partner, associate, principal or agent of U.S. Neuro in the conduct of U.S. Neuro's business or otherwise, or a joint venturer or a member of a joint enterprise with U.S. Neuro, nor shall NYU be liable for any debts incurred by U.S. Neuro in the conduct of U.S. Neuro's business, but it is understood and agreed that the relationship between the parties hereto is and at all times shall remain that of independent contractors. 10.10 Delay in Performance due to Force Majeure. In the event either party hereto shall be delayed or hindered in or prevented from the performance of any act required hereunder by reason of fire, catastrophe, acts of God or the public enemy, government agency (including New York State Health Systems Agency), prohibitions or delays in approval, strikes, lockouts, civil commotions, inability to obtain materials or labor, governmental regulations or prohibitions, failure of power or other utilities, or other reason of a like nature not the fault of the party delayed in performing work or doing acts required under the terms of this Agreement, then performance of such act shall be excused for the period of the delay, and the period for the performance of any such act shall be extended for a period equivalent to the period of such delay. 10.11 Governing Law. This Agreement shall be governed exclusively by the provisions hereof and by the laws of the State of New York, as the same may from time to time exist. By its - 25 - execution of this Agreement, U.S. Neuro subjects itself to the jurisdiction of, and consents to be sued by NYU in, any court of the City or State of New York or of the United States of America located in the Borough of Manhattan, City and State of New York, with respect to any matter arising from this Agreement. U.S. Neuro agrees that the filing in any such court of a true copy of this Agreement by NYU shall constitute conclusive evidence of such consent, and that any summons, complaint or other document required by NYU to commence any lawsuit in any such court may be served upon it by messenger or mailed by prepaid registered or certified first class mail, return receipt requested, to its address set forth in Section 9.01. 10.12 Captions. The captions, section numbers and article numbers appearing in this Agreement in no way define, limit, construe or describe the scope or intent of such sections or articles of this Agreement. 10.13 Entire Agreement. This Agreement, together with all attached exhibits, set forth all the covenants, promises, agreements, conditions and understandings between NYU and U.S. Neuro concerning the subject matter hereof. There are no oral agreements or understandings between the parties hereto affecting this Agreement, and this Agreement supersedes and cancels any and all previous negotiations, arrangements, agreements and understandings, if any, between the parties hereto with respect to the subject matter hereof. Except as herein otherwise expressly provided, no subsequent alteration, amendment, change or addition to this Agreement shall be binding upon NYU or U.S. Neuro unless reduced to writing and signed by them. 10.14 Confidentiality. Each of U.S. Neuro and NYU understands that this Agreement and any information provided to or made available to the other party which has been marked "confidential" and, with respect to U.S. Neuro, all information and data concerning patients of NYU, any patient procedure using the Gamma Knife Equipment and the business affairs of NYU, is considered by U.S. Neuro and NYU to be privileged and confidential. Each of U.S. Neuro and NYU agrees that it will treat this Agreement and any such information and data as privileged and confidential and will not, without the prior written consent of the other party, disclose or cause to be disclosed the terms hereof or thereof to any person, except as may be required by applicable law or by the terms of this Agreement. IN WITNESS WHEREOF, NYU and U.S. Neuro have caused this Agreement to be duly executed in multiple counterpart copies, each of which shall be deemed an original, but together shall constitute one and the same instrument, as of the date first set forth above. NEW YORK UNIVERSITY By:_________________________ Title:______________________ U.S. NEUROSURGICAL, INC. By:_________________________ Title:______________________ EXHIBIT A GAMMA KNIFE HARDWARD SPECIFICATIONS TREATMENT PLANNING SYSTEM - ------------------------- Leksell GammaPlan High End, 735/125 To Include: 1) 128 MB RAM 2) Codonics Printer in addition to standard HP Laserjet 5MP printer Back-Up Software $10,000.00 CALIBRATION EQUIPMENT - --------------------- a. Electrometer - CNMC Model 206 $4,000.00 b. Chamber - Capentec PR-05P (0.07cc) $1,188.00 c. Cable $260.00 d. Barometer-Thommen PB1 $375.00 e. Thermometer - T-1A $75.00 QUALITY CONTROL AND RADIATION SAFETY EQUIPMENT - ---------------------------------------------- a. Thermoluminescence (prior to 11/1/96) $11,150.00 Dosimeter - Bicron Corp. (after to 11/1/96) $12,900.00 b. TLD oven $2,840.00 c. Survey Meter - Victoreen 450 $1,500.00 d. Area monitor - Primalert 10 $1,600.00 e. TLD measurement by Standards Laboratory $450.00 per year EXHIBIT B TRAINING OF PERSONNEL At a minimum, U.S. Neuro shall arrange for the following personnel to be trained in use of the Gamma Knife in accordance with Section 3.02 and 3.03: 2 Neurosurgeons 3 Physicians 2 Physicists 2 Nurses. Initial Off-Site Training U.S. Neuro shall arrange for the personnel referred to above to receive initial clinical training on use of the Gamma Knife at Karolinska Hospital in Stockholm, Sweden, the University of Virginia Hospital in Charlottesville, Virginia, or Presbyterian University Hospital in Pittsburgh, Pennsylvania. The actual facility will be chosen by U.S. Neuro and NYU based on availability, accessibility and cost. Initial On-Site Training U.S. Neuro shall provide or arrange for an aggregate of forty hours of on-site training in the technical operation and maintenance of the Gamma Knife for the personnel referred to above and at least two Registered Therapy Technologists. Additional initial on-site training will be provided by U.S. Neuro upon request of NYU at reasonable rates to be agreed by the parties. IN WITNESS WHEREOF, NYU and U.S. Neuro have caused this Agreement to be duly executed in multiple counterpart copies, each of which shall be deemed an original, but together shall constitute one and the same instrument, as of the date first set forth above. NEW YORK UNIVERSITY By: /s/ [ILLEGIBLE] ---------------------------------------- Title: Vice President for Finance ------------------------------------- New York University Medical Center U.S. NEUROSURGICAL, INC. By:_________________________________________ Title:______________________________________ IN WITNESS WHEREOF, NYU and U.S. Neuro have caused this Agreement to be duly executed in multiple counterpart copies, each of which shall be deemed an original, but together shall constitute one and the same instrument, as of the date first set forth above. NEW YORK UNIVERSITY By:_________________________________________ Title:______________________________________ U.S. NEUROSURGICAL, INC. By: /s/ [ILLEGIBLE] ---------------------------------------- Title: Controller ------------------------------------- EX-10.Q 3 MASTER EQUIPMENT LEASE DVI FINANCIAL SERVICES INC. MASTER EQUIPMENT LEASE ("Master Lease") LESSOR: LEASE NO. 0001342 DVI FINANCIAL SERVICES INC. DATE: August 1, 1996 500 Hyde Park Doylestown, PA 18901 Telephone (215) 345-6600 LESSEE: U.S. NeuroSurgical, Inc. BILLING ADDRESS: EQUIPMENT ADDRESS: 1350 Piccard Drive New York University Medical Center Suite 360 550 1st. Avenue Rockville, MD. 20850 New York, NY. 10016 - -------------------------------------------------------------------------------- TERMS AND CONDITIONS 1. LEASE. Lessor leases to Lessee, and Lessee hires from Lessor, all of the tangible personal property (with all present and future accessories, additions, upgrades, attachments, repairs and replacement parts, collectively called "Equipment") described in each equipment schedule executed from time to time pursuant to this Master Lease ("Equipment Schedule "). Each Equipment Schedule shall (a) be on Lessor's form, (b) incorporate all of the terms of this Master Lease, and (c) contain additional terms as Lessor and Lessee agree. 2. TERM. (a) The term of this Master Lease shall begin on the date set forth above and shall continue in effect so long as any Equipment Schedule remains in effect. (b) The lease term for each Equipment Schedule shall begin on the date of shipment to Lessee of the Equipment (or any part thereof) described in such Equipment Schedule or such later date as Lessor may designate in writing (the "Commencement Date"), and shall continue thereafter for the term set forth in such Equipment Schedule. On the Commencement Date, Lessee shall execute and deliver to Lessor a Delivery and Acceptance Certificate, in a form to be specified by Lessor, which confirms the Commencement Date. (c) THIS LEASE AND THE LEASE TERM FOR EACH EQUIPMENT SCHEDULE ARE NOT CANCELABLE BY LESSEE. 3. RENT AND PAYMENT. Lessee shall pay Lessor, as rental for the Equipment during each month of the term of any Equipment Schedule, the monthly rent set forth in such Equipment Schedule, together with any and all monthly rent payable pursuant to Section 8(a) hereof in connection with any accessions, additions, upgrades with attendant maintenance contracts, and improvements to any of the Equipment, which shall be payable in advance without notice or demand on the dates set forth in such Equipment Schedule. Lessee agrees to pay interim rent in an amount equal to the pro rata periodic monthly rent from the Commencement Date to the first regular monthly periodic rent payment date. Thereafter, the regular periodic rent shall be due on the first day of each succeeding period commencing with the first day of the month following the Commencement Date as set forth on the Equipment Schedule. Lessee shall pay the monthly rent and all other money due under this Master Lease or any Equipment Schedule by check or wire transfer so as to constitute immediately available funds at Lessor's address set forth above or at such other place as Lessor shall designate in writing, or if to an assignee of Lessor, at such place as such assignee shall designate in writing, and Lessee shall make such payments free and clear of all claims, demands or setoffs against Lessor or such assignee. Whenever any payment (of rent or otherwise) is not made within ten (10) business days from the date due hereunder, Lessee shall pay Lessor a late charge of five percent (5%) of any payment not paid when due, plus the lesser of eighteen percent (18%) interest per year or the highest lawful rates on such payment until received, or such lesser maximum amount as is permitted by applicable law. In addition, Lessor at its option may require at any time that Lessee make all payments due hereunder or under any Equipment Schedule by certified check or by wire transfer. 4. REQUEST FOR EQUIPMENT. Lessee requests Lessor to order the Equipment described in any Equipment Schedule executed by Lessee from the supplier named in such Equipment Schedule, to arrange for delivery to Lessee at Lessee's expense, and to pay for the Equipment as provided in such Equipment Schedule. Lessee acknowledges and agrees that: (a) Lessee has independently selected the supplier and the Equipment, and that Lessor will rely on specifications provided by Lessee in ordering the Equipment; (b) Lessee shall be responsible for all costs and expenses relating to the selection, shipment, delivery, assembly, installation, testing, adjusting, servicing, operation and acceptance of the Equipment; (c) unless the Equipment Schedule otherwise provides, Lessor's payment to the supplier will occur only after Lessee has confirmed (on Lessor's Delivery and Acceptance Certificate) satisfactory delivery, assembly, installation, inspection and acceptance of the Equipment; (d) Lessor shall have no responsibility for any delay, failure or refusal on the part of any supplier to accept or fill Lessor's order; (e) upon Lessee's acceptance of Equipment, Lessee shall execute Lessor's Delivery and Acceptance Certificate; (f) Lessor has the option to terminate any Equipment Schedule and all obligations to Lessee under such Equipment Schedule, and to recover from Lessee any deposit paid by Lessor to the supplier, if the Equipment described in such Equipment Schedule has not been delivered, assembled, installed and accepted by Lessee within 60 days from the date that Lessor orders the Equipment; (g) no supplier is Lessor's agent, or authorized to bind Lessor or waive or alter any provision of this Master Lease or any Equipment Schedule; and (h) if Lessee cancels this Master Lease after execution of such but prior to the Lessee's execution of the Delivery and Acceptance Certificate, Lessor may withhold and keep any deposits or funds paid by Lessee to Lessor. 5. EQUIPMENT SELECTION; DISCLAIMER OF WARRANTIES; WAIVERS. (a) Lessee acknowledges, represents and warrants that Lessee has made the selection of Equipment based on Lessee's own judgment, and expressly disclaims any reliance upon statements made by Lessor or Lessor's agents, employees or salespersons. (b) LESSOR MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE CAPACITY, CONDITION, DESIGN, DURABILITY, MATERIAL, MERCHANTABILITY, PERFORMANCE, QUALITY, SUITABILITY, WORKMANSHIP OR VALUE OF THE EQUIPMENT OR ITS FITNESS FOR ANY PARTICULAR PURPOSE OR THAT THE EQUIPMENT WILL SATISFY THE REQUIREMENTS OF ANY LAW, RULE, REGULATION, SPECIFICATION OR CONTRACT, OR ANY OTHER REPRESENTATION OR WARRANTY OF ANY KIND OR NATURE WHATSOEVER WITH RESPECT TO THE EQUIPMENT OR ANY ASSOCIATED ITEM OR ANY ASPECT THEREOF. AS TO THE LESSOR, LESSEE LEASES THE EQUIPMENT "AS IS". (c) Lessee acknowledges that (i) Lessor is neither the manufacturer of the Equipment nor a manufacturer's agent, supplier or dealer, and has no familiarity with the Equipment; and (ii) Lessor shall have no obligation to assemble, install, test, adjust or service the Equipment. (d) Lessor shall not be liable, to Lessee or otherwise, to any extent whatsoever, for the selection, quality, condition, merchantability, suitability, fitness, operation or performance of the Equipment. Without limiting the generality of the foregoing, Lessor shall not be liable, to Lessee or otherwise, for any liability, claim, loss, damage or expense of any kind or nature (including strict negligent liability in tort) caused, directly or indirectly, by the Equipment or any inadequacy thereof for any purpose, or any deficiency or defect therein, or the use or maintenance thereof, or any repairs, servicing or adjustments thereto; or any delay in providing or failure to provide any part thereof, or any interruption or loss of service thereof, or any loss of business, or any damage whatsoever and howsoever caused. (e) REGARDLESS OF CAUSE, LESSEE WILL NOT ASSERT ANY CLAIM WHATSOEVER AGAINST LESSOR FOR LOSS OF ANTICIPATORY PROFITS OR ANY OTHER INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES. IT IS EXPRESSLY UNDERSTOOD AND AGREED THAT EACH AND EVERY PROVISION OF THIS AGREEMENT WHICH PROVIDES FOR A LIMITATION OF LIABILITY, DISCLAIMER OF WARRANTIES OR EXCLUSION OF DAMAGES, IS INTENDED BY THE PARTIES TO BE SEVERABLE FROM ANY OTHER PROVISION AND IS A SEPARABLE AND INDEPENDENT ELEMENT OF RISK ALLOCATION AND IS INTENDED TO BE ENFORCED AS SUCH. (f) If the Equipment fails to comply with any representation or warranty made by the supplier or manufacturer thereof, or is defective or improperly assembled or installed or otherwise unsatisfactory for any reason, Lessee shall make claim on account thereof against the supplier or manufacturer thereof, and Lessee shall nevertheless pay all rent and perform all other obligations under this Master Lease and all Equipment Schedules without asserting any claim against Lessor. Lessor hereby assigns to Lessee, without recourse and solely for the purpose of prosecuting such a claim, all rights that Lessor may have against the supplier and manufacturer of Equipment for breach of warranty or other representations with respect to the Equipment; provided, however, that this assignment shall not preclude Lessor, in its sole discretion, from asserting and prosecuting such a claim. Lessee shall indemnify and hold Lessor harmless from and against any and all claims, costs, expenses, damages, losses and liabilities incurred or suffered by Lessor as a result or incident to any such action by Lessee for breach of warranty or other representations with respect to the Equipment. (g) Lessor makes no representation or warranty as to the treatment of this Master Lease or any Equipment Schedule for tax or accounting purposes or otherwise. (h) Lessee hereby waives its rights and remedies under Pennsylvania Commercial Code Section 10508 through 10522 with respect to Lessee's right to cancel any Equipment Schedule, reject any of the Equipment, recover damages or any other rights and remedies provided thereunder in connection with any default by Lessor or any other circumstances therein provided. 6. TITLE AND ASSIGNMENT. (a) Nothing contained in this Master Lease, or in any Equipment Schedule, shall give or convey to Lessee any right, title or interest in or to the Equipment or any additions, upgrades, accessions, or improvements thereto, except as a Lessee as set forth in this Master Lease and such Equipment Schedule, and Lessee represents and agrees that Lessee s________ hold the Equipment subject and subordinate to the rights of the owner thereof. The Equipment is and at all times shall remain the property of Lessor (or Lessor's successor in interest), and except as expressly set forth in this Master Lease or any Equipment Schedule, Lessee shall have no right, title, equity or interest in the Equipment and no right or option to purchase or otherwise acquire title to or ownership of the Equipment. Lessee shall, at Lessee's sole cost and expense: (i) defend and protect the ownership of, title to, and interest in the Equipment of Lessor, Lessor's successors in interest, and any assignee or secured party, against all parties claiming against or through Lessee; (ii) keep the Equipment free and clear from any legal process, liens, claims, demands and encumbrances (except those incurred by Lessor); and (iii) give Lessor prompt written notice of any legal process, liens, claims, demands and encumbrances made by any party (except Lessor) with respect to the Equipment. Lessee shall, and Lessor may on behalf of Lessee, at Lessee's expense, execute and file such financing statements, applications for registration and other documentation as Lessor shall require for the purpose of protecting or perfecting the interest of Lessor, or any assignee, transferee or secured party, in the Equipment. (b) Lessee shall, at Lessee's expense, affix to the Equipment such labels, signs or other devices as Lessor may supply to identify Lessor as the owner and Lessor of the Equipment. Lessee authorizes Lessor to insert in any Equipment Schedule and in any financing statement or other documents the serial numbers and other identification data of the Equipment when determined by Lessor. The Equipment is and at all times shall remain personal property regardless of any attachment or affixation of the Equipment to any real property or improvements thereon. (c) LESSEE SHALL NOT, WITHOUT LESSOR'S PRIOR WRITTEN CONSENT, (i) ASSIGN THIS MASTER LEASE OR ANY EQUIPMENT SCHEDULE OR ANY INTEREST HEREIN OR THEREIN, (ii) ENTER INTO ANY SUBLEASE, LOAN OR SIMILAR ARRANGEMENT WITH RESPECT TO THE EQUIPMENT, OR (iii) TRANSFER, ASSIGN, CONVEY, ENCUMBER, PLEDGE OR OTHERWISE DISPOSE OF ANY EQUIPMENT OR ANY INTEREST THEREIN; AND ANY ATTEMPT BY LESSEE TO DO ANY OF THE FOREGOING WITHOUT LESSOR'S PRIOR WRITTEN CONSENT SHALL BE VOID. (d) Lessee shall keep, maintain and use the Equipment only at the place designated on the Equipment Schedule, and shall not move the Equipment to any other location without the Lessor's prior written consent. (e) This Master Lease and any rights of Lessor hereunder and under any Equipment Schedule shall be assignable by Lessor without notice to or the consent of Lessee. Lessee acknowledges and understands that the terms and conditions of each Equipment Schedule have been fixed by Lessor in anticipation of Lessor's ability to sell and assign its interest or grant a security interest under each Equipment Schedule and the Equipment listed therein in whole or in part to a security assignee (the "Secured Party") for the purpose of either assigning: (i) Lessee's obligation to pay rent pursuant to such Equipment Schedule (Lessor having transferred the right to receive such rent to the Secured Party), or (ii) securing a loan to Lessor. Lessor may also sell and assign its rights as owner and lessor of the Equipment under any Equipment Schedule to an assignee (the "Assignee") which may be represented by a bank or a trust company acting as a trustee (the "Owner Trustee") for the Assignee. After such assignments the term Lessor shall mean, as the case may be, such Assignee or Owner Trustee and any Secured Party (collectively "Lessor Transferee"). Lessee acknowledges and agrees that: (1) Any such Lessor Transferee shall have and be entitled to exercise any and all discretion, rights and powers of Lessor hereunder or under any Equipment Schedule, but such Lessor Transferee shall not be obligated to perform any of Lessor's obligations hereunder or under any Equipment Schedule; provided, however, that such Lessor Transferee shall not disturb Lessee's quiet and peaceful possession of the Equipment and use thereof for its intended purpose during the terms hereof so long as Lessee is not in default of any provision hereof and such Lessor Transferee continues to timely receive all amounts of rent payable under such Equipment Schedule; (2) Lessee will pay all rent and any and all other amounts payable by Lessee under any Equipment Schedule to such Lessor Transferee, notwithstanding and Lessee hereby waives any defense or claim of whatever nature, whether by reason of breach of such Equipment Schedule or otherwise, which Lessee may or might now or hereafter have as against Lessor or any prior Lessor Transferee (Lessee reserving its right to have recourse directly against Lessor on account of any such defense or claim); and (3) Subject to and without impairment of Lessee's leasehold rights in and to the Equipment, Lessee holds the Equipment for such Lessor Transferee to the extent of such Lessor Transferee's rights therein. 7. NET LEASE, TAXES AND FEES. (a) Lessor and Lessee acknowledge and agree that each Equipment Schedule constitutes a net lease and that Lessee's obligation to pay all rent and any and all amounts payable by Lessee under any Equipment Schedule shall be absolute and unconditional, and shall not be subject to any abatement, reduction, setoff, defense, counterclaim, interruption, deferment or recoupment for any reason whatsoever; and that such payments shall be and continue to be payable in all events. (b) Lessee shall, at Lessee's sole cost and expense and in addition to the rent due under any Equipment Schedule, promptly pay all taxes, assessments, license fees, permit fees, registration fees, fines, interest, penalties and all other governmental charges (including without limitation income, gross receipts, sales, use, excise, personal property, ad valorem, stamp, documentary and other taxes), whether levied, assessed or imposed on Lessee, Lessor, the Equipment or otherwise, relating to the Equipment or the delivery, leasing, operations, ownership, possession, purchase, registration, rental, sales or use thereof during the term of any Equipment Schedule, or the interest of Lessee in the Equipment or under any Equipment Schedule, or the rental or other payments thereunder or earnings arising therefrom (excepting only taxes on Lessor's net income). Lessee shall file all returns required in connection therewith and shall promptly furnish copies to Lessor. Lessee shall reimburse Lessor for any such taxes paid by Lessor within ten (10) days of receipt of Lessor's invoice therefor. Any applicable sales tax will be paid to the manufacturer, manufacturer's agent, supplier, dealer or appropriate taxing agency by Lessor. Where applicable, Lessee acknowledges that such tax may have been included in calculating lease payments. 8. CARE, USE, MAINTENANCE AND REPAIR, AND INSPECTION BY LESSOR. (a) Lessee shall, at Lessee's sole expense, at all times during the term of each Equipment Schedule and until return of the Equipment to Lessor, (i) maintain the Equipment in good operating order, repair, condition, appearance and protect the Equipment from deterioration, and provide all accessories, upgrades, repairs, replacement parts and service required therefor; (ii) enter into and maintain a maintenance contract with the manufacturer of the Equipment or, with the prior written consent of Lessor, with such other party as shall be acceptable to Lessor, and shall provide Lessor with a copy of such contract and all supplements thereto; (iii) use the Equipment in a careful, proper and lawful manner in accordance with standards, specifications or instructions issued by the manufacturer, and provide necessary site preparation, supplies, energy and personnel; (iv) comply with all the laws, ordinances, rules, regulations and other requirements relating to the installation, possession, use or maintenance of the Equipment, including the requirements of any applicable insurance policy or warranty; (v) obtain and comply with the requirements of all permits, licenses and agreements relating to the installation, possession, use or maintenance of the Equipment; and (vi) purchase, or permit Lessor to purchase, any and all additions, improvements, upgrades (as and when any upgrades may become available) and maintenance contracts associated with such upgrades, or accessions to any of the Equipment which Lessor may permit or require Lessee to acquire or which Lessor may, at its option, elect to acquire, with the cost of any and all such additions, improvements, upgrades, maintenance contracts or accessions to be treated as additional original equipment cost with respect to the applicable items of Equipment and which additional cost shall be amortized as additional rental payments by increasing the monthly rental amount payable under Section 3 hereof by the amount corresponding to the amount which would be payable as monthly rent hereunder as if such additional cost constituted a portion of the original equipment cost of the applicable Equipment for Equipment to be leased under the applicable Equipment Schedule for a term equal to the remaining lease term of the applicable Equipment Schedule. (b) Unless Lessor otherwise consents in writing, Lessee shall not: (i) part with possession of or control over the Equipment; (ii) permit any party other than Lessee and Lessee's qualified employees to operate the Equipment; (iii) permit any nonqualified party to repair or service the Equipment; (iv) permit the Equipment to be used for personal, family, household or agricultural purposes; or (v) make any additions, alterations or improvements to the Equipment other than as required or permitted by the terms of this Master Lease. All repairs, replacement parts, alterations, additions, improvements, upgrades and accessions to any of the Equipment, whether or not any of the foregoing was authorized, required, financed or purchased by Lessor, shall become the property of Lessor. (c) Upon the request of Lessor, Lessee shall at reasonable times during business hours make the Equipment available to Lessor for inspection at the place where it is normally located and shall make Lessee's log and maintenance records pertaining to the Equipment available to Lessor for inspection. 9. LESSEE'S REPRESENTATIONS AND WARRANTIES. Lessee hereby represents, warrants and agrees that, with respect to this Master Lease and each Equipment Schedule: (a) The execution, delivery and performance thereof by Lessee have been duly authorized by all necessary corporate or partnership action. (b) Each individual executing such was duly authorized to do so. (c) This Master Lease and each Equipment Schedule constitute legal, valid and binding agreements of Lessee enforceable in accordance with their terms. (d) The Equipment is personal property and when subjected to use by Lessee will not become fixtures under applicable law. (e) During the lease term, Lessee shall deliver and shall cause all obligors, guarantors and parties whose contracts with Lessee are used as additional collateral under this Master Lease to deliver to Lessor audited or reviewed financial statements for each of such party's most recent fiscal years ended, tax returns and unaudited financial statements certified by such party for the most recent quarter ended, consisting of at least a balance sheet, income statements and statements of changes in financial position, and any other information requested by Lessor from time to time, prepared in accordance with generally accepted accounting principles. (f) Lessee shall provide any and all monthly operating statistics or data and shall use its best efforts to obtain from any party benefitting from the use of the Equipment through services provided by the Lessee any and all operating statistics, data, or information requested by Lessor from time to time. (g) the execution, delivery and performance of this Master Lease and each Equipment Schedule will not violate any law or regulation applicable to Lessee, or cause default under any agreement to which Lessee is a party or is __________ ect. 10. DELIVERY AND RETURN OF EQUIPMENT. Lessee hereby assumes the full expense of transportation and in-transit insurance to Lessee's premises and installation thereat of the Equipment. Upon termination (by expiration or otherwise) of each Equipment Schedule, Lessee shall, pursuant to Lessor's instructions and at Lessee's expense (including without limitation expenses of transportation and in-transit insurance), return the Equipment to Lessor in the same operating order, repair, condition, and appearance as when received, less normal depreciation and wear and tear. Lessee shall have the Equipment deinstalled and removed from its location only by the manufacturer of the Equipment or by such other party as shall have been previously approved in writing by Lessor. The manufacturer or such other preapproved party shall certify in writing to Lessor at the time of such deinstallation that the Equipment includes all appropriate or required upgrades and that it is in good working order. Lessee shall transport the Equipment by means and return the Equipment to Lessor at such address all as shall be directed by Lessor. Lessee shall bear all costs of deinstallation, removal and return of the Equipment, including all costs as may be incurred by Lessee or Lessor to acquire the upgrades required under the terms of this Master Lease, to service and repair the Equipment and to otherwise put the Equipment in the condition required under this Section 10. 11. INSURANCE. During the term hereof and until return of the Equipment to Lessor, Lessee shall, at Lessee's expense: (i) maintain insurance covering damage, destruction, loss or theft of the Equipment from any cause whatsoever for not less than an amount equal to the greater of the replacement value or the amount calculated pursuant to clause (vi) of Section 15(b) hereof; (ii) maintain public liability (including liability with respect to the use of the Equipment), professional liability insurance (covering Lessee and its employees and any and all other parties as may have possession of or as may operate any of the Equipment), and property damage insurance in an amount satisfactory to Lessor; (iii) maintain, if applicable as determined in the sole discretion of Lessor, business interruption and automobile insurance (where the Equipment constitutes mobile magnetic resonance imaging equipment or other mobile equipment); and (iv) promptly notify Lessor of any actual or alleged damage, destruction, liability, loss or theft relating to the Equipment or the use or operation thereof. All insurance shall be in form, substance and amount satisfactory to Lessor and/or Lessor's Transferee, shall contain a lender's form endorsement with waiver of breach of warranty clause (form 438-BFU or its equivalent), and shall be issued by insurers acceptable to Lessor, and shall name Lessor or any Lessor Transferee as loss payee with respect to all policies of property insurance and as an additional insured with respect to all other policies of insurance. Lessee shall obtain endorsements to all such policies of insurance which shall provide that any amendment or cancellation of any such policy shall not be effective unless Lessor shall have been given thirty (30) days' prior written notice of any such intended amendment or cancellation. Self-insurance is unacceptable unless Lessor shall so provide upon its prior written consent. Lessee shall deliver to Lessor originals or certified copies of such policies, certificates of coverage thereunder and loss payee, additional insured, and notice of amendment or cancellation endorsements. In addition, as collateral security for Lessee's obligations hereunder and under the Equipment Schedules, Lessee hereby assigns, transfers and conveys to Lessor all of Lessee's right, title and interest in and to all of the foregoing policies of insurance and the insurance coverage provided thereunder and Lessee shall deliver and cause each insurer under each of such policies of insurance to deliver to Lessor assignments of such policies and coverage which assignments shall be in form and substance satisfactory to Lessor. 12. RISK OF LOSS. During the term of each Equipment Schedule, and until return of the Equipment to Lessor, Lessee shall bear all risk of damage, destruction, loss or theft of the Equipment from any cause whatsoever. No damage, destruction, loss or theft of the Equipment or delay in payment or deficiency or absence of insurance proceeds, and no unavailability or delay in obtaining supplies, parts or service for the Equipment or failure of the Equipment to function for any cause whatsoever, and no change in laws or regulations governing or restricting the use of the Equipment (including the future enactment of any laws or regulations prohibiting the use of the Equipment), shall release Lessee of the obligation to pay rent or any other obligation hereunder. Upon the occurrence of any reparable damage, Lessee shall promptly make such repairs and restore the Equipment to good repair, condition and working order. Upon the occurrence of any irreparable damage, destruction or loss of the Equipment, Lessee shall, at Lessor's option: (i) replace the Equipment with like equipment in good repair, condition and working order with documentation creating clear title thereto in Lessor; or (ii) pay Lessor the amounts required under Section 15 of this Master Lease to the same extent as though a default had occurred hereunder. Subject to such conditions as Lessor may require, any insurance proceeds paid to Lessor as a result of any damage, destruction, loss or theft of the Equipment shall be applied to Lessee's obligations hereunder, provided that if the Equipment is not repaired or replaced as provided above, such insurance proceeds shall be applied first to Lessor's expected residual interest in the Equipment. Lessor shall have no obligation to collect or pursue any claim arising from any damage, destruction, loss or theft of the Equipment, including any claim under any applicable insurance policy. 13. INDEMNITY. Lessee shall, at Lessee's sole cost and expense, indemnify, hold harmless and defend Lessor and its agents, employees, officers and directors, and its successors, in interest, from and against any and all claims, actions, suits, proceedings, costs, expenses, damages and liabilities, including attorney's fees, arising out of, connected, resulting from or relating to the Equipment or the condition, delivery, leasing, location, maintenance, manufacture, operation, ownership, possession, purchase, repair, repossession, return, sale, selection, service or use thereof, including without limitation: (i) claims involving latent or other defects (whether or not discoverable by Lessee or Lessor) (ii) claims for trademark, patent or copyright infringement, and (iii) claims for injury or death to persons or damage to property or loss of business or anticipatory profits, whether resulting from acts or omissions of Lessee or Lessor or otherwise. Lessee shall give Lessor prompt written notice of any claim or liability covered by this section. The indemnities under this section shall survive the satisfaction of all other obligations of Lessee herein and the termination of this Master Lease or any Equipment Schedule. 14. SECURITY DEPOSIT. For the purpose of securing all of Lessee's obligations under this Master Lease and each Equipment Schedule, Lessee grants Lessor a security interest in any security deposit described in any Equipment Schedule. Any such security deposit may be commingled with other funds and shall be held without interest to Lessee. Upon default under this Master Lease or any Equipment Schedule, Lessor may, but shall not be obligated to, apply any such security deposit to any obligation of Lessee under this Master Lease or any Equipment Schedule, in which event Lessee shall promptly restore the amount thereof on demand. Upon compliance by Lessee with all terms of this Master Lease and each Equipment Schedule Lessor shall, at the end of the term of each Equipment Schedule and the return of the Equipment to Lessor as provided herein, refund to Lessee the balance of any security deposit pertaining to such Equipment Schedule. 15. DEFAULT AND REMEDIES. (a) The occurrences of any one or more of the following events ("Events of Default") shall constitute a default under this Master Lease and any Equipment Schedule: (i) Lessee's failure to pay rent or any other amount required under an Equipment Schedule when due; (ii) Lessee's failure to perform any other obligation or observe any other term of this Master Lease or any Equipment Schedule; (iii) any representation or warranty made to Lessor by Lessee or by any guarantor proves to have been false in any material respect when made; (iv) Lessee or any guarantor suffers a material adverse change in its financial condition; (v) an event of default shall have occurred under and be continuing under any other agreement involving the borrowing of money by Lessee or any guarantor; (vi) levy, seizure or attachment of any Equipment; (vii) commencement of proceedings under any bankruptcy, arrangement, reorganization or insolvency law by or against, or appointment of a receiver or liquidator for any property of, Lessee or any guarantor; (viii) any failure by Lessee, or any direct or indirect subsidiary or affiliate of Lessee, or any direct or indirect owner or party controlling, directly or indirectly, Lessee or any direct or indirect subsidiary or affiliate of Lessee, to perform any obligation under any agreement between Lessee or any such subsidiary, affiliate, owner or controlling party, on the one hand, and Lessor, any Lessor Transferee, or any direct or indirect subsidiary or affiliate of Lessor or any Lessor Transferee, on the other hand, which agreement shall include, without limitation, any master lease, any equipment schedule, any promissory note or other debt obligation of Lessee to Lessor; (ix) assignment for the benefit of creditors or bulk transfer of assets by, or insolvency, cessation of business, termination of existence, death or dissolution of, Lessee or any guarantor; or (x) Lessee is prohibited from repurchasing any Limited Partnership units without Lessor's prior written consent. As used in this Master Lease, the term "guarantor" shall include any guarantor of this Master Lease or any Equipment Schedule, and any owner of any property given as security for Lessee's obligations hereunder or thereunder. (b) Upon the occurrence of any one or more Events of Default, Lessor may exercise any one or more of the following remedies without demand or notice to Lessee and without terminating or otherwise affecting Lessee's obligations hereunder: (i) declare the entire balance of rent for the remaining term of this Lease to be immediately due and payable; (ii) require Lessee to assemble the Equipment and make it available to Lessor at a place designated by Lessor; (iii) take and hold possession of the Equipment and render the Equipment unusable, and for this purpose enter and remove the Equipment from any premises where the same may be located without liability to Lessor for any damage caused thereby; (iv) sell or lease the Equipment or any part thereof at public or private sale for cash, on credit or otherwise, with or without representations or warranties, and upon such terms as shall be acceptable to Lessor; (v) use and occupy the premises of Lessee for the purpose of taking, holding, reconditioning, displaying, selling or leasing the Equipment, without cost to Lessor or liability to Lessor; (vi) demand, sue for and recover from Lessee the sum of (A) all rent and other amounts due hereunder, plus, as liquidated damages for loss of a bargain and not as a penalty, and in lieu of any further payments of rent for the Equipment, an amount equal to Lessor's Return for such Equipment ("Lessor's Return" shall mean, if the applicable Equipment Schedule provides for Stipulated Loss Values, the applicable Stipulated Loss Value, and, otherwise, the present value, discounted at five percent (5%), of all unpaid rent payments to become due during the remaining lease term; (B) all late charges provided in this Master Lease or any Equipment Schedule; (C) all expenses, including attorney's fees, of Lessor or any Lessor Transferee incurred in enforcing any of their rights under this Master Lease or any Equipment Schedule, including the taking, holding, reconditioning, preparing for sale or lease, and selling or leasing of the Equipment; (D) all other expenses, including attorney's fees, incurred by Lessor or any Lessor Transferee incurred in enforcing any of their rights under this Master Lease or any Equipment Schedule and including any and all damages to real property arising from the removal of any of the Equipment, and in the event any party holding an interest in any real property upon which any of the Equipment is located shall demand a security deposit in connection with any such removal, Lessee shall deliver and provide such deposit; (E) any actual or anticipated loss in tax benefits to Lessor (as determined by Lessor) resulting from the default or Lessor's repossession or disposition of the Equipment; and (F) any other amounts payable by Lessee to Lessor under this Master Lease or any Equipment Schedule or damages suffered by Lessor not otherwise compensated herein including, without limitation, damages arising from Lessee's failure to maintain the Equipment as provided herein. Any sale or lease of the Equipment by Lessor after default shall be free and clear of any interest of Lessee. (c) The rights and remedies of Lessor hereunder are in addition to all other rights and remedies provided by law. All of Lessor's rights and remedies are cumulative and not exclusive, and may be exercised separately or concurrently and in such order and manner as Lessor may determine. The exercise of any one remedy shall not be deemed to be an election of such remedy or to preclude the exercise of any other remedy. No default by Lessee or action by Lessor shall result in a termination of this Master Lease or any Equipment Schedule unless Lessor so notifies Lessee in writing, and no termination of this Master Lease or any Equipment Schedule shall release or impair any of Lessee's obligations hereunder or thereunder. 16. PURCHASE OPTION Notwithstanding anything to the contrary in the Master Lease and Equipment Schedule, Lessor and Lessee hereby agree, provided no default has occurred and is continuing under the Master Lease, at the end of the Equipment Schedule term, Lessor will sell all, but not part of, the Equipment listed on the Equipment Schedule AS IS, WHERE IS and transfer title to Lessee for the consideration of One Dollar (1.00) and will execute such documentation as necessary to effect such transfer of title to the extent title was conveyed to Lessor. Any instrument of transfer shall contain the following: THE EQUIPMENT TRANSFERRED HEREBY IS TRANSFERRED "AS IS" AND "WHERE IS". THE SELLER MAKES NO EXPRESS OR IMPLIED WARRANTIES OR REPRESENTATIONS OF ANY KIND WHATSOEVER IN REGARD TO SUCH EQUIPMENT. THE SELLER HEREBY DISCLAIMS ANY AND ALL REPRESENTATIONS AND WARRANTIES IN REGARD TO SUCH EQUIPMENT, INCLUDING, WITHOUT LIMITATION, THOSE OF MERCHANTABILITY OR FITNESS FOR USE OR FITNESS FOR ANY PARTICULAR USE, OR OF QUALITY, DESIGN, CONDITION, CAPACITY, SUITABILITY OR PERFORMANCE. 17. COSTS AND EXPENSES. Lessee shall pay to Lessor, on demand, all costs and expenses incurred by Lessor in connection with the execution, delivery, administration and enforcement of this Master Lease, any Equipment Schedule, the transactions contemplated hereby and thereby, and any costs and expenses related hereto or thereto, including without limitation filing fees, registration fees, attorney's fees and other out-of-pocket expenses. 18. PERFORMANCE BY LESSOR. If Lessee shall fail to perform any obligation under this Master Lease or any Equipment Schedule, Lessor shall have the right, but shall not be obligated, with or without prior notice to Lessee, to perform the same (or, in the case of Lessee's failure to maintain insurance, Lessor may obtain insurance protecting the interest of Lessor only), and the costs thereof, together with interest at the lesser of eighteen percent (18%) per year of the highest lawful rate, shall be immediately payable by Lessee as additional rent for the Equipment. 19. FURTHER ASSURANCES. Lessee shall, at its sole cost and expense, execute and deliver such financial statements, certificates of title and other related documents and take such action as Lessor or any Lessor Transferee may from time to time request for the purpose of continuing and assuring the rights intended to be created by this Lease or any Equipment Schedule, including without limitation, any redocumentation of errors and omissions of this Master Lease and any Equipment Schedule required by any Lessor Transferee or other successor to any interest of Lessor. 20. NOTICES. All notices, demands, requests and other communications under this Master Lease and any Equipment Schedule: (a) shall be in writing; (b) shall be delivered personally or by first class mail addressed to the party at its respective address set forth herein or such other address as such party may designate from time to time in writing; and (c) shall be effective when personally delivered or deposited in the United States mail, duly addressed with postage prepaid. 21. LAW GOVERNING - JURISDICTION, WAIVER OF JURY TRIAL. LESSEE WARRANTS, REPRESENTS AND AGREES THAT: (a) THIS MASTER LEASE AND ANY EQUIPMENT SCHEDULE HAVE BEEN MADE AND ENTERED INTO AS PENNSYLVANIA TRANSACTIONS; (b) THIS MASTER LEASE AND ANY EQUIPMENT SCHEDULE SHALL BE CONSTRUED, INTERPRETED, GOVERNED AND ENFORCED UNDER AND IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS) OF PENNSYLVANIA; (c) JURISDICTION TO HEAR AND DECIDE ANY CASE OR CONTROVERSY ARISING OUT OF, OR TO ENFORCE OR CONSTRUE, THIS MASTER LEASE OR ANY EQUIPMENT SCHEDULE, SHALL EXCLUSIVELY RESIDE AND VEST IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA, OR IF THAT COURT DOES NOT HAVE JURISDICTION, THEN IN THE COURT OF COMMON PLEAS OF THE COMMONWEALTH OF PENNSYLVANIA FOR THE COUNTY OF BUCKS; AND (d) THIS SECTION 21 MAY BE ENFORCED BY INJUNCTION, SPECIFIC PERFORMANCE OR ANY OTHER EXTRAORDINARY OR EQUITABLE REMEDY. LESSOR AND LESSEE HEREBY WAIVE THE RIGHT TO TRIAL BY JURY OF ANY MATTERS ARISING OUT OF THIS LEASE OR THE CONDUCT OF THE RELATIONSHIP BETWEEN LESSOR AND LESSEE. 22. MISCELLANEOUS. This Master Lease, any Equipment Schedule, and any other documents executed herewith or therewith constitute the entire agreement with respect to the subject matter hereof. No oral agreement, representation or warranty shall be binding. Any provision of this Master Lease which is invalid or unenforceable under applicable law shall not affect the remaining provisions hereof, and to this end the provisions hereof are declared to be severable. Section headings are for convenience of reference only, and shall not affect the interpretation hereof. If more than one Lessee is named herein, the liability of each shall be joint and several. Where appropriate and the context permits, the singular shall include the plural and vice versa. Upon assignment of this Master Lease or any Equipment Schedule or Equipment (or any part hereof or thereof or any interest herein or therein) by Lessor, the term "Lessor" shall include the Assignee. Lessee waives notice and acceptance of this Master Lease and any Equipment Schedule by Lessor. Time is of the essence of this Master Lease and any Equipment Schedule. 23. WAIVER AND AMENDMENT. No waiver or amendment of this Master Lease or any Equipment Schedule, or any provision hereof or thereof, shall be effective unless in writing signed by Lessor. No delay or failure to exercise any right, power or remedy accruing to Lessor upon any default of Lessee shall impair any such right, power or remedy, nor shall it be construed as a waiver of any such default, or an acquiescence therein, or in any similar default thereafter occurring, nor shall any waiver of any single default be deemed a waiver of any other default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of Lessor must be in writing and shall be effective only to the extent specifically set forth therein. LESSEE INITIAL /s/ H.S. --------------- THIS MASTER LEASE, AND ANY EQUIPMENT SCHEDULE, ARE SUBJECT TO THE TERMS AND CONDITIONS SET FORTH HEREIN LESSEE ACKNOWLEDGES RECEIPT OF A COPY OF THIS MASTER LEASE THIS MASTER LEASE, AND ANY EQUIPMENT SCHEDULE, SHALL BECOME EFFECTIVE ONLY UPON WRITTEN ACCEPTANCE BY LESSOR LESSOR: LESSEE: DVI FINANCIAL SERVICES INC. U.S. NEUROSURGICAL, INC. By: /s/ Joseph E. Malott By: /s/ Howard [ILLEGIBLE] ------------------------------ ------------------------------ Name: Joseph E. Malott Name: Howard [ILLEGIBLE] ----------------------------- ----------------------------- Title: Director Title: Controller Credit/Documentation ---------------------------- ---------------------------- No security interest in an Equipment Schedule may be created through the transfer or possession of any counterpart of the original Equipment Schedule other than that Equipment Schedule marked "Secured Party's Original" and a certified copy of the Master Agreement. EX-10.R 4 ASSET PURCHASE AGREEMENT ================================================================================ ASSET PURCHASE AGREEMENT by and among GHS, INC., GLOBAL HEALTH SYSTEMS, INC., and GHS MANAGEMENT SERVICES, INC. and HEALTH MANAGEMENT SYSTEMS, INC., and GLOBAL HEALTH ACQUISITION CORP. Dated as of March 10, 1997 ================================================================================ TABLE OF CONTENTS Page I. TRANSFERS................................................................1 SECTION 1.01 Transfer of Assets................................1 SECTION 1.02 Instruments of Conveyance and Transfer............5 SECTION 1.03 Nonassignable Contracts...........................5 SECTION 1.04 Ancillary Agreements..............................6 II. CLOSING, PURCHASE PRICE, LIABILITIES, ETC................................6 SECTION 2.01 Closing...........................................6 SECTION 2.02 Payment to Sellers on the Closing Date............6 SECTION 2.03 Assumption of Liabilities.........................6 SECTION 2.04 Non-Assumption of Certain Liabilities.............7 SECTION 2.05 Sellers' Net Funding Requirement..................8 SECTION 2.06 Change of Names..................................10 III. REPRESENTATIONS AND WARRANTIES..........................................10 SECTION 3.01 Representations and Warranties of Sellers.......................................24 SECTION 3.02 Representations and Warranties of Buyers........................................24 IV. COVENANTS...............................................................26 SECTION 4.01 Covenants of Sellers.............................26 SECTION 4.02 Confidentiality..................................28 SECTION 4.03 Allocation of Purchase Price.....................28 SECTION 4.04 Preparation of Certain Financial Information......................................29 SECTION 4.05 Certain Tax Matters..............................30 SECTION 4.06 Insurance........................................30 SECTION 4.07 Retention of Employees; Benefits.................30 SECTION 4.08 Further Assurances...............................31 SECTION 4.09 No Solicitation; Acquisition Proposals........................................32 V. GHS STOCKHOLDERS' CONSENT; INFORMATION STATEMENT........................33 SECTION 5.01 GHS Stockholders' Meeting........................33 SECTION 5.02 Preparation and Filing of Information Statement........................................33 SECTION 5.03 Recommendations of GHS Board of Directors........................................33 SECTION 5.04 Irrevocable Proxy................................33 i Page ---- VI. CONDITIONS PRECEDENT....................................................34 SECTION 6.01 Conditions Precedent to the Obligations of Buyers............................34 SECTION 6.02 Conditions Precedent to the Obligations of Sellers...........................37 VII. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION............................39 SECTION 7.01 Survival of Representations......................39 SECTION 7.02 Tax Indemnity....................................39 SECTION 7.03 General Indemnity................................40 SECTION 7.04 Conditions of Indemnification....................41 SECTION 7.05 Direct Claims....................................42 SECTION 7.06 Certain Information..............................42 SECTION 7.07 Limitations on Liability of Sellers..............43 VIII. TERMINATION.............................................................43 SECTION 8.01 Termination......................................43 SECTION 8.02 Effect of Termination............................44 IX. MISCELLANEOUS...........................................................45 SECTION 9.01 Bulk Transfer Laws...............................45 SECTION 9.02 Expenses, Etc....................................45 SECTION 9.03 Risk of Loss.....................................45 SECTION 9.04 Execution in Counterparts........................46 SECTION 9.05 Notices..........................................46 SECTION 9.06 Waivers..........................................47 SECTION 9.07 Amendments, Supplements, Etc.....................47 SECTION 9.08 Entire Agreement.................................48 SECTION 9.09 Applicable Law; Jurisdiction.....................48 SECTION 9.10 Binding Effect; Benefits.........................48 SECTION 9.11 Assignability....................................49 SECTION 9.12 Update to Schedules..............................49 ii INDEX TO EXHIBITS Exhibit Description A Form of Bill of Sale, Assignment and Assumption Agreement B Form of Non-Compete Agreement C Form of Proxy with respect to GHS D Form of Proxy with respect to Global and Management iii INDEX TO SCHEDULES Schedule Description 1.01(a)(i) Tangible Personal Property 1.01(a)(ii) Intangible Personal Property 1.01(a)(viii) Accounts Receivable Relating to Unearned Revenues 1.01(c)(vii) Other Excluded Assets 1.03 Consents To Assignment Not Required to be Sought 2.03 Accrued Vacation 2.05(a) Sellers' Net Funding Requirement 2.05(a)(i) Payments Relating to Unearned Revenues 2.05(a)(ii) Accrued Expenses 2.05(a)(iii) Prepaid Expenses and Security Deposits 2.05(a)(iv) Work in Process 3.01(a) State Qualifications 3.01(c) Effect of Agreements 3.01(d) Governmental Approvals 3.01(e) Financial Statements 3.01(f) Certain Changes or Events 3.01(g) Liens and Encumbrances 3.01(h) List of Properties, Leases, Proprietary Rights, Contracts and Employment Arrangements 3.01(h)(i) Real and Personal Property Leases 3.01(h)(ii) Patents, Trademarks, Trade Names, Servicemarks and Copyrights 3.01(h)(iii) Employment Agreements and Benefit Plans 3.01(h)(iv) Software Marketing Agreements granted by or to Seller 3.01(h)(v) Third Party Vendor Contracts and Commitments 3.01(i) Litigation 3.01(k) Employee Benefit Plans 3.01(m)(i)-1 The Owned Software 3.01(m)(i)-2 The Licensed Software 3.01(p) Compliance with Law; Permits 3.01(q) Customer Contracts Matters 3.01(r) Taxes 4.07(a) Certain Retained Employees 6.01(e) Required Consents iv ASSET PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT, dated as of March 10, 1997, by and among GHS, INC. ("GHS"), a Delaware corporation, GLOBAL HEALTH SYSTEMS, INC. ("Global"), a Delaware corporation, GHS MANAGEMENT SERVICES, INC. ("Management"), a Delaware corporation (GHS, Global and Management are sometimes hereinafter referred to collectively as the "Sellers"), HEALTH MANAGEMENT SYSTEMS, INC. ("HMS"), a New York corporation, and GLOBAL HEALTH ACQUISITION CORP., a Delaware corporation and a wholly-owned subsidiary of HMS ("Sub") (HMS and Sub are sometimes hereinafter referred to collectively as "Buyers"). WHEREAS, GHS, through Global and Management, provides computerized medical record-based transaction processing systems and services for ambulatory healthcare providers and managed care organizations in the public and private sector (the "Business"); and WHEREAS, Sellers desire to sell to Buyers, and Buyers desire to purchase from Sellers, substantially all the assets and properties of the Business, excluding certain specified assets, and to assume certain liabilities, all on the terms and subject to the conditions set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereby agree as follows: I. TRANSFERS SECTION 1.01 Transfer of Assets. (a) On the terms and subject to the conditions hereinafter set forth, on the Closing Date (as hereinafter defined), Sellers shall sell, convey, transfer, assign and deliver to Buyers, and Buyers shall purchase from Sellers, for the aggregate purchase price set forth in Article II hereof, (x) the assets and properties of Global and Management relating to the Business listed in clauses (i)-(viii) below and those additional assets referred to in Section 1.01(b) hereof, but excluding those assets referred to in Section 1.01(c) below (all said assets and properties so to be sold, conveyed, transferred, assigned and delivered being hereinafter collective ly called the "Non-Software Assets") and (y) the assets and properties of Global and Management listed in clause (ix) below (the "Owned Software" and, collectively with the Non-Software Assets, the "Assets"): (i) all tangible personal property, inventory, equipment, supplies, tools, computer equipment, work in process, spare parts, furniture and office 1 furnishings, wherever situated, whether or not carried on the books of Sellers, to the extent that such assets are necessary to, or used by Global or Management primarily in connection with, the Business, including but not limited to all items listed on Schedule 1.01(a)(i) hereto; (ii) the intangible personal property listed on Schedule 1.01(a)(ii) hereto; (iii) the patents, trademarks and trade names, trademark and trade name registrations, service marks and servicemark registrations, copyrights and copyright registrations, the applications therefor and the licenses and franchises with respect thereto, in each case listed on Schedule 3.01(h)(ii) hereto, together with the goodwill and the business appurtenant thereto; all trade secrets and technology (including technology with respect to which Global is a licensee, in such case only insofar as permitted under the applicable license agreement), processes, inventions, specifications, patterns, royalties, privileges, permits and all other similar intangible personal property, in each case as listed on Schedule 3.01(h)(ii) hereto; (iv) all technical materials and guidelines (other than any such as are included in the Owned Software), and all brochures, sales literature, promotional material and other selling material used in the Business, wherever situated; (v) all papers, documents, instruments, books and records, files, agreements, books of account and other records by which any of the Assets might be identified or enforced, or otherwise pertaining to the Assets or the Business that are located at the offices or other locations used in connection with the Assets or the Business (including, without limitation, customer invoices, customer lists, vendor and supplier lists, drafts and other documents and materials relating to customer transactions); (vi) the rights of Global or Management (other than rights to refunds arising prior to the Closing Date) under all contracts, agreements, licenses, leases, sales orders, purchase orders and other commitments relating to the Assets or the Business listed on Schedules 3.01(h) (other than commitments of the kind described in Section 3.01(h)(v) hereof) and on Schedule 3.01(q) hereto; 2 (vii) all rights of Global or Management to the computer software programs and the license or other agreements conferring rights related thereto, in each case listed on Schedule 3.01(m)(i)-2 hereto and in each case, only insofar as permitted under the applicable license or other agreement (the "Licensed Software"); (viii) all accounts receivable of the Business that have arisen prior to the Closing Date with respect to ongoing liabilities and obligations of Global or Management to provide products or services after the Closing Date (including without limitation accounts receivable with respect to all customer advance payments and maintenance fees) under any contract listed on Schedule 3.01(q) hereto, which accounts receivable are identified and set forth on Schedule 1.01(a)(viii) hereto; (ix) all right, title and interest of Global or Management in and to the computer software programs, and the source and object codes for such software programs, listed on Schedule 3.01(m)(i)-1 hereto together with all versions thereof and all modules encompassed thereby and, to the extent used in the Business or otherwise in possession of Sellers as of the Closing Date, all technical materials, guidelines and other written material pertaining thereto; and (b) In the event that Buyers shall reasonably establish to the Sellers' reasonable satisfaction and notify Sellers at any time or from time to time during the three-month period following the Closing Date that any of the Schedules describing the Assets as provided in Section 1.01(a) hereof failed to include assets or properties of Global or Management used by Global or Management exclusively or primarily in the Business (other than any such assets or properties specifically excluded under Section 1.01(c) hereof or made available to Buyers pursuant to any of the Ancillary Agreements, as such term is defined in Section 1.04 hereof) then: (i) with respect to any such assets or properties used exclusively in the Business, Sellers shall promptly convey, transfer, assign and deliver to Buyers or other such person as may be designated by Buyers, and Buyers or such designee shall acquire from Sellers, without additional consideration, all such assets and properties, which shall be deemed for all purposes to be included in the definition of Assets hereunder as provided in Section 1.01(a) hereof. 3 (ii) with respect to any such assets or properties used primarily, but not exclusively, in the Business, Sellers shall grant to Buyers an irrevocable, royalty-free license or otherwise convey to Buyers the unlimited right to use any such asset or property, without additional consideration. (c) Anything herein contained to the contrary notwithstanding, the following assets and properties of Global and Management are specifically excluded from the Assets and shall be retained by Global and Management: (i) all cash in banks, cash on hand and short-term investments as of the Closing Date; (ii) except as set forth on Schedule 1.01(a)(viii) hereto, all accounts receivable of Seller attributable to the Business through the Closing Date; (iii) all claims or rights against third parties relating to liabilities or obligations (including, without limitation, any such liabilities or obligations referred to in clause (ii) of Section 2.04) that are not assumed by Buyer hereunder; (iv) all claims for the refund of Taxes (as hereinafter defined) and other governmental charges of whatever nature for all periods prior to the close of business on the day prior to the Closing Date; (v) all rights and funds in connection with retirement and profit sharing plans; (vi) the minute books, stock records and related corporate records of Global and Management; and (vii) those items listed on Schedule 1.01(c)(vii) hereto. (d) Each of the Buyers, on the one hand, and Sellers, on the other hand, agrees to cooperate with the other parties hereto to establish reasonable procedures to identify and remit payments received but not owned by them from third parties, being amounts attributable to Global's and Management's conduct of the Business prior to the Closing Date or Buyers' conduct of the Business after the Closing Date, as the case may be, which amounts shall, for the purposes of this Section 1.01(d), include payments under the Subcontracted Contracts (as defined in Section 4 1.03 hereof). Such payments shall be made promptly, but in no event later than 15 days after receipt thereof by Buyers or Sellers, as the case may be. The parties agree to reasonably cooperate with the other parties hereto and use their reasonable efforts, at the request and expense of the other parties, and to assist each other, under the direction of the party entitled to such payments, in the collection of amounts due to such parties. SECTION 1.02 Instruments of Conveyance and Transfer. On the Closing Date, Sellers shall execute and deliver to Buyers (i) a bill of sale in the form included in the form of the Bill of Sale, Assignment and Assumption Agreement annexed hereto as Exhibit A (the "Bill of Sale") and (ii) such other documents of transfer that Buyers may reasonably request, transferring to Buyers the properties and assets to be acquired by Buyers under the terms of this Agreement. SECTION 1.03 Nonassignable Contracts. Nothing in this Agreement shall be construed as an attempt or agreement to assign (i) any contract, agreement, license, lease, sales order, purchase order or other commitment that is nonassignable without the consent of the other party or parties thereto unless such consent shall have been given, subject, however, to the covenant of Sellers in Section 4.01(d) hereof, or (ii) any contract or claim as to which all the remedies for the enforcement thereof enjoyed by Sellers would not pass to Buyers as an incident of the assignments provided for by this Agreement. In order, however, that the full value of every contract and claim of the character described in clauses (i) and (ii) above, and all claims and demands on such contracts may be realized, Sellers shall use all reasonable efforts to obtain consent for the assignment thereof, other than any such consent with respect to contracts and claims listed on Schedule 1.03 hereto. With respect to those contracts and claims of which Sellers shall have failed to obtain consent for the assignment thereof pursuant to their obligations under Section 4.01(d) hereto and this Section 1.03 listed on Schedule 1.03 hereto, Sellers shall, at the request and expense and under the direction of Buyers, in the name of Sellers or otherwise as Buyers shall specify and as shall be permitted by law, take all action and do or cause to be done all things as shall in the opinion of Buyers be reasonably necessary or proper (x) in order that the rights and obligations of Sellers under such contracts shall be preserved and (y) for, and to facilitate, the collection of the moneys due and payable, and to become due and payable, to Sellers in and under every such contract and claim and in respect of every such claim and demand, and Sellers shall hold the same for the benefit of and shall pay the same over promptly to Buyers, subject to due payment, performance and discharge by 5 Buyers on behalf of Sellers of all liabilities and obligations of Sellers with respect to any such contracts and claims that have not been assigned hereunder but as to which Sellers shall have obtained the full value thereof for the benefit of Buyers as required hereunder (the "Subcontracted Contracts"). SECTION 1.04 Ancillary Agreements. In connection with the purchase and sale of the Assets by Buyers and Buyers' opera tion of the Business from and after the Closing Date, Sellers hereby covenant and agree to enter into on the Closing Date the Non-Compete Agreement in the form annexed hereto as Exhibit B (the "Non-Compete Agreement" and, collectively with the Bill of Sale, the "Ancillary Agreements"). II. CLOSING, PURCHASE PRICE, LIABILITIES, ETC. SECTION 2.01 Closing. The closing of the transactions contemplated by this Agreement shall take place at the offices of Coleman & Rhine LLP, 1120 Avenue of the Americas, New York, New York 10036, on such date as the parties may mutually agree in writing, after satisfaction of all of the conditions set forth in Sections 6.01 and 6.02 hereof, and for all purposes shall be deemed effective as of the close of business on the day prior to such date (such date and time of closing being herein called the "Closing Date"). The parties shall use their best efforts to cause the Closing Date to occur within 45 days after the date of this Agreement. SECTION 2.02 Payment to Sellers on the Closing Date. On the Closing Date, in full consideration for the sale, conveyance, transfer, assignment and delivery to Buyers of the Assets and the execution and delivery of the Ancillary Agreements, subject to the assumption of liabilities provided for herein, Buyers shall pay to Sellers an amount (the "Purchase Price") equal to $2,100,000 by bank check payable to GHS. SECTION 2.03 Assumption of Liabilities. On the Closing Date, Buyers shall execute and deliver to Sellers an Assumption Agreement, in the form included in the Bill of Sale, pursuant to which Buyers shall assume and agree to pay, perform and discharge when due all liabilities and obligations of Global and Management that arise on and after the Closing Date under the terms of any contract, agreement, license, lease, sales order, purchase order or other commitment that is disclosed on Schedules 3.01(h) (other than any commitment of the kind described in Section 3.01(h)(iii) hereof) or 3.01(q) hereto, other than any of the foregoing that shall not be assigned as contemplated by Section 1.03 hereof; provided, however, that if at any time after 6 the Closing Date consent to assignment satisfactory to Buyers and their counsel is obtained with respect to any such commitment that shall not have been assigned as contemplated by said Section 1.03, Buyers shall thereafter be deemed to have assumed all such liabilities and obligations of Global and Management thereunder. On the Closing Date, Buyers shall also assume and agree to be responsible for all obligations of Sellers in respect of vacation accrued for the Retained Employees prior to the Closing Date as set forth on Schedule 2.03; provided that Buyers may make it a condition to the offers of employment made pursuant to Section 4.07(a) that any such accrued vacation be utilized within twelve months of the Closing Date or expire at such time. SECTION 2.04 Non-Assumption of Certain Liabilities. Subject as set forth in Section 2.05, Buyers are not assuming, and shall not be deemed to have assumed, any liabilities or obligations of Sellers of any kind or nature whatsoever, except as expressly provided herein or in the Bill of Sale. Without limiting the generality of the foregoing, it is hereby agreed that Buyers are not assuming any liability and shall not have any obligation for or with respect to: (i) any liabilities or obligations of Sellers that arise under the terms of a contract, agreement, license, lease, sales order, purchase order, or other commitment which shall not be assigned as contemplated by Section 1.01(c) of this Agreement; (ii) any liabilities or obligations of Sellers (x) attributable to the operations of the Business prior to the Closing Date or (y) that would not have arisen but for the consummation of the transactions contemplated by this Agreement, unless, in either case, such liabilities or obligations are expressly assumed by Buyers as provided herein or in the Bill of Sale; (iii) any liabilities or obligations of Sellers under any Plan (as defined in Section 3.01(k)), including any obligation to adopt or to sponsor such Plan except as Buyers may, in their sole discretion, elect to adopt or to sponsor; (iv) any liabilities or obligations of Sellers for any commissions, refunds, rebates, discounts or other such sums, falling due before the Closing Date, in respect of services rendered prior to the Closing Date; (v) any obligation of Sellers arising out of any action, suit or proceeding based upon (A) an event occurring or a claim arising prior to the Closing Date or (B) a claim arising on and after the Closing Date based on an event occurring prior to the Closing Date in the case of claims in respect of products or services sold and delivered or required to be delivered by Sellers or provided by Sellers or the conduct of the Business prior to the Closing Date and attributable to acts performed or omitted by Sellers prior to the Closing Date; (vi) any obligation of Sellers to any employee in respect of personal or sick days accrued prior to the Closing Date; (vii) any obligation of Sellers to any 7 employee of, or consultant to, the Business who does not become a Retained Employee (as hereinafter defined) or to any other employee of, or consultant to, the Business whose employment or consultancy is terminated by Sellers prior to or effective at the Closing Date or, except as provided in Section 4.07 hereof, to any employee who is on administrative leave as of the Closing Date; and (viii) any and all Taxes incurred by or imposed upon Sellers relating to periods prior to the Closing Date, whether such Taxes are assessed before or after the Closing Date, includ ing without limitation, but subject to the provisions of Section 4.05(a) hereof, any Taxes incurred by or lawfully imposed upon Sellers, other than any Taxes to be paid by Buyers in accordance with this Agreement or any of the Ancillary Agreements. SECTION 2.05 Sellers' Net Funding Requirement. (a) Buyers and Sellers agree that Sellers shall pay to Buyers on the Closing Date, in cash, an amount equal to the net amount ("Sellers' Net Funding Requirement") set forth on Schedule 2.05(a) calculated by subtracting the amounts described in clauses (iii) and (iv) below from the amount described in clauses (i) and (ii) below; provided, however, that if the Sellers' Net Funding Requirement is less than zero, Buyers shall pay to Sellers on the Closing Date, in cash, an amount equal to such negative amount: (i) Unearned Revenues. The aggregate of all payments received prior to the Closing Date, in each case, with respect to ongoing liabilities and obligations of Sellers to provide products or services after the day prior to the Closing Date (including, without limitation, all customer advance payments, maintenance fees and the estimated value of all warranty obligations to be discharged or performed with respect to work performed or services rendered prior to the Closing Date) under any contract listed on Schedule 3.01(q) hereto, all of which payments and amounts have been identified and set forth by Sellers on Schedule 2.05(a)(i) hereto; (ii) Accrued Expenses. The aggregate of all expenses of the Business that relate to any period prior to 12:00 midnight on the day prior to the Closing Date in respect of which Sellers have not made payment or, subject to payment thereof on or before the due date thereof, an account payable has arisen or an accrual made on Sellers' books of account prior to the Closing Date for which Sellers will not remain responsible after the Closing Date, which amounts have been identified and set forth by Sellers on Schedule 2.05(a)(ii) hereto; 8 (iii) Prepaid Expenses and Security Deposits. The aggregate of (A) all expenses of the Business that relate to any period after 12:01 a.m. on the Closing Date and for which Buyers will receive the benefit in respect of which Sellers have made payment or, subject to payment thereof on or before the due date thereof, an account payable has arisen or an accrual made on Sellers' books of account prior to the Closing Date for which Sellers will remain responsi ble after the Closing Date and (B) all security deposits deposited by Sellers in connection with any contract, agreement, license, lease, sales order, purchase order or other commitment that is assumed by Buyers pursuant to the terms of the Agreement, which amounts have been identified and set forth by Sellers on Schedule 2.05(a)(iii) hereto; and (iv) Work in Process. Amounts represented by the value, as determined in accordance with the related contract in respect thereof, of products and services that shall have been supplied by the Sellers prior to the Closing Date under any contract listed on Schedule 3.01(q) hereto but have not yet given rise to an account receivable of Sellers, payment for which will be included in invoices of Buyers and not Sellers after the Closing Date, which amounts have been identified and set forth by Sellers on Schedule 2.05(a)(iv) hereto. (b) In the event that Buyers or Sellers shall, at any time or from time to time during the three-month period following the Closing Date, notify the other in writing, that any of Schedules 2.05(a)(i) through 2.05(a)(iv) failed to include amounts, which properly should reasonably have been included in such Schedules in accordance with generally accepted accounting principles, based on the information available to Sellers, after due inquiry, as of the Closing Date, but not thereafter, then Buyers or Sellers, as the case may be, shall promptly pay to the other such amount. (c) To the extent that any amounts described in Section 2.05(a)(i) and (ii) hereof has been fully provided for and included in the amount to be paid in respect of Sellers' Net Funding Requirement, Buyers shall be deemed upon such payment to have assumed the related liability and obligation, notwithstanding anything to the contrary contained in Section 2.04 hereof. Conversely, to the extent that any amount described in Section 2.05(a)(iii) and (iv) hereof has been fully provided for and deducted from the amount to be paid in respect of Sellers' 9 Net Funding Requirement, Buyers shall be deemed upon such payment to have acquired the related asset (which shall be deemed for all purposes to be included in the definition of Assets hereunder), notwithstanding anything to the contrary contained in Section 1.01(c) hereof. SECTION 2.06 Change of Names. At the Closing, Sellers shall cause the corporate names of Global and Management to be changed to names which are not confusingly similar to the names of Global and Management, and shall assign all their rights to Global's and Management's names to Buyers. Sellers shall furnish to Buyers at the Closing all documents reasonably necessary to enable Buyers to utilize and/or register such names following the Closing, including any consents required by the states of California, Delaware, Maryland, New York and all other jurisdictions where Global and Management are qualified to do business as foreign corporations. In addition, Sellers will use their best efforts to obtain the consent of any other person whose consent to Buyers' use of such names is required, provided, that Sellers shall not be required to pay any money to obtain such consent. Sellers agree that they will not, subsequent to the Closing, cause Global and Management to amend their Certificates of Incorporation to any corporate name which is confusingly similar to Global Health Systems, Inc. or GHS Management Services, Inc., respectively. III. REPRESENTATIONS AND WARRANTIES SECTION 3.01 Representations and Warranties of Sellers. Sellers represent and warrant to Buyers as follows: (a) Organization, Corporate Power, Etc. Each of GHS, Global and Management is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and is duly qualified to do business as a foreign corporation in each jurisdiction in which it is required to be so qualified with respect to the operations of the Business, except where the failure to be so qualified would not have a material adverse effect on the properties, results of operations, financial condition or prospects of the Business (a "Material Adverse Effect"). Sellers have all requisite corporate power and authority to own, operate and lease the Assets, to carry on the Business as it is now being conducted, to execute and deliver this Agreement and the Ancillary Agreements and to perform their obligations hereunder and thereunder. Schedule 3.01(a) hereto sets forth a complete list of the jurisdictions in which Global and Management are qualified to do business with respect to the operations of the Business. 10 (b) Authorization of Agreements. The execution and delivery by Sellers of this Agreement and the Ancillary Agreements, and the consummation by Sellers of the transactions contemplated hereby and thereby, have been duly authorized by all requisite corporate action, subject to approval of this Agreement by the stockholders of GHS. This Agreement has been duly and validly executed by Sellers and, subject to such approval by the stockholders of GHS, constitutes the legal, valid and binding obligation of Sellers, enforceable in accordance with its terms and the Ancillary Agreements, when duly executed and delivered in accordance with this Agreement, will constitute legal, valid and binding obligations of Sellers, enforceable in accordance with their respective terms, except as enforceability may be limited by applicable equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws from time to time in effect affecting the enforcement of creditors' rights generally. All of the issued and outstanding capital stock of Global and Management is owned by GHS. Except for the requisite affirmative vote of GHS under the laws of the State of Delaware, the authorization of no other person or entity is required to consummate the transactions contemplated herein by virtue of any such person or entity having an equitable or beneficial interest in Global or Management. (c) Effect of Agreements. Except as set forth on Schedule 3.01(c) hereto, the execution and delivery by Sellers of this Agreement and the Ancillary Agreements, and the performance by Sellers of their obligations hereunder and thereunder, will not violate any provision of law, any order of any court or other agency of government, the Certificates of Incorporation or By-laws of Sellers, or any judgment, award or decree or any indenture, agreement, permit or other instrument to which Sellers are parties, or by which Sellers or any of the Assets are bound or affected, or conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under, any such indenture, agreement, permit or other instrument, or result in the creation or imposition of any lien, charge, security interest or encumbrance of any nature whatsoever upon any of the Assets. (d) Governmental Approvals. Except as set forth on Schedule 3.01(d) hereto, no approval, authorization, consent or order or action of or filing with any court, administrative agency or other governmental authority (i) is required for the execution and delivery by Sellers of this Agreement or any of the Ancillary Agreements or the consummation by Sellers of the transactions contemplated hereby or thereby or (ii) is necessary in order that the Business may be conducted immediately following 11 the Closing Date substantially in the same manner as heretofore conducted, other than those that become applicable solely as a result of the specific regulatory status of Buyers or its affiliates. (e) Financial Statements. Attached as Schedule 3.01(e) hereto are the unaudited balance sheet of each of Global and Management as at December 31, 1996 (collectively, the "December Balance Sheets") and the related statement of operations of each of Global and Management for the nine months ended December 31, 1996 (collectively with the December Balance Sheets, the "Financial Statements"). The Financial Statements are complete and correct in all material respects and have been prepared in accordance with generally accepted accounting principles (including, without limitation, Global's and Management's policies of revenue recognition), consistently applied and consistent with prior periods, except that the Financial Statements will be subject to normal year-end adjustments, which adjustments in the aggregate will not have a Material Adverse Effect. Except as set forth on Schedule 3.01(e) hereto, the Financial Statements fairly present the operating results of the Business during the period indicated therein. (f) Absence of Certain Changes or Events. Since December 31, 1996, except as otherwise set forth on Schedule 3.01(f) hereto and except for the transactions contemplated hereby, Sellers have not with respect to the Business: (i) incurred any material obligation or liability of any kind or nature whatsoever, except normal trade or business obligations incurred in the ordinary course of business and consistent with past practice and except in connection with this Agreement and the transactions contemplated hereby; (ii) discharged or satisfied any material lien, security interest or encumbrance or paid any obligation or liability (fixed or contingent) of any kind or nature whatsoever, other than in the ordinary course of business and consistent with past practice; (iii) mortgaged, pledged or subjected to any lien, security interest or other encumbrance any of the Assets (other than mechanic's, materialman's and similar statutory liens arising as a matter of law and purchase money security interests arising in the ordinary course of business between the date of delivery and payment); 12 (iv) transferred, leased or otherwise disposed of any of the Assets except in the ordinary course of business and consistent with past practice or, except in the ordinary course of business and consistent with past practice, acquired any assets or properties to be used by or in connection with the activities of the Business; (v) canceled or compromised any material debt or claim related to the Business, except in the ordinary course of business and consistent with past practice; (vi) waived or released any rights of material value related to the Business, except in any case in the ordinary course of business and consistent with past practice; (vii) transferred or granted any rights under any concessions, leases, licenses, sublicenses, agreements, patents, inventions, trademarks, trade names, service marks or copyrights or with respect to any know-how related to the Business, except in the ordinary course of business and consistent with past practice; (viii) made or granted any wage, salary or benefit increase or paid any bonus applicable to any group or classification of employees generally, entered into or amended the terms of any employment contract (other than employment agreements terminable at will by Sellers without liability) with, or made any loan to, or granted any severance benefits to or entered into or amended the terms of any material transaction of any other nature with any person listed on Schedule 4.07(a) hereto, except in the ordinary course of business and consistent with past practice; (ix) suffered any casualty loss or damage (whether or not such loss or damage shall have been covered by insurance) that affects in any material respect their ability to conduct the Business or received any claim or claims in respect of the Business in excess of insurable limits, or canceled any insurance coverage, in whole or in part, under any policy the coverage limits of which exceed $25,000; (x) suffered any adverse change in any of their operations or in their financial condition or in their assets, properties or business, which adverse change is 13 material or could reasonably be expected to be material to the Business; (xi) surrendered or had revoked or otherwise terminated any material license, permit or other approval, authorization or consent from any court, administrative agency or other governmental authority relating to the conduct of the Business; or (xii) entered into any agreement or commitment to take any action described in this Section 3.01(f). (g) Title to Properties, Absence of Liens and Encumbrances. Except as set forth on Schedule 3.01(g) hereto, Sellers have good and marketable title to all the Non-Software Assets, free and clear of all liens, charges, pledges, security interests or other encumbrances of any nature whatsoever, subject to restrictions on assignment in any agreements relating to any Non-Software Assets. Except as set forth on Schedule 3.01(g) hereto, all leases of personal property of Sellers to be assigned to Buyers hereunder are, to the knowledge of Sellers, valid and binding in accordance with their respective terms and there is not under any of such leases any existing default, or any condition, event or act attributable to Sellers or, to the knowledge of Sellers, attributable to the other party to such leases, which with notice or lapse of time or both would constitute such a default, nor would consummation of the transactions contemplated hereby result in a default or any such condition, event or act, which, in any such case, would have a Material Adverse Effect. As used in this Agreement, "to the knowledge of Sellers" shall mean the collective knowledge of Alan Gold and Howard Grunfeld (collectively, the "Sellers' Officers"), the President and the Chief Executive Officer and the Controller, respectively, of GHS. "Knowledge" when used in this context shall mean, as to the facts or circumstances represented: (i) actual knowledge of any one of the Sellers' Officers; and (ii) knowledge that any one of the Sellers' Officers should reasonably be expected to possess after due inquiry. (h) List of Properties, Contracts and Other Data. Annexed hereto as Schedule 3.01(h) hereto is a list setting forth with respect to the operations of the Business, as of the dates specified on such Schedule, the following: (i) all leases of real or personal property included in the Assets involving payments in excess of $5,000 per annum to which Sellers are a party, either as lessee or lessor, with a brief description of the parties to 14 each such lease, the property to which each such lease relates and the termination dates thereof; (ii) (A) all patents, trademarks and trade names, trademark and trade name registrations, servicemarks and servicemark registrations, copyrights and copyright registrations which are used in connection with the operations of the Business, all applications pending for patents or for trademark, trade name, servicemark or copyright registrations, and all other proprietary rights (in each case, other than any such rights in the Owned Software) owned or held by Sellers, and reasonably necessary to, or primarily used in connection with, the Business, and (B) all licenses and sublicenses granted by or to Sellers and all other agreements to which Sellers are a party which relate, in whole or in part, to any items of the categories mentioned in (A) above with respect to other proprietary rights reasonably necessary to, or primarily used in connection with, the Business, whether owned by Sellers or any affiliate thereof (in each case, other than any such rights of Sellers in the Licensed Software); (iii) with respect to the persons listed on Schedule 4.07(a) hereto, all employment and consulting agreements, executive compensation plans, collective bargaining agreements, bonus plans, guaranteed bonus arrangements, deferred compensation agreements, employee pension plans or retirement plans, employee profit sharing plans, employee stock purchase and stock option plans, group life insurance, hospitalization insurance or other plans or arrangements providing for benefits to such employees (other than employment agreements terminable at will by Sellers without liability); (iv) all contracts pursuant to which Sellers have (A) been granted rights to market software owned by third parties relating to the Business or (B) granted marketing rights in the Owned Software to third parties; and (v) all contracts and commitments (including proposed (i) contracts and commitments and (ii) amendments to contracts and commitments) relating to the Business, whether oral or written, to which Sellers are or may become parties or to which Sellers or any of their assets or properties are or may become subject and which are not specifically referred to in Schedule 3.01(m)(i) hereto, Schedule 3.01(q) hereto or any of clauses (i) through (iv) above, and which is a contract or group of related contracts 15 which involve payments by or to Sellers exceeding $5,000 per annum in amount or cannot be canceled within 365 days after the Closing Date without breach or penalty. True and complete copies of all documents and complete descriptions of all oral contracts (if any) referred to in Schedule 3.01(h) hereto have been provided or made available to Buyers and their counsel. Except as disclosed in said Schedule 3.01(h) hereto, Sellers have not received any claim that any contract referred to therein is not valid and enforceable in accordance with its terms (subject, as to enforcement, to the rights of creditors generally) for the periods stated therein, and there does not exist under any such contract any existing default or event of default or event which with notice or lapse of time or both would constitute such a default, in either case, on the part of Sellers, or to the knowledge of Sellers, on the part of any other party thereto, except where any such default or event of default or event would not have a Material Adverse Effect. (i) Litigation. Except as set forth on Schedule 3.01(i) hereto, there are no actions, suits or proceedings involving claims pending, or to the knowledge of Sellers, threatened, against Sellers with respect to the Business or against any officer or employee of the Business (other than any matter that is unrelated to such person's employment, or actions taken in the course of such person's employment, in the Business) or relating to any operations of the Business, at law or in equity, or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality. To the knowledge of Sellers, and except as set forth on Schedule 3.01(i) hereto, there are no orders, judgments or decrees of any court or governmental agency with respect to which Sellers have been named or is a party that apply, in whole or in part, to the Business or any of the Assets. (j) Collective Bargaining Agreements; Labor Controversies; Etc. Sellers are not a party to any labor or collective bargaining agreement and there are no labor or collective bargaining agreements which pertain to any employees engaged in the operations of the Business. No employees of Sellers are represented by any labor organization. No labor organization or group of employees of Sellers has made a pending demand for recognition, and there are no representation proceedings or petitions seeking a representation proceeding presently pending or, to the knowledge of Sellers, threatened to be brought or filed with the National Labor Relations Board or other labor relations tribunal relating to the Business. There 16 is no organizing activity relating to the Business involving Sellers pending or, to the knowledge of Sellers, threatened by any labor organization or group of employees of Sellers. There are no (A) strikes, work stoppages, slowdowns, lockouts or arbitrations or (B) material grievances or other material labor disputes pending or, to the knowledge of Sellers, threatened against or involving Sellers relating to the Business. There are no unfair labor practice charges, grievances or complaints pending or, to the knowledge of Sellers, threatened against or involving Sellers or any group of employees of Sellers relating to the Business. There are no complaints, charges or claims against Sellers pending or, to the knowledge of Sellers, threatened to be brought or filed with any governmental body based on, arising out of, in connection with, or otherwise relating to the employment by Sellers of any individual, including any claim for workers' compensation relating to the Business. Hours worked by and payments made to employees of Sellers engaged in the operations of the Business have not been in violation of the federal Fair Labor Standards Act or any other law dealing with such matters. (k) Employee Benefit Plans. (i) Schedule 3.01(k) hereto lists each employee benefit plan within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), maintained by Sellers or to which Sellers contributes or is required to contribute or in which any employee of Sellers engaged in the operations of the Business participates as a result of being employed by Sellers (a "Plan"). Sellers have complied and currently are in compliance, in all material respects, both as to form and operation, with the applicable provisions of ERISA and the Internal Revenue Code of 1986, as amended (the "Code"), respectively, with respect to each Plan. (ii) Each of the Plans that is intended to qualify under Section 401(a) of the Code does so qualify and is exempt from taxation pursuant to Section 501(a) of the Code. (iii) Sellers have not maintained, contributed to or been required to contribute to, nor do any of their employees participate in, a "multiemployer plan" (as defined in Section 3(37) of ERISA). No amount is due or owing from Sellers on account of a "multiemployer plan" (as defined in section 3(37) of ERISA) or on account of any withdrawal therefrom. 17 (iv) Sellers do not maintain for the benefit of any of their employees engaged in the operations of the Business a defined benefit plan, as defined in section 3(35) of ERISA. (v) Notwithstanding anything else set forth herein, Sellers have not incurred any liability with respect to any Plan under ERISA (including, without limitation, Title I or Title IV of ERISA), the Code or other applicable law, which has not been satisfied in full, and no event has occurred, and there exists no condition or set of circumstances which could result in the imposition of any material liability under ERISA (including, without limitation, Title I or Title IV of ERISA), the Code or other applicable law with respect to any of the Plans. (vi) No Plan, other than a Plan which is an employee pension benefit plan (within the meaning of Section 3(2)(A) of ERISA), provides benefits, including without limitation death, health or medical benefits (whether or not insured), with respect to current or former employees of Sellers engaged in the operations of the Business beyond their retirement or other termination of service with Sellers (other than coverage mandated by applicable law or benefits the full cost of which is borne by the current or former employee (or his or her beneficiary)). (vii) Except as set forth on Schedule 3.01(k) hereto, the consummation of the transactions contemplated by this Agreement will not (A) entitle any current or former employee or officer of Sellers to severance pay, unemployment compensation or any other payment, or (B) accelerate the time of payment or vesting, or increase the amount of compensation due any such employee or officer. (viii) Sellers have provided to Buyers true and complete copies of each of the Plans together with summary plan descriptions and each determination letter from the Internal Revenue Service with respect to each Plan that is intended to qualify under Section 401(a) of the Code. (1) Patents, Trademarks, Etc. The patents, trademarks and trade names, trademark and trade name registrations, service mark registrations and copyrights, the applications therefor and the licenses and sublicenses with respect thereto (collectively, "Business Property Rights") listed on Schedule 3.01(h)(ii) hereto, together with Sellers' rights in the Owned Software, constitute all Business Property 18 Rights of Sellers reasonably necessary to, or primarily used in connection with, the conduct of the Business. To the knowledge of Sellers, except as set forth on such Schedule, Sellers own or have valid rights to use all Business Property Rights without conflict with the rights of others. No person has advised Sellers of or, to the knowledge of Sellers, threatened to make, any claims that the operations of the Business are in violation of or infringe upon any such Business Property Rights or any other proprietary or trade rights of any third party. (m) Software. (i) The Owned Software listed on Schedule 3.01(m)(i)-l hereto comprises all of the operating and applications computer software programs and databases that have been licensed by Sellers to any customer of the Business or as to which Sellers have agreed to provide services to any customer of the Business, in each case, pursuant to the contracts listed on Schedule 3.01(q) hereto. The Owned Software and the Licensed Software listed on Schedule 3.01(m)(i)-2 hereto comprise all of the operating and applications computer software programs and databases used by Sellers in connection with the operations of the Business, the licensing, servicing, developing, or maintaining of the Owned Software or otherwise used by Sellers in the Business. (ii) Except as set forth on Schedule 3.01(m)(i)-l hereto and except for the rights of the customers of the Business under the contracts listed on Schedule 3.01(q) hereto and the rights of the parties to the marketing agreements listed on Schedule 3.01(h)(iv) hereto, Sellers have good and marketable title to all Owned Software, free and clear of all liens, charges, pledges, security interests, or other encumbrances of any nature whatsoever. Sellers hold valid licenses to all Licensed Software, subject, in any event, to the terms of any agreements relating to the Licensed Software. To the knowledge of Sellers, none of the Owned Software, and no use by Sellers of the Licensed Software, infringes upon or violates any patent, copyright, trade secret or other proprietary right of any other person and no claim with respect to any such infringement or violation is threatened. (iii) Sellers possess or have access to (i) to the extent required to conduct the Business, the source and object codes for all Owned Software and, to the extent 19 permitted under the respective license agreements, for all the Licensed Software used by Sellers in the conduct of the Business and (ii) all other technical materials, guidelines and other written materials pertaining to the Owned Software or, to the knowledge of Sellers, the Licensed Software. Upon consummation of the transactions contemplated by this Agreement, Buyers will (A) own all the Owned Software, free and clear of all claims, liens, encumbrances, obligations and liabilities, except (x) for the rights of customers under the contracts listed on Schedule 3.01(q) hereto and the rights of the parties to the marketing agreements listed on Schedule 3.01(h)(iv) hereto, and (y) as set forth on said Schedule 3.01(m)(i)-l hereto, and (B) have, pursuant to a valid and binding assignment thereof hereunder, a valid license to use all Licensed Software in the Business without violation or infringement of the respective license agreements relating thereto, to the extent permitted by such license agreements. To the extent that Buyers shall identify, at any time or from time to time during the three-month period following the Closing Date, any Licensed Software for which no such valid license has been assigned, Sellers shall promptly use best efforts to obtain such licenses and transfer, assign and deliver same to Buyers, which shall be deemed for all purposes to be included in the definition of Assets hereunder as provided in Section 1.01 hereof. (iv) To the knowledge of Sellers, any programs, modifications, enhancements or other inventions, improvements, discoveries, methods or works of authorship included in the Owned Software that were created by employees of Sellers were made in the regular course of such employees' employment with Sellers using Sellers' facilities and resources and, as such, constitute "works made for hire". (n) Use of Real Property. The real property as set forth on Schedule 3.01(h) hereto are used and operated in material compliance and conformity with all applicable leases, contracts, licenses and permits. Sellers have not received notice of any material violation of any applicable zoning or building regulation, ordinance or other law, order, regulation or requirement relating to the conduct of the Business or to the Assets and, to the knowledge of Sellers, there is no such violation. To the knowledge of Sellers, all buildings used in the operations of the Business substantially conform with all applicable ordinances, codes, regulations and requirements, and 20 no law presently in effect or condition precludes or materially restricts continuation of the present use of such properties. (o) Condition of Assets. All tangible personal property, furniture, fixtures and equipment comprising the Assets are (i) in a reasonable state of repair (ordinary wear and tear excepted) and operating condition and are suitable for the purposes for which they are being used and (ii) to the knowledge of Sellers, substantially conform with all applicable ordinances, codes, regulations and requirements, including without limitation all applicable ordinances, codes, regulations and requirements relating to occupational safety, and no law presently in effect or condition precludes or materially restricts continuation of the present use of such properties. No warranty is made regarding the tangible personal property comprising the Assets. All such tangible personal property is conveyed hereunder AS IS, WHERE IS, WITH ALL FAULTS AND DEFECTS. (p) Compliance With Law; Permits. Except as set forth on Schedule 3.01(p) hereto, to the knowledge of Sellers, the conduct of the Business by Sellers does not violate any federal, state or local laws, statutes, ordinances, rules, regulations, decrees, orders, permits or other similar items in force on the date hereof that are applicable to the Business, other than any such violation which would not or would not reasonably be expected to have a Material Adverse Effect. Except as set forth on Schedule 3.01(p) hereto, Sellers have all material governmental licenses, franchises and permits required under applicable law for the conduct of the Business as currently conducted and, to the knowledge of Sellers, the Business is being conducted in compliance with all such licenses, franchises and permits. Schedule 3.01(p) hereto lists all material licenses, franchises and permits held by Sellers. (q) Customer Contracts. (i) Schedule 3.01(q) hereto contains a list of (A) all contracts between Sellers and the customers of the Business pursuant to which Sellers have agreed to provide goods or services to such customers, (B) all contracts between Sellers and the customers of the Business pursuant to which Sellers have licensed any Owned Software to such customers and (C) all proposed amendments to any such contracts. All correspondence files with respect to such contracts shall be made available for review by Buyers upon their reasonable request. 21 (ii) Except as set forth on said Schedule 3.01(q) hereto and except for contracts under which Sellers are not currently obligated to supply any product or provide any service, no such contract contains a prohibition on the assignment thereof without the consent of the other party thereto. (iii) Except as set forth on said Schedule 3.01(q) hereto, since December 31, 1996, Sellers have not with respect to the Business had any contracts with customers terminated prior to the expiration date thereof or been notified in writing by any customer of its intention to terminate any contract listed on Schedule 3.01(q) hereto prior to the expiration date thereof that, in the aggregate, accounted for more than 5% of the revenues of the Business during the nine-month period ended December 31, 1996 (and, to the knowledge of Sellers, no customer has notified Sellers in writing that it would, in the event of the sale of the Business, terminate any such contract). Except as set forth on Schedule 3.01(q) hereto, since December 31, 1996, Sellers have not received written notice from any customer of the Business claiming that Sellers have materially breached any contract or other agreement required to be scheduled pursuant to this Agreement. (iv) Schedule 3.01(q) hereto identifies each agreement of the Business that (A) requires joint services to be performed by the Business and GHS's other business units or (B) is with any administrative agency or other governmental authority. In addition, Schedule 3.01(q) hereto sets forth all outstanding contract proposals relating to the Business for which a contract has been requested for goods or services involving fees in excess of $25,000 per annum. (r) Taxes. (i) Except as set forth on Schedule 3.01(r) hereto, all federal, state, local and foreign income, franchise, sales, use, property, payroll, employment, transfer and all other tax returns and information statements ("Tax Returns") required to be filed with respect to the operations of the Business have been properly prepared and timely filed for all years and periods for which such Tax Returns have become due and all such Tax Returns are correct and complete in all respects. For purposes of this Agreement, "Taxes" shall mean any and all income, franchise, sales, use, property, payroll, 22 employment, transfer and any other taxes, charges, fees, levies, imports, duties, licenses or other assessments, together with interest, penalties and any other additions to tax or additional amounts imposed by any governmental or taxing authority, or liability for such amounts as a result of Seller being a member of an affiliated, consolidated, combined or unitary group or being a party to any agreement or arrangement whereby Sellers may be liable for Taxes of any other person for any period prior to (or up to and including) the close of business on the day prior to the Closing Date. (ii) Sellers have paid to the appropriate taxing authority, all Taxes owed by Sellers with respect to the operations of the Business, whether or not shown on any Tax Return, to the extent such Taxes are due. (iii) Sellers are not parties to any agreement, contract or arrangement that would result, by reason of the consummation of any of the transactions contemplated hereby, separately or in the aggregate, in the payment of any "excess parachute payment" within the meaning of Section 28OG of the Code. (iv) None of the Assets is required to be treated as being owned by any other person pursuant to the "safe harbor" leasing provisions of Section 168(f)(8) of the Code of 1954, as in effect prior to the repeal thereof. (s) Environmental Matters. No Hazardous Substances (as hereinafter defined) have been, or have been threatened to be, discharged, released or emitted by Sellers into the air, water, surface water, ground water, land surface or subsurface strata or transported to or from any property used by Sellers in the operations of the Business except in accordance with all applicable Environmental Laws, and except for incidental release of Hazardous Substances in amounts or concentrations that could not reasonably be expected to give rise to any material claims or liabilities against Sellers under any Environmental Law. Sellers have not received any notification from a governmental agency that there is any violation of any Environmental Law with respect to the properties of Sellers used in the operations of the Business or any notification from a governmental agency pursuant to Section 104, 106 or 107 of the Comprehensive Environmental Response Compensation and Liability Act, as amended. For purposes of this Agreement, the following terms shall have the following meanings: 23 "Environmental Law" shall mean any federal, state or local statute, law, ordinance, rule or regulation and any order to which Sellers are parties or are otherwise bound with respect to the operations of the Business, relating to pollution or protection of the environment, including natural resources, or exposure of persons, including employees, to Hazardous Substances; and "Hazardous Substances" shall mean any substance, whether liquid, solid or gas listed, identified or designated as hazardous or toxic under any Environmental Law, which, applying criteria specified in any Environmental Law, is hazardous or toxic, or the use or disposal of which is regulated under any Environmental Law. (t) Broker's or Finders' Fees. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried out by Sellers directly with Buyers, without the intervention of any person on behalf of Sellers in such a manner to give rise to any claim by any person against Buyers for a finder's fee, brokerage commission or similar payment. (u) The Assets. To the knowledge of Sellers, the Assets referred to in Section 1.01(a) constitute all of the assets or properties of Sellers used by Sellers exclusively or primarily in the Business. (v) Other Information. None of the information furnished by Sellers to Buyers in this Agreement, the exhibits hereto, the schedules identified herein, or in any certificate or other document to be executed or delivered pursuant hereto by Sellers at or prior to the Closing Date, is, or on the Closing Date will be, in any material respects, false or incomplete or contains, or on the Closing Date will contain, any misstatement of material fact. SECTION 3.02 Representations and Warranties of Buyers. Buyers represents and warrants to Seller as follows: (a) Organization, Corporate Power, Etc. Each of Buyers is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and is duly qualified to do business as a foreign corporation in each jurisdiction in which it is required to be so qualified, except where the failure to be so qualified would not have a material adverse effect on the properties, results of operations or financial condition of Buyers. Buyers have all 24 requisite corporate power and authority to acquire, own, lease and operate the Assets and the Business, to execute and deliver this Agreement and the Ancillary Agreements and to perform their respective obligations hereunder and thereunder. (b) Authorization of Agreements. The execution, delivery and performance by Buyers of this Agreement and the Ancillary Agreements, and the consummation by Buyers of the transactions contemplated hereby and thereby, have been duly authorized by all requisite corporate action. This Agreement has been duly and validly executed by Buyers and constitutes the legal, valid and binding obligation of Buyers, enforceable in accordance with its terms, and the Ancillary Agreements, when duly executed and delivered in accordance with this Agreement, will constitute legal, valid and binding obligations of Buyers, enforceable in accordance with their respective terms, except as enforceability may be limited by applicable equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws from time to time in effect affecting the enforcement of creditors' rights generally. All of the issued and outstanding capital stock of Sub is owned by HMS. Except for the affirmative vote of HMS, under the laws of the State of Delaware, the authorization of no other person or entity is required to consummate the transactions contemplated herein by virtue of any such person or entity having an equitable or beneficial interest in Sub. (c) Effect of Agreements. The execution and delivery by Buyers of this Agreement and the Ancillary Agreements, and the performance by Buyers of their respective obligations hereunder and thereunder, will not violate any provision of law, any order of any court or other agency of government, the Certificates of Incorporation or By-laws of Buyers or any judgment, award or decree or any indenture, agreement or other instrument to which Buyers are parties or by which Buyers or their properties or assets are bound or affected, or conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under, any such indenture, agreement or other instrument, or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of Buyers. (d) Litigation. There is no action, suit, investigation or proceeding pending or, to the knowledge of Buyers, threatened against or affecting Buyers before any court or by or before any governmental body or arbitration board or tribunal that might enjoin or prevent the consummation of the transactions contemplated by this Agreement. For purposes of 25 this Agreement, "to the knowledge of Buyers" shall mean the collective knowledge of Paul J. Kerz and Phillip Siegel (collectively, the "Sellers' Officers"), the President and Chief Executive Officer and the Chief Financial Officer, respectively, of HMS. "Knowledge" when used in this context shall mean, as to the facts or circumstances represented: (i) actual knowledge of any one of the Buyers' Officers; and (ii) knowledge that any one of the Buyers' Officers should reasonably be expected to possess after due inquiry. (e) Governmental Approvals. No approval, authorization, consent or order or action of or filing with any court, administrative agency or other governmental authority is required for the execution and delivery by Buyers of this Agreement or the Ancillary Agreements or the consummation by Buyers of the transactions contemplated hereby or thereby. (f) Broker's or Finder's Fees. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried out by Buyers directly with Sellers, without the intervention of any person on behalf of Buyers in such a manner to give rise to any claim by any person against Sellers for a finder's fee, brokerage commission or similar payment. (g) Other Information. None of the information furnished by Buyers to Sellers in this Agreement, the exhibits hereto, the schedules identified herein, or in any certificate or other document to be executed or delivered pursuant hereto by Buyers at or prior to the Closing Date, is, or on the Closing Date will be, false or incomplete or contains, or on the Closing Date will contain, any misstatement of material fact. IV. COVENANTS SECTION 4.01 Covenants of Sellers. (a) Sellers agree that, at all times between the date hereof and the Closing Date, unless Buyers and Sellers shall otherwise agree in writing, Sellers shall: (i) operate the Business only in the usual, regular and ordinary manner and, to the extent consistent with such operations, use all reasonable efforts to preserve the current business organization of the Business intact, keep available the services of those officers and employees currently engaged in the operations of the Business and preserve their present relationships with customers of, and 26 all other persons having business dealings with, the Business; (ii) maintain all the assets and properties deemed reasonably necessary for the conduct of the Business in good repair, order and condition, reasonable wear and tear excepted; and (iii) maintain the books of account and records relating to the Business in the usual, regular and ordinary manner, on a basis consistent with past practice, and use their best efforts to comply with all laws applicable to them and to the conduct of the Business and perform all their material obligations without default. (b) Between the date of this Agreement and the Closing Date, Sellers shall, upon reasonable prior notice, afford the representatives of Buyers reasonable access during normal business hours to the offices, facilities, books and records of Sellers pertaining to the Business and the opportunity to discuss the affairs of the Business with officers and employees of Sellers familiar therewith. (c) Between the date of this Agreement and the Closing Date, Sellers shall not, except as required by generally accepted accounting principles, with respect to the operations of the Business (i) utilize accounting principles different from those used in the preparation of the Financial Statements, (ii) change in any manner their method of maintaining their books of account and records from such methods as in effect on December 31, 1996, or (iii) accelerate booking of revenues or the deferral of expenses, other than as shall be consistent with past practice and in the ordinary course of business. (d) Between the date hereof and the Closing Date, Sellers shall, with Buyers' assistance and cooperation, but at the expense of Sellers, promptly apply for or otherwise seek and use all reasonable efforts to obtain all authorizations, consents, waivers and approvals as may be required in connection with the assignment of the contracts, agreements, licenses, leases, sales orders, purchase orders and other commitments to be assigned to Buyers pursuant hereto (other than those listed on Schedule 1.03 hereto); provided, however, that Buyers shall bear the expense of posting any performance bonds and any reasonable and necessary special travel expenses of Sellers' required to obtain such consents, waivers and approvals, subject to Buyers' prior approval and reimbursement for travel expenses consistent with Buyers' existing policies. 27 (e) As of the Closing Date, Sellers shall have paid any amount owed (or that will be owed as of the Closing Date) by such Sellers to any Retained Employee, in respect of salary, bonus or other compensation. To the extent that amounts to be paid to any Retained Employee in reimbursement of expenses incurred by such Retained Employee on behalf of Sellers shall be unpaid as of the Closing Date, Sellers shall pay such amounts in accordance with Sellers' customary practice upon receipt of a duly prepared claim therefor properly submitted by such Retained Employee. (f) Between the date hereof and the Closing Date, Sellers shall not enter into any transaction or make any agreement or commitment, or permit any event to occur, which would result in any of the representations, warranties or covenants of Sellers contained in this Agreement not being true and correct at and as of the time immediately after the occurrence of such transaction or event. SECTION 4.02 Confidentiality. The contents of this Agreement shall be kept confidential between the parties, except as otherwise required by law, including but not limited to the provisions of the federal securities laws, and except that each party may reveal and discuss the contents with its professional advisors, including attorneys and accountants. In addition, the parties may mutually agree in writing as to the disclosure of the subject transaction to current employees of the Business and to the public. In so doing, the parties shall agree to the timing and content of the release of such information. SECTION 4.03 Allocation of Purchase Price. For all federal, state and local tax purposes, Buyers and Sellers agree to allocate the consideration described in Section 2.02 hereof (i) as to a portion thereof to the covenants and agreements of Sellers contained in the Non-Compete Agreement and (ii) as to the balance, in the manner reasonably determined by Buyers, but subject to the reasonable approval of Sellers, which approval shall not be unreasonably withheld. Within 180 days following the Closing, Buyers shall deliver to Sellers a schedule (the "Allocation Schedule") allocating the Purchase Price (including, for the purpose of this Section 4.03, any other consideration paid to Sellers, including any liabilities assumed pursuant hereto) among the Assets and the covenant not to compete granted pursuant to the Non-Compete Agreement. The Allocation Schedule shall be reasonable and shall be prepared in accordance with Section 1060 of the Code and the regulations thereunder. Buyers and Sellers each agree to file Internal Revenue Service Form 8594, and all federal, state, local and foreign Tax Returns, in 28 accordance with the Allocation Schedule. Buyers and Sellers each agree to provide the other parties promptly with any other infor mation required to complete Form 8594 and with a copy of such form after it is filed. SECTION 4.04 Preparation of Certain Financial Information. (a) After the Closing Date, at the reasonable request of Buyers, but only in contemplation of and in order to comply with the rules and regulations (the "SEC Rules") of the Securities and Exchange Commission (the "SEC"), Sellers shall cause the independent accountants of Sellers to prepare, at the election of Buyers, audited or compiled financial statements for the Business for the period commencing on January 1 of the year that is five years (or such shorter period as is permissible under the SEC Rules) prior to the end of the year immediately prior to the date such request is made, through the Closing Date, it being understood and agreed by Sellers and Buyers that such assistance shall include, without limitation, (i) providing Buyers and their representatives with all necessary financial information and data relating to the Business for such periods, (ii) making available to Buyers all employees of Sellers or any of their affiliates deemed necessary by Buyers to assist in the preparation of such financial statements, and (iii) delivering a management representation letter. (b) The fees and expenses of such independent accountants in preparing audited and/or compiled financial statements for the Business as provided in this Section 4.04 shall be borne by Buyers, and Buyers shall compensate Sellers for their out-of-pocket expenses in assisting in such preparation. (c) After the Closing Date, Buyers shall afford the representatives of Sellers reasonable access during normal business hours to such books of account and other financial records of Buyers pertaining to the Business and acquired by Buyers pursuant to this Agreement as Sellers may reasonably request in order to prepare, file, amend or respond to questions of any governmental authority relating to its financial statements and Tax Returns for any period or portion thereof that Sellers owned the Business. Sellers shall compensate Buyers for their out-of-pocket expenses incurred in assisting Seller pursuant to this Section 4.04(c). 29 SECTION 4.05 Certain Tax Matters. (a) All sales and use taxes, including interest, penalties and any other additions to such sales and use taxes, imposed by any governmental or taxing authority upon or incurred by any of the parties hereto in connection with this Agreement and the transactions contemplated hereby shall be borne by Buyers. All transfer taxes, including interest, penalties and any other additions to such transfer taxes, imposed by any governmental or taxing authority upon or incurred by any of the parties hereto in connection with this Agreement and the transac tions contemplated hereby shall be borne by Sellers. Sellers and/or Buyers, to the extent required by law and this Section 4.05(a), shall prepare and file all necessary Tax Returns and other documents with respect to all such transfer, sales and use taxes. Sellers and Buyers agree to cooperate in any endeavor to effect a reduction in any such transfer, sales and use taxes. (b) For all federal, state, local and foreign income and franchise Tax purposes, each of the parties hereto agrees to treat the acquisition of the Assets by Buyers, pursuant to the terms and conditions of this Agreement, as a taxable sale of the assets of Sellers to Buyers solely in exchange for cash (and the liabilities assumed by Buyers from Sellers). (c) Sellers shall be responsible for and shall pay any and all Taxes with respect to the operations of the Business relating to all periods prior to the Closing Date and Buyers shall be responsible for and shall pay any and all Taxes with respect to the operations of the Business relating to periods commencing the Closing Date. SECTION 4.06 Insurance. Between the date of this Agreement and the Closing Date, Buyers shall use reasonable efforts to obtain policies of fire, liability, workers' compensation and other forms of insurance in such amounts and against such risks as Buyers deem appropriate, and Sellers shall reasonably cooperate with Buyers in obtaining such insurance. SECTION 4.07 Retention of Employees; Benefits. (a) Offers of Employment. Effective immediately as of the Closing Date, Buyers shall offer to continue the employment, at will, or consultancy of all employees or consultants that, at Buyers' request, Sellers have listed on Schedule 4.07(a) hereto on terms that are initially no less favorable than the terms of their employment or consultancy by Sellers. Sellers shall promptly notify Buyers if any employee of, or consultant to, the 30 Business shall announce his or her intention not to accept such offer by Buyers. The employees and consultants listed on Schedule 4.07(a) hereto who accept Buyers' offer of employment or consultancy are herein referred to collectively as the "Retained Employees". (b) Benefits. Following the Closing Date, Retained Employees (excluding consultants unless otherwise indicated on Schedule 4.07(a)) will be afforded the opportunity to participate in benefits and equity acquisition programs that currently are available to employees of HMS and on similar terms of participation; provided, however, that following the Closing Date, Retained Employees shall continue their existing medical insurance on the current terms thereof, subject to such changes as Buyers may implement in the future but which shall accord the Retained Employees health benefits comparable to their current arrangement. In the event during the first twelve months after the Closing Date, Buyers shall make a change in the medical insurance covering the Retained Employees and in connection therewith require a contribution from the Retained Employees toward the cost of medical insurance, Buyers shall cause the Retained Employees to be given an increase in compensation equal to the amount of the required contribution. (c) No Offer of Employment. Nothing in this Agreement, express or implied, shall confer upon any employee of Sellers engaged in the Business, or any representative of any such employee, any rights or remedies, including any right to employment or continued employment for any period, of any nature whatsoever, whether as third-party beneficiary or otherwise, it being understood and agreed that any such employment shall, to the maximum extent permitted by applicable law, be employment at will. (d) Buyers' Own Investigation. Prior to the Closing Date, Sellers shall, upon reasonable prior notice, afford Buyers reasonable access during normal business hours to the employees of, and consultants to, Sellers listed on Schedule 4.07(a) hereto to permit Buyers to evaluate and make their own investigation with respect to each such employee and consultant, and Sellers shall not be liable to Buyers for the acts or omissions of any Retained Employee after the Closing Date. SECTION 4.08 Further Assurances. From time to time following the Closing Date, Sellers shall execute and deliver, or cause to be executed and delivered, to Buyers such bills of sale, deeds, endorsements, assignments and other good and sufficient instruments of conveyance and transfer, in form reasonably 31 satisfactory to Buyers and their counsel, as Buyers may reasonably request or as may be otherwise reasonably necessary to vest in Buyers all the right, title and interest of Sellers in, to or under, and put Buyers in possession of, any part of the Assets. SECTION 4.09 No Solicitation; Acquisition Proposals. From the date of this Agreement until the Closing Date or until this Agreement is terminated as provided in Article VIII, Sellers will not directly or indirectly (i) solicit or initiate (including by way of furnishing any information) discussions with or (ii) enter into negotiations or agreements with, or furnish any information to, any corporation, partnership, person or other entity or group (other than Buyers, an affiliate of Buyers or their authorized representatives pursuant to this Agreement) concerning any proposal for a merger, sale of substantial assets, sale of shares of stock or securities or other takeover or business combination transaction (an "Acquisition Transaction") involving the Business; and Sellers will instruct their officers, directors, advisors and other financial and legal representatives and consultants not to take any action contrary to the foregoing provisions of this sentence; provided, however, that the actions prohibited by the foregoing clauses (i) and (ii) shall be subject to any action taken by the Boards of Directors of Sellers in the exercise of their good faith judgment as to their fiduciary duties to their respective stockholders, which judgment is based upon the advice of independent counsel that a failure of the Boards of Directors to take such action would be likely to constitute a breach of their fiduciary duties to their respective stockholders. Sellers will notify Buyers promptly in writing if Sellers become aware that any inquiries or proposals are received by, any information is requested from, or any negotiations or discussions are sought to be initiated with Sellers with respect to an Acquisition Transaction and will immediately after receipt provide to Buyers a copy of any letter, proposal or other document in which any proposal for an Acquisition Transaction is made or expressed. Sellers will immediately cease any existing activities, discussions or negotiations with any third parties which may have been conducted on or prior to the date hereof with respect to an Acquisition Transaction and shall direct and use reasonable efforts to cause their officers, advisors and representatives not to engage in any such activities, discussions or negotiations. 32 V. GHS STOCKHOLDERS' CONSENT; INFORMATION STATEMENT SECTION 5.01 GHS Stockholders' Meeting. GHS agrees that this Agreement shall be submitted to its stockholders for approval at a meeting (the "GHS Stockholders' Meeting") of the stockholders of GHS or such other means as permitted under applicable law. As soon as practicable after the date of this Agreement, GHS shall take all action, to the extent necessary in accordance with applicable law and its Certificate of Incorporation and By-laws, to obtain the approval of the GHS stockholders of this Agreement and such other matters as may be necessary or desirable to consummate the transactions contemplated hereby. SECTION 5.02 Preparation and Filing of Information Statement. As soon as practicable after the date of this Agreement, GHS shall prepare and file with the SEC, subject to the prior approval of Buyers, which approval shall not be unreasonably withheld, an information statement (the "Information Statement") relating to the GHS Stockholders' Meeting or as otherwise required under applicable law. Buyers shall reasonably cooperate with GHS in the preparation of the Information Statement. As soon as is permissible under the SEC Rules, GHS shall mail the Information Statement to its stockholders. SECTION 5.03 Recommendations of GHS Board of Directors. GHS hereby represents that its Board of Directors has (i) determined that the terms of the transactions contemplated by this Agreement are fair to and in the best interests of GHS's stockholders, (ii) approved this Agreement, the Ancillary Agreements and the transactions contemplated hereby and thereby, and (iii) resolved to and, subject to its fiduciary obligations under Delaware law, will recommend in the Information Statement adoption of this Agreement and the Ancillary Agreements and authorization of the transactions contemplated hereby and thereby by the stockholders of GHS. SECTION 5.04 Irrevocable Proxy. In consideration of the execution of this Agreement by Sellers, Sellers have caused to be delivered to Buyers irrevocable proxies: (a) in the form of Exhibit C hereto, in favor of designees of Buyers, authorizing such proxies to vote in favor of this Agreement and the transactions contemplated hereby at the GHS Stockholders' Meeting. Such irrevocable proxies represent in excess of 50% of the shares of GHS capital stock which will be 33 entitled to vote on this Agreement and the transactions contemplated hereby at the GHS Stockholders' Meeting; and (b) from GHS in its capacity as the sole stockholder of Global and Management, in the form of Exhibit D hereto, in favor of designees of Sellers, authorizing such proxies to vote in favor of, or to consent to, this Agreement and the transactions contemplated hereby. VI. CONDITIONS PRECEDENT SECTION 6.01 Conditions Precedent to the Obligations of Buyers. The obligations of Buyers under this Agreement are subject, at the option of Buyers, to the satisfaction at or prior to the Closing Date of each of the following conditions: (a) Accuracy of Representations and Warranties. The representations and warranties of Sellers contained in this Agreement or in any certificate or document delivered to Buyers pursuant hereto shall be true and correct in all material respects on and as of the Closing Date as though made at and as of that date, subject to the updating of schedules as provided in Section 9.12, and Sellers shall have delivered to Buyers a certificate to that effect. (b) Compliance with Covenants. Sellers shall have performed and complied in all material respects with all terms, agreements, covenants and conditions of this Agreement to be performed or complied with by them at or prior to the Closing Date, and Sellers shall have delivered to Buyers a certificate to that effect. (c) Opinion of Counsel for Sellers. Buyers shall have received the favorable opinion from Werbel & Carnelutti, counsel to Sellers, dated the Closing Date, in the form reasonably satisfactory to Buyers. (d) Legal Actions or Proceedings. No legal action or proceeding shall have been instituted or threatened seeking to restrain, prohibit, invalidate or otherwise affect the consummation of the transactions contemplated hereby or which would, if adversely decided, have a Material Adverse Effect on the Business. (e) Assignment of Contracts. Sellers shall have (i) obtained all authorizations, consents, waivers and approvals required in connection with the assignment of those contracts, agreements, licenses, leases, sales orders, purchase orders and 34 other commitments (collectively, the "Material Contracts") to be assigned to Buyers pursuant to this Agreement as set forth on Schedule 6.01(e) that are material to the conduct of the Business, which in the case of contracts with Sellers' customers shall include and be limited to all contracts with the Los Angeles County Department of Health, the City of Chicago Department of Health and San Mateo County and (ii) otherwise made arrangements satisfactory to Buyers and their counsel so that Buyers will receive the benefit of all such Material Contracts. Notwithstanding the foregoing, subject to Section 4.01(d), Sellers will use their best efforts, at Sellers' expense, to obtain all authorizations, consents, waivers and approvals required to assign to Buyers all other contracts, agreements, licenses, leases, sales orders, purchase orders and other commit ments set forth on Schedule 6.01(e). The obligations of Sellers set forth in the immediately preceding sentence shall continue from and after the Closing Date. (f) Consents and Regulatory Approvals. Subject to subsection (e) above, Buyers shall have been furnished with the written consents, permits, licenses, authorizations and approvals in forms acceptable to Buyers of any and all persons, including without limitation government agencies, authorities and third parties, required to be obtained prior to the consummation of the transactions contemplated hereby and required to be obtained in order that Buyers may conduct the Business immediately following the Closing Date. (g) Ancillary Agreements. Sellers and Alan Gold (in the case of the Non-Compete Agreement) shall have executed and delivered the Ancillary Agreements, and said Agreements shall be in full force and effect as of the Closing Date. (h) Retained Employees. Alan Gold shall have agreed to his employment by Buyers. (i) Name Change. Sellers shall have executed and delivered to Buyers all instruments necessary to effectuate the change of Global's and Management's names to names not confusingly similar to Global Health Systems, Inc. and Global Management Services, Inc., and to enable Buyers to use such names subsequent to the Closing Date. (j) Supporting Documents. Buyers and their counsel shall have received copies of the following supporting documents: (i) (1) copies of the Certificate of Incorporation of each Seller and all amendments thereto, 35 certified as of a recent date by the Secretary of State of the State of Delaware, and (2) a certificate of said Secretary dated as of a recent date as to the good standing of each such Seller and listing all documents of such Seller on file with said Secretary; and (ii) a certificate of the Secretary or an Assistant Secretary of each of the Sellers dated the Closing Date and certifying: (1) that attached thereto is a true and complete copy of the By-laws of such Seller as in effect on the date of such certification; (2) that attached thereto is a true and complete copy of resolutions duly adopted by the Board of Directors of such Seller authorizing the execution, delivery and performance of this Agreement and the Ancillary Agreements and the transactions contemplated hereby and thereby and that all such resolutions are still in full force and effect and are all the resolutions adopted in connection with the transactions contemplated by this Agreement; (3) that attached thereto is a true and complete copy of resolutions duly adopted by the stockholders of such Seller (if required by applicable law) authorizing and adopting this Agreement and the Ancillary Agreements and the transactions contemplated hereby and thereby; (4) that the Certificate of Incorporation of such Seller has not been amended since the date of the last amendment referred to in the certificate delivered pursuant to clause (i)(2) above; and (5) as to the incumbency and specimen signature of each officer of such Seller executing this Agreement and any certificate or instrument furnished pursuant hereto, and a certification by another officer of such Seller as to the incumbency and signature of the officer signing the certifi cate referred to in this paragraph (ii). (k) Stockholder Approval. This Agreement shall have been approved and adopted by the required affirmative vote of (i) the stockholders of GHS and (ii) GHS in its capacity as the sole stockholder of Global and Management, and the requisite notices under federal and state law shall have been delivered. (l) All Proceedings To Be Satisfactory. All corporate and other proceedings to be taken by Sellers in connection with the transactions contemplated hereby and all documents incident thereto shall be reasonably satisfactory in form and substance to Buyers and their counsel, and Buyers and said counsel shall have received all such counterpart originals or certified or other copies of such documents as they may reasonably request. 36 SECTION 6.02 Conditions Precedent to the Obligations of Sellers. The obligations of Sellers under this Agreement are subject, at the option of Sellers, to the satisfaction at or prior to the Closing Date of each of the following conditions: (a) Accuracy of Representations and Warranties. The representations and warranties of Buyers contained in this Agreement or in any certificate or document delivered to Sellers pursuant hereto shall be true and correct in all material respects on and as of the Closing Date as though made at and as of that date, and Buyers shall have delivered to Sellers a certificate to that effect. (b) Compliance with Covenants. Buyers shall have performed and complied in all material respects with all terms, agreements, covenants and conditions of this Agreement to be performed or complied with by them at or prior to the Closing Date, and Buyers shall have delivered to Sellers a certificate to that effect. (c) Opinion of Counsel for Buyers. Sellers shall have received the favorable opinion of Coleman & Rhine LLP, counsel for Buyers, dated the Closing Date, in the form reasonably satisfactory to Sellers. (d) Legal Actions or Proceedings. No legal action or proceeding shall have been instituted or threatened seeking to restrain, prohibit, invalidate or otherwise affect the consummation of the transactions contemplated hereby. (e) Consents and Regulatory Approvals. Buyers shall have been furnished with the written consents, permits, licenses, authorizations and approvals of any and all persons, including without limitation government agencies, authorities and third parties, required to be obtained prior to the consummation of the transactions contemplated hereby and required to be obtained in order that Buyers may conduct the Business immediately following the Closing Date. (f) Sellers Released. Sellers shall have been released from any obligations under any agreements and contracts assigned to Buyers under this Agreement, provided that (i) such obligations arise on and after the Closing Date or (ii) Buyers have specifically assumed such obligations. (g) Ancillary Agreements. Buyers shall have executed and delivered the Ancillary Agreements, and said Agreements shall be in full force and effect as of the Closing Date. 37 (h) Supporting Documents. Sellers and their counsel shall have received copies of the following supporting documents: (i) (1) copies of the Certificate of Incorporation of Sub and all amendments thereto, certified as of a recent date by the Secretary of State of the State of Delaware, (2) a certificate of said Secretary of State, with respect to Sub, and of the Secretary of State of the State of New York, with respect to HMS, dated as of a recent date, as to the due incorporation and good standing of Buyers and listing all documents of Buyers on file with each of said Secretaries; and (ii) a certificate of the Secretary or an Assistant Secretary of each of the Buyers dated the Closing Date and certifying: (1) that attached thereto is a true and complete copy of resolutions duly adopted by the Board of Directors of such Buyer authorizing the execution, delivery and performance of this Agreement and the Ancillary Agreements and the transactions contemplated hereby and thereby and that all such resolutions are still in full force and effect and are all the resolutions adopted in connection with the transactions contemplated by this Agreement; and (2) as to the incumbency and specimen signature of each officer of such Buyer executing this Agreement and any certificate or instrument furnished pursuant hereto, and a certification by another officer of such Buyer as to the incumbency and signature of the officer signing the certificate referred to in this paragraph (ii). (i) Stockholder Approval. This Agreement shall have been approved by the required affirmative vote of (i) the stockholders of GHS and (ii) GHS in its capacity as the sole stockholder of Global and Management, and the requisite notices under federal and state law shall have been delivered. (j) All Proceedings To Be Satisfactory. All corporate and other proceedings to be taken by Buyers in connection with the transactions contemplated hereby and all documents incident thereto shall be reasonably satisfactory in form and substance to Sellers and their counsel, and Sellers and said counsel shall have received all such counterpart originals or certified or other copies of such documents as they may reasonably request. 38 VII. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION SECTION 7.01 Survival of Representations. Subject as set forth below, (i) all representations and warranties (other than representations and warranties as to Tax matters) made by any party hereto in this Agreement or pursuant hereto shall survive for the period commencing on the date hereof and ending on the first anniversary of the Closing Date, and (ii) the representations and warranties as to Tax matters made by any party hereto in this Agreement or pursuant hereto shall survive for the applicable Tax statute of limitation period, including any extensions or waivers thereof. SECTION 7.02 Tax Indemnity. (a) Sellers hereby agree to indemnify, defend and hold Buyers harmless from and against: (i) any and all Taxes incurred by, imposed upon or attributable to Sellers for all periods prior to (and up to and including) the close of business on the day prior to the Closing Date, including reasonable legal fees and expenses incurred by any party hereto and relating to such Taxes; and (ii) subject to the provisions of Section 4.05(a) hereof, any and all Taxes incurred by, imposed upon or attributable to Sellers, arising out of the consummation of any of the transactions contemplated hereby, including reasonable legal fees and expenses incurred by any party hereto and relating to such Taxes. (b) Buyers hereby agree to indemnify, defend and hold Sellers harmless from and against: (i) any and all Taxes incurred by, imposed upon or attributable to Buyers for all periods after the close of business on the day prior to the Closing Date, including reasonable legal fees and expenses incurred by any party hereto and relating to such Taxes; and (ii) subject to the provisions of Section 4.05(a) hereof, any and all Taxes incurred by, imposed upon or attributable to Buyers, arising out of the consummation of any of the transactions contemplated hereby, including reasonable legal fees and expenses incurred by any party hereto and relating to such Taxes. 39 (c) For purposes of this Section 7.02, any interest, penalty or additional charge included in Taxes shall be deemed to be a Tax for the period in which the items on which the interest, penalty or additional charge is based occurs. (d) The indemnity provided for in this Section 7.02 shall be independent of any other indemnity provision hereof and, anything in this Agreement to the contrary notwithstanding, shall survive until the expiration of the applicable statutes of limitation, including any extensions or waivers thereof, for the Taxes referred to herein and any Taxes, legal fees and expenses subject to indemnification under this Section 7.02 shall not be subject to indemnification under Section 7.03. SECTION 7.03 General Indemnity. (a) Subject to the terms and conditions of this Article VII, Sellers hereby agree to indemnify, defend and hold Buyers harmless from and against all demands, claims, actions or causes of action, assessments, losses, damages, liabilities, costs and expenses, including, without limitation, interest, penalties and reasonable attorneys' fees and expenses (collectively, "Damages"), asserted against, resulting to, imposed upon or incurred by Buyers by reason of or resulting from: (i) a breach of any representation, warranty or covenant of Sellers contained in or made pursuant to this Agreement; (ii) any liabilities or obligations of, or claims against or imposed on, Sellers (whether absolute, accrued, contingent or otherwise and whether a contractual, or any other type of liability, obligation or claim) not assumed by Buyers pursuant to this Agreement; (iii) any liabilities or obligations (whether absolute, accrued, contingent or otherwise) in respect of (A) any of the actions, suits or proceedings or threatened actions, suits or proceedings described on Schedule 3.01(i) hereto, or (B) any action, suit or proceeding commenced after the Closing Date based upon an event occurring or a claim arising prior to the Closing Date; and (iv) any liability in respect of any failure by Sellers to conduct the Business prior to the Closing Date in compliance with any federal, state or local laws, statutes, ordinances, rules, regulations, decrees, orders, 40 permits or other similar items in force as of the Closing Date. (b) Subject to the terms and conditions of this Article VII, Buyers hereby agree to indemnify, defend and hold Sellers harmless from and against all Damages asserted against, resulting to, imposed upon or incurred by Sellers, by reason of or resulting from: (i) a breach of any representation, warranty or covenant of Buyers contained in or made pursuant to this Agreement; (ii) the failure of Buyers to pay, perform and discharge when due the liabilities and obligations assumed by Buyers pursuant to this Agreement; (iii) any liabilities or obligations (whether absolute, accrued, contingent or otherwise) in respect of any action, suit or proceeding based on an event occurring or claim arising on and after the Closing Date; and (iv) any liability in respect of any failure by Buyers to conduct the Business on and after the Closing Date in compliance with any federal, state or local laws, statutes, ordinances, rules, regulations, decrees, orders, permits or other similar items from time to time in force. SECTION 7.04 Conditions of Indemnification. The respective obligations and liabilities of Sellers, on the one hand, and Buyers, on the other hand (the "indemnifying party"), to the other (each, collectively, the "party to be indemnified") under Sections 7.02 and 7.03 hereof with respect to claims resulting from the assertion of liability by third parties shall be subject to the following terms and conditions: (a) within 10 days after receipt of notice of commencement of any action or the assertion in writing of any claim by a third party, the party to be indemnified shall give the indemnifying party written notice thereof together with a copy of such claim, process or other legal pleading, and the indemnifying party shall have the right to undertake the defense thereof by representatives of its own choosing; (b) in the event that the indemnifying party, by the 20th day after receipt of notice of any such claim (or, if earlier, by the tenth day preceding the day on which an answer or other pleading must be served in order to prevent judgment by 41 default in favor of the person asserting such claim), does not elect to defend against such claim, the party to be indemnified will (upon further notice to the indemnifying party) have the right to undertake the defense, compromise or settlement of such claim on behalf of and for the account and risk of the indemnifying party, subject to the right of the indemnifying party to assume the defense of such claim at any time prior to settlement, compromise or final determination thereof, provided that the indemnifying party shall be given at least 15 days prior written notice of the effectiveness of any such proposed settlement or compromise; and (c) anything in this Section 7.04 to the contrary notwithstanding (i) if there is a reasonable probability that a claim may materially and adversely affect the indemnifying party other than as a result of money damages or other money payments, the indemnifying party shall have the right, at its own cost and expense, to compromise or settle such claim, but (ii) the indemnifying party shall not, without the prior written consent of the party to be indemnified, settle or compromise any claim or consent to the entry of any judgment which does not include as an unconditional term thereof the giving by the claimant or the plaintiff to the party to be indemnified a release from all liability in respect of such claim. SECTION 7.05 Direct Claims. Any claim by the party to be indemnified for indemnification other than with respect to claims resulting from the assertion of liability by third parties (a "Direct Claim") will be asserted by giving the indemnifying party reasonably prompt written notice thereof, and the indemnifying party will have a period of twenty (20) calendar days within which to respond in writing to such Direct Claim. If the indemnifying party does not so respond within such twenty (20) calendar day period, the indemnifying party will be deemed to have rejected such claim, in which event the party to be indemnified will be free to pursue another remedy to which it may be entitled. SECTION 7.06 Certain Information. In connection with any indemnification provided in this Article VII, the indemnified party shall cooperate in all reasonable requests of the indemnifying party and each party shall furnish or cause to be furnished to the other (at reasonable times and at the expense of the party requesting such information) upon request as promptly as practicable such information (including access to books and records of the Business and to employees familiar with the affairs thereof) and assistance relating to the Business as is 42 reasonably necessary for the defense of any claim, suit or proceeding. SECTION 7.07 Limitations on Liability of Sellers. (a) The indemnities set forth in Section 7.03 and all representations, warranties and covenants hereunder shall survive for a period of one year following the Closing Date, unless such indemnities, representations, warranties and covenants of the Sellers hereunder pertain to Tax claims, in which event they shall survive until expiration of the applicable statute of limitation period. Upon the expiration of such respective periods, the Sellers shall have no liability for Damages under such indemnification provisions unless the Buyers have been given notice of a claim asserting liability by a third party prior to the expiration of such respective periods and thereafter provides notice to the Sellers in the manner provided in Section 7.04 above prior to the expiration of such periods. (b) If the Sellers become liable for Damages to Buyers hereunder, the Sellers shall be entitled to a credit or offset against such liability of an amount equal to $20,000 (the "Threshold"). At such time as the aggregate of all Damages exceeds the Threshold, the Buyers shall be entitled to recover from the Sellers any and all amounts for which a claim for indemnity has been made, without regard to the Threshold. (c) If the Sellers become liable for Damages to Buyers hereunder, in no event shall the liability of the Sellers exceed in the aggregate 15% of the Purchase Price; provided, however, that nothing in this section 7.07(c) shall limit, in any manner, any remedy at law or in equity to which Buyers may be entitled as a result of intentional fraud by any party to this Agreement. VIII. TERMINATION SECTION 8.01 Termination. This Agreement may be terminated at any time prior to the Closing Date: (a) by Buyers, if the conditions set forth in Section 6.01 shall not have been complied with or performed in any material respect by Sellers on or before 120 days following the date hereof (except 180 days following the date hereof in the case of the condition set forth in Section 6.01(e)) and such noncompliance or nonperformance shall not have been waived, cured or eliminated (or by its nature cannot be cured or eliminated); 43 (b) by Sellers, if the conditions set forth in Section 6.02 shall not have been complied with or performed in any material respect by Buyers on or before 120 days following the date hereof (except 180 days following the date hereof in the case of the condition set forth in Section 6.02(i)) and such noncompliance or nonperformance shall not have been waived, cured or eliminated (or by its nature cannot be cured or eliminated); (c) by Buyers or Sellers, in the event the Closing Date has not occurred on or prior to the close of business 180 days following the date hereof or such later date as the parties hereto may agree in writing (unless such event has been caused by the breach of this Agreement by the party seeking such termina tion); (d) by either Sellers or Buyers if (i) there shall be a final nonappealable order of a federal or state court in effect preventing consummation of the transactions contemplated by this Agreement or (ii) there shall be any action taken, or any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the transactions contemplated by this Agreement by any governmental entity which would make consummation of the transactions contemplated by this Agreement illegal; or (e) by either Sellers or Buyers if there shall be any action taken, or any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the transactions contemplated by this Agreement by any governmental entity, which would (i) prohibit the Sellers' ownership or operation of all or a material portion of the Assets or the Business, or compel Buyers to dispose of or hold separate all or a material portion of the Assets or the Business or of HMS and its subsidiaries taken as a whole, as a result of the transactions contemplated by this Agreement or (ii) render Sellers or Buyers unable to consummate the transactions contemplated by this Agreement, except for any waiting period provisions. SECTION 8.02 Effect of Termination. In the event of the termination of this Agreement pursuant to Section 8.01 hereof, this Agreement shall thereafter become void and have no effect, and no party hereto shall have any liability to the other party hereto or its stockholders, directors or officers in respect thereof, except as provided in Section 9.02 hereof and except that nothing herein shall relieve any party from liability for any willful breach hereof. Notwithstanding the foregoing, in the event of the termination of this Agreement pursuant to Section 8.01 hereof, Buyers shall not solicit any of Sellers' 44 customers as of the date of termination within the scope of Sellers' then current contracted services to such customers for a period of one year from the date of such termination or until the expiration of Sellers' then current contract with such customers, whichever is the shorter period; provided, however, the foregoing restriction shall not apply to any of Sellers' customers (the "Overlap Customers") for whom Buyers are providing similar services; provided further, however, that for such Overlap Customers, Buyers shall not expand the scope of services which they are providing to such Overlap Customers until the restriction herein expires as provided above. IX. MISCELLANEOUS SECTION 9.01 Bulk Transfer Laws. Buyers hereby waive compliance by Sellers with any applicable bulk transfer laws including, without limitation, the bulk transfer provisions of the Uniform Commercial Code of any state, or any similar statute that may be applicable to the sale or transfer of the Assets hereunder with respect to the transactions contemplated hereby. SECTION 9.02 Expenses, Etc. Whether or not the transactions contemplated by this Agreement are consummated, Sellers, on the one hand, and Buyers on the other hand, shall not have any obligation to pay any of the fees and expenses of the other party incident to the negotiation, preparation and execution of this Agreement, including the fees and expenses of counsel, accountants, investment bankers and other experts. Sellers, on the one hand, and Buyers on the other hand, will indemnify the other and hold the other harmless from and against any claims for finder's fees or brokerage commissions in relation to or in connection with such transactions as a result of any agreement or understanding between such indemnifying party and any third party. SECTION 9.03 Risk of Loss. Sellers assume all risk of condemnation, destruction, loss or damage due to fire or other casualty from the date of this Agreement through the Closing Date. If the condemnation, destruction, loss or damage is such that the Business is interrupted or curtailed or the Assets are materially affected, then Buyers shall have the right either to terminate this Agreement or to continue with the Closing provided that Buyers shall have received from Sellers an assignment of all insurance benefits paid or to be paid to Sellers as a result of such casualty (which benefits Sellers shall agree so to assign following a request from Buyers therefor). 45 SECTION 9.04 Execution in Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. SECTION 9.05 Notices. All notices that are required or may be given pursuant to the terms of this Agreement shall be in writing and shall be sufficient in all respects if delivered by hand or via a national overnight courier service or mailed by registered or certified mail postage prepaid, as follows: (a) If to Buyers: c/o Health Management Systems, Inc. 401 Park Avenue South New York, New York 10016 Attention: Paul J. Kerz, President and to: Coleman & Rhine LLP 1120 Avenue of the Americas New York, New York 10036 Attention: Bruce S. Coleman, Esq. (b) If to Sellers: Global Health Systems, Inc. 1350 Piccard Drive Suite 360 Rockville, Maryland 20850 Attention: Alan Gold, President GHS Management Services, Inc. 1350 Piccard Drive Suite 360 Rockville, Maryland 20850 Attention: Alan Gold, President GHS, Inc. 1350 Piccard Drive Suite 360 Rockville, Maryland 20850 Attention: Alan Gold, President 46 and to: Werbel & Carnelutti 711 Fifth Avenue, 5th Floor New York, New York 10022 Attention: Peter DiIorio, Esq. or such other address or addresses as Sellers, on the one hand, or Buyers, on the other hand, shall have designated by notice to the other in writing. Any such notice, claim or other communication shall be deemed conclusively to have been given and received (i) on the first business day following the day timely received by a national overnight courier, with the cost of delivery prepaid; (ii) on the fifth business day following the day duly sent by certified or registered United States mail, postage prepaid and return receipt requested; or (iii) when otherwise personally delivered to the addressee. SECTION 9.06 Waivers. Sellers, on the one hand, and Buyers, on the other hand, may, by written notice to the other, (i) extend the time for the performance of any of the obligations or other actions of the other under this Agreement; (ii) waive any inaccuracies in the representations or warranties of the other contained in this Agreement or in any document delivered pursuant to this Agreement; (iii) waive compliance with any of the conditions or covenants of the other contained in this Agreement; or (iv) waive performance of any of the obligations of the other under this Agreement. Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including, without limitation, any investigation by or on behalf of Sellers, on the one hand, and Buyers, on the other hand, shall be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranties, covenants or agreements contained in this Agreement. The waiver by Sellers, on the one hand, and Buyers, on the other hand, of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach. SECTION 9.07 Amendments, Supplements, Etc. At any time this Agreement may be amended or supplemented by such additional agreements, articles or certificates as may be determined by the parties hereto to be necessary, desirable or expedient to further the purposes of this Agreement, or to clarify the intention of the parties hereto, or to add to or modify the covenants, terms or conditions hereof or to effect or facilitate any governmental approval or acceptance of this Agreement or to effect or facilitate the consummation of any of 47 the transactions contemplated hereby. Any such instrument must be in writing and signed by the parties. SECTION 9.08 Entire Agreement. This Agreement, its Exhibits and Schedules including, without limitation, the Ancillary Agreements and the documents executed on the Closing Date in connection herewith, constitute the entire agreement among the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings, oral and written, between the parties hereto with respect to the subject matter hereof. No representation, warranty, promise, inducement or statement of intention has been made by any party which is not embodied in this Agreement or such other documents, and neither Sellers, on the one hand, nor Buyers, on the other hand, shall be bound by, or be liable for, any alleged representation, warranty, promise, inducement or statement of intention not embodied herein or therein. SECTION 9.09 Applicable Law; Jurisdiction. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed entirely within the State of New York. (b) Each Seller hereby irrevocably and unconditionally (i) submits for itself and its property in any legal action or proceeding relating to this Agreement and the Ancillary Agreements to the non-exclusive general jurisdiction of the Courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof; (ii) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; and (iii) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to Seller at its address set forth in Section 9.05 hereof or at such other address of which the Agent shall have been notified pursuant thereto. SECTION 9.10 Binding Effect; Benefits. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. Notwithstanding anything contained in this Agreement to the contrary, nothing in this Agreement, expressed or implied, is 48 intended to confer on any person other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. SECTION 9.11 Assignability. Neither this Agreement nor any of the parties' rights hereunder shall be assignable by any party hereto without the prior written consent of the other parties hereto. SECTION 9.12 Update to Schedules. The parties acknowledge that the disclosure schedules of Sellers attached to this Agreement have been prepared either as of the date of this Agreement or, at the request of the Buyers, as of December 31, 1996. At least three days prior to the Closing Date, the Sellers shall provide the Buyers with updated schedules as of the Closing Date in order that such schedules shall be true and correct as of such Closing Date. The changes in the updated schedules shall be limited solely to changes resulting from Sellers conduct of the business in the usual, regular and ordinary manner and shall not have a Material Adverse Effect. 49 IN WITNESS WHEREOF, this Asset Purchase Agreement has been duly executed and delivered by the parties hereto as of the date first above written. GHS, INC. By:/s/ Alan Gold ---------------------------- Alan Gold, President GLOBAL HEALTH SYSTEMS, INC. By:/s/ Alan Gold ---------------------------- Alan Gold, President GHS MANAGEMENT SERVICES, INC. By:/s/ Alan Gold ---------------------------- Alan Gold, President HEALTH MANAGEMENT SYSTEMS, INC. By:/s/ Paul J. Kerz ---------------------------- Paul J. Kerz, President GLOBAL HEALTH ACQUISITION CORP. By:/s/ Phillip Siegel ---------------------------- Phillip Siegel, Vice President 50 EX-27 5 FDS
5 This schedule contains summary financial information extracted from GHS 10K and is qualified in its entirety by reference to such financial statements. Year DEC-31-1996 JAN-01-1996 DEC-31-1996 159,000 0 1,025,000 164,000 0 1,270,000 4,620,000 1,016,000 8,635,000 2,094,000 0 0 0 65,000 2,097,000 8,635,000 4,232,000 4,232,000 2,790,000 4,361,000 0 0 309,000 (279,000) 463,000 168,000 0 0 0 168,000 .02 .02
-----END PRIVACY-ENHANCED MESSAGE-----