-----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, NaPu1rHvmGzCAbOSNNK6dlyybFyBiE0khLna4s5S6euoceBokfFZistimITQ+zvW hvUcjMQv1YFl6y0vJ2ttrA== 0000950123-00-003679.txt : 20000417 0000950123-00-003679.hdr.sgml : 20000417 ACCESSION NUMBER: 0000950123-00-003679 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000414 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AHT CORP CENTRAL INDEX KEY: 0001002628 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISC HEALTH & ALLIED SERVICES, NEC [8090] IRS NUMBER: 133893841 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-21209 FILM NUMBER: 601998 BUSINESS ADDRESS: STREET 1: 555 WHITE PLAINS RD STREET 2: 2ND FL CITY: TARRYTOWN STATE: NY ZIP: 10591 BUSINESS PHONE: 9145244705 MAIL ADDRESS: STREET 1: 560 WHITE PLAINS RD STREET 2: 2ND FLOOR CITY: TARRYTOWN STATE: NY ZIP: 10591 FORMER COMPANY: FORMER CONFORMED NAME: ADVANCED HEALTH CORP DATE OF NAME CHANGE: 19960618 10-K 1 AHT CORPORATION 1 DRAFT 4/11/00 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) X Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 1999 or Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ____________to_______________ Commission File Number 0-21209 AHT CORPORATION (Exact name of registrant as specified in its charter) Delaware 13-3893841 (State or other jurisdiction (IRS employer identification of incorporation or organization) number) 555 White Plains Road 10591 Tarrytown, New York (Address of principal executive offices) (Zip code) Registrants' telephone number, including area code: (914) 524-4200 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K: The aggregate market value of the shares of Common Stock held by non-affiliates of the registrant is $52,965,758, based on the closing price of the Common Stock on March 24, 2000. As of March 24, 2000, there were 11,123,366 shares of Common Stock outstanding. 1 2 DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive Proxy Statement for the 1999 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after December 31, 1999, are incorporated by reference in Part III hereof. STATEMENTS MADE OR INCORPORATED INTO THIS ANNUAL REPORT INCLUDE A NUMBER OF FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. FORWARD-LOOKING STATEMENTS INCLUDE, WITHOUT LIMITATION, STATEMENTS CONTAINING THE WORDS "ANTICIPATES," "BELIEVES," "EXPECTS," "INTENDS," "FUTURE" AND WORDS OF SIMILAR IMPORT WHICH EXPRESS MANAGEMENT'S BELIEF, EXPECTATIONS OR INTENT REGARDING THE COMPANY'S FUTURE PERFORMANCE. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE SET FORTH IN THE FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING STATEMENTS, INCLUDING STATEMENTS AS TO INDUSTRY TRENDS, FUTURE ECONOMIC PERFORMANCE, ANTICIPATED PROFITABILITY, ANTICIPATED REVENUES AND EXPENSES, AND PRODUCTS OR SERVICE LINE GROWTH MAY BE SIGNIFICANTLY IMPACTED BY CERTAIN RISKS AND UNCERTAINTIES SET FORTH HEREIN, INCLUDING, BUT NOT LIMITED TO, FAILURE OF THE CLINICAL E-COMMERCE INDUSTRY TO DEVELOP AT ANTICIPATED RATES, FAILURE OF THE COMPANY'S CLINICAL INFORMATION TECHNOLOGY PRODUCTS AND SERVICES TO GAIN SIGNIFICANT MARKET ACCEPTANCE, FAILURE TO MEET OPERATING OBJECTIVES OR TO EXECUTE THE OPERATING PLAN, FAILURE TO MEET ITS OBLIGATIONS OR A FAILURE TO CURE A DEFAULT UNDER THE CYBEAR AGREEMENTS, COMPETITION AND OTHER ECONOMIC FACTORS. NO ASSURANCES CAN BE GIVEN AS TO THE OUTCOME OF ANY PENDING LAWSUITS AGAINST THE COMPANY. SEE ALSO ITEM 1 "RISKS AFFECTING THE COMPANY'S BUSINESS." PART I ITEM 1. BUSINESS Overview AHT Corporation (the "Company") is a national provider of Internet-based clinical e-commerce among physicians, other healthcare providers, and healthcare organizations. The Company is focused on automating laboratory and prescription transactions, the two most frequent clinical transactions initiated by physicians today. The Company's products principally focus on laboratory and prescription connectivity and transaction processing, including, within the laboratory suite of applications, Dr. Chart(R), Dr. Chart Web(TM), Compliance Monitor(TM), CDR(TM), and CDX(TM), and its electronic prescription writing product, @Rx(TM). The Company's products take an incremental approach to practice automation, with the goal of enabling the physician and office staff adoption of technology. The Company believes that its products are relatively easy to use and do not require radical changes in the healthcare provider's workflow or the physician's practice style generally. 2 3 Dr. Chart(R) Laboratory Products The Company's Dr. Chart(R) products link clinical laboratories to physicians, enabling them to initiate laboratory orders on-line and to view those results on-line in a real-time basis from their desktop PCs. Dr. Chart(R) is also Web-enabled, making the clinical information available on a real-time basis to any physician and clinician equipped with a standard office PC and a Web browser. A large part of a clinical laboratory's day-to-day operation is comprised of receiving and processing paper-based orders from providers and then distributing paper-based reporting of the test results back to the provider. These test results play a large role in the provider's decisions on current treatment options. The more data-rich and timely a test result can be delivered, the sooner and better-informed a medical decision can be made, thus increasing the efficiency of the ordering and results communication process for both the providers and the laboratory. The Company's laboratory transaction management software suite serves to effectively manage test data dictionaries, other laboratory interfaces, and other sources of information, integrating disparate healthcare institutions and providing connectivity to community-based providers within an integrated delivery system. The Company's multi-system interfaces integrate provider workflow by creating connectivity to practice management systems and laboratory information systems. Dr. Chart(R) utilizes a computer-to-computer interchange, incorporating a routing and data translation solution that facilitates communication of information among physicians, hospitals and other healthcare providers. Dr. Chart(R) allows physicians, nurses and other clinicians to effectively manage patient information from multiple sources, such as hospital laboratories and other hospital ancillary systems, reference laboratories and practice management systems. Compliance Monitor Product Compliance Monitor(TM) software assists clinical laboratories with Medicare and Health Care Financing Administration (HCFA) compliance. One of the critical success factors in addressing HCFA compliance issues for clinical laboratories is information. Capturing and reporting the appropriate data that will be used in case of external audits and monitoring is an integral part of laboratories' compliance program. Compliance Monitor(TM) software assists clinical laboratories in organizing information for Medicare Compliance and to comply with HCFA regulations. Rules, policies and business logic are built into the tables of Compliance Monitor(TM). For example, laboratory orders are validated against The Local Medicare Review Policy to determine reimbursement and exposure to penalties for non-compliance. The system automatically checks against the tables and existing rules and flags the user with an alert message if there is a potential compliance violation. All alert messages and validation checks are kept in a commercially secure audit log. @Rx(TM) Prescription Product @Rx(TM) launched in October 1999, is the nation's first comprehensive Internet tool to manage all phases of the prescription writing process from the physician's office, including screening for 3 4 drug interactions and insurance medication preferences. The @Rx(TM) electronic prescription management service enables physicians and other authorized healthcare providers to manage the entire prescription writing process over the Internet utilizing technology designed to maximize the security and confidentiality of patient health information. @Rx(TM) is designed to be made available to physicians and other healthcare providers through AHT's @Rx(TM) website, www.at-rx.com, and through links in websites of healthcare organizations that want to provide physicians with the ability to manage prescriptions over the Internet. @Rx(TM) automates the prescription writing process, from formulating the initial prescription order to checking for the potential for drug interactions, to checking for preferences for health insurance coverage, to printing, and, in some cases, transmitting the prescription electronically to a designated pharmacy. The Company's prescription transaction service has the potential in some cases to replace both the paper prescription and the phone calls regarding prescriptions with an efficient online transaction with the provider's clinical management system, which potentially saves both time and labor from the ordering process, as well as providing more accurate and informative orders. The Company's information system interfaces integrate provider workflow by creating connectivity to prescription benefit management information systems. National Co-Marketing, Distribution and Development Transaction On March 28, 2000, the Company and Cybear, Inc. ("Cybear") (NASDAQ: CYBA), a leading national e-healthcare connectivity, applications, and portal provider, announced that they are collaborating to provide both prescription and laboratory transaction management. The agreements include a co-marketing and distribution agreement for the Company's @Rx(TM) and Dr. Chart(R) products and Cybear's Internet portal, dr.cybear.com. In a related agreement, AHT has granted Cybear the exclusive right to migrate the @Rx(TM) prescription system to a hand-held computer that will be marketed exclusively by the two companies. This collaboration is designed to allow medical offices using the Cybear ISP to exchange prescription and laboratory orders from a single Web site using a secure Intranet connection. These applications, among other benefits, are designed to screen prescriptions for formulary compliance and potential drug interactions and laboratory orders for Medicare medical necessity compliance. In addition, the Cybear portal will be designed to provide access to lab results and medication histories and allow a provider to review this information electronically from any Web-enabled computer. The Company and Cybear expect that by migrating the electronic prescribing capability to a hand-held system, physicians will be able to write prescriptions at the point of prescribing on a Web-enabled portable computer device. Physicians now write nearly all of the 2.8 billion annual prescriptions by hand. Mobile access to this information could reduce errors and pharmacy inquiries for prescription renewals and clarifications. The Company was previously organized to offer comprehensive physician practice and network management and consulting services to physician practices, physician networks, hospitals, and other healthcare organizations. However, in order to enable the Company to focus entirely on the growth of its Internet-based clinical e-commerce business managing laboratory and prescription transactions, on May 14, 1999, the Company sold its physician management services unit to PractiCare, Inc., a wholly-owned subsidiary of Phoenix Home Life Mutual Insurance Company, for approximately $3.1 million in cash plus the assumption of certain payables and capital leases associated with the unit. 4 5 The Company was incorporated in the State of Delaware on June 20, 1995 under the name Majean, Inc. On August 24, 1995, the Company changed its name to Advanced Health Corporation, subsequent to a merger pursuant to which a Delaware corporation of the same name merged with and into the Company. On February 1, 1999 the Company filed a Registration of Trade Names in Delaware to do business under the name of AHT Corporation. Stockholders approved the change to the Company's corporate name to AHT Corporation at the June 1999 Annual Meeting of Stockholders. The Company's executive offices are located at 555 White Plains Road, Tarrytown, New York, 10591, and its telephone number is (914) 524-4200. The Company's Internet address is www.ahtech.com. Clinical Information Systems The Company has developed enabling technologies, including Internet-based applications, for e-commerce and communications among physicians, other healthcare providers and healthcare organizations. The Company's clinical information systems consist of proprietary software, third-party hardware, proprietary and third-party databases, and related support services. They are designed to complement existing healthcare information systems and to function with third-party applications. The clinical information systems connect to physician users through desktop computers using standard communication methods. Access to the Company's clinical information systems is delivered to physician users and other healthcare professionals via both private networks and intranets. The Company's clinical information systems are designed to allow physicians to (i) access patient-specific clinical and payor information, (ii) generate prescriptions and orders for laboratory tests, print patient education material, and provide summaries of patient prescription and laboratory results history, and (iii) access databases containing managed care, disease management, health insurance, or diagnostic/treatment preferences. The Company's products support HL-7 interfaces, incorporate TCP/IP and use Microsoft NT protocols for real-time data transmission and run on the Microsoft Windows operating system and standard hardware platforms. The Company employs proprietary processes and standard commercial security measures to safeguard the privacy of clinical data accessed or transmitted on both private and public networks, including the Internet and the data communication paths within its products, including user passwords, 40 to 128-bit key encryption technology, and a Microsoft secure socket layer (SSL) encryption algorithm. The Company expects to continue to employ industry standard security measures in the future. The Company licenses its clinical information systems to third party healthcare organizations, principally laboratories and prescription benefit management companies. The Company continues to pursue strategic relationships with healthcare providers as well as hospital information systems companies, physician practice management systems companies, and on-line services companies for the purpose of further developing and marketing its information systems. The Company offers its clinical information systems for provider users, and for laboratory and prescription clinical applications. 5 6 Industry and Competition The healthcare industry generates billions of clinical and financial transactions each year, including, but not limited to, prescriptions, lab orders and results, radiology orders and results, medical claims, eligibility inquiries, encounters and referrals. While most direct healthcare spending takes place outside of the doctor's office, physicians control an estimated 80% of the medical dollar through their decisions. The growth of managed care has forced participants to become more efficient and sophisticated, while also demanding more information and increasing administrative requirements. Many of the inefficiencies in healthcare result from poor information exchange among participants, which include patients, providers, payors, and other trading partners. For physicians to meet the clinical and financial demands of managed care, the Company believes that moving patient-centered clinical and financial data electronically all along the continuum of care will become a business requirement. As an inexpensive, ubiquitous, and flexible technology, the Internet and secure intranets can be used to facilitate timely and accurate flow of information between the various participants in the healthcare system, within the rules promulgated by HCFA, The Health Insurance Portability and Accountability Act of 1996, and other various state statutes and regulations. Clinical laboratories, pharmacy benefit managers, payors, and managed care organizations are eager to enhance healthcare e-commerce, in order to reduce administrative costs while not compromising quality of care. For example, a physician who enters an electronic prescription could be warned about a potential drug interaction. The appropriate change could be made before the patient leaves the office, limiting the chance of misunderstanding and eliminating the need for additional administrative work. Over time, the patient's transactional data could be aggregated to create a basic electronic medical record that the physician could access, saving time and reducing the costs associated with lost records and neglected information. The Company believes that the combination of the size of the healthcare market, the changes currently affecting the healthcare market, and the relative lack of automation in such market creates significant business opportunities for companies like AHT. The market for healthcare information systems and services is highly competitive and rapidly changing. The Company believes that the principal competitive factors for clinical information systems are the proprietary nature of methodologies, databases, and technical resources; the usefulness of the data and reports generated by the software; customer service and support; compatibility with the customer's existing information systems; potential for product enhancement; vendor reputation; price; and the effectiveness of marketing and sales efforts. In addition, as the market for clinical information systems develops, additional competitors may enter the market and competition may intensify. The area of healthcare e-commerce transaction networks has been targeted by many companies that have significantly greater financial, marketing, and other resources than the Company. The Company is also aware that other e-commerce transaction processing companies have targeted this industry as a growth market, and that those companies could in the future utilize their networks to process electronic healthcare e-commerce transactions. The Company believes that its ability to compete successfully in the healthcare e-commerce market will depend in part upon its ability to offer a variety of integrated products and services and to implement sales and marketing strategies that bring its products and services to the attention of its potential customer base. The Company believes that the timely development of new clinical information applications and the enhancement of existing clinical information systems are important to its competitive position. The Company's product development strategy is directed toward creating new applications that (i) increase the functionality of current products 6 7 by providing enhanced interfaces; and (ii) expand access to third-party systems and data repositories. The Company currently has approximately 20 professionals dedicated to systems development. Risks Affecting the Company's Business In March 2000, Cybear purchased from the Company for $4 million in cash a 10% Senior Convertible Note due March 31, 2001 (the "Cybear Loan") secured by the Company's assets, including its intellectual property, and which is convertible at Cybear's option into shares of the Company's common stock at a conversion price per share equal to the lower of $4.34 or 80% of the average market price prior to the conversion date, provided that Cybear cannot acquire upon conversion more than approximately 1.9 million of the Company's shares. In addition, Cybear has received from the Company a five year warrant to purchase up to 300,000 shares of the Company's common stock at an exercise price per share of $4.34. In the event that the Company materially defaults under its agreements with Cybear, then Cybear could take title to some or all of the Company's assets. The Company's future success depends in significant part upon the continued service of its key technical and senior management personnel and its continuing ability to attract and retain highly qualified technical and managerial personnel. Competition for such personnel is intense and there can be no assurance that the Company can retain its key managerial and technical employees or that it can attract, assimilate or retain other highly qualified technical and managerial personnel in the future. The Company depends on its technical and implementation personnel. The Company's technical sales personnel typically support sales. The Company's ability to expand sales and enter into new vertical markets could be affected by a shortage of qualified technical sales support personnel. The Company depends on its trained implementation personnel or those of independent consultants to implement its software. A shortage in the number of trained implementation personnel could limit the Company's ability to implement its software on a timely and effective basis. Delayed or ineffective implementation of our software may limit the Company's ability to expand its revenues and may result in customer dissatisfaction and damage to the Company's reputation. Any of these events could seriously impair the Company's business, operating results and financial condition. Software programs are, by their nature, complex and have the potential to contain undetected errors or "bugs." Despite testing, bugs may be discovered only after the Company's product has been installed and used by customers. The Company has on occasion experienced delays in the scheduled introduction of new and enhanced products because of bugs. Undetected errors could result in adverse publicity, loss of revenues, litigation, liability, delay in market acceptance or claims against us by customers, any of which could seriously damage our business, operating results and financial condition. The majority of the Company's e-commerce revenues come from its laboratory reporting products. Therefore, a significant new entrant into the e-commerce market or a significant expansion by an existing competitor could have an adverse effect on the Company's business. The market for the Company's products is characterized by frequent new product introductions and enhancements, rapid technological advances, and rapid changes in customer requirements and preferences. Accordingly, the Company's future success will depend on its ability to enhance its existing products and to develop and market new products on a timely basis that respond to evolving customer requirements, achieve market acceptance and keep pace with technological 7 8 developments and obtain adequate financing and/or revenues to fund such activities. There can be no assurance that the Company will be successful in developing, introducing on a timely basis and marketing such products or enhancements; that its software will not contain errors that would delay product introduction, shipment or implementation; or that any such new products or enhancements will be accepted by the market. Because the Company's products are important to the successful operation of its customers' managed care organizations, errors or delays in product development and enhancement may have a material adverse effect on the continued market acceptance of the Company's products and may expose the Company to claims from customers and third parties. The Company faces competition from many healthcare information systems companies and other technology companies, including Allscripts, Healtheon and Proxymed. Many of its competitors are significantly larger and have greater financial resources than the Company and have established reputations for success in implementing healthcare information service systems. Many companies, including companies developing new technologies utilizing an Internet-based system, have targeted the healthcare e-commerce transaction industry for growth. Strategy The objective of the Company is to become a leading provider of Internet-based clinical e-commerce among both providers and healthcare organizations. By enabling providers and healthcare organizations to manage the collection, integration, and distribution of clinical information from disparate sources more effectively, the Company seeks to help providers and healthcare organizations efficiently manage patient care more effectively, including improve the overall delivery of care to patients, meet medical necessity guidelines, analyze clinical utilization patterns, perform patient profiling, and improve patient education. The Company's competitive strengths include (i) leading position in technology for the electronic management of laboratory orders and results; (ii) well-recognized customer base of approximately 60 healthcare organizations, including some of the largest reference laboratories and hospital systems in the US, the largest prescription benefit manager in the US and two of the leading on-line pharmacies in the US; and (iii) intellectual property that includes system interfaces to connect the Company's product to existing "legacy" information systems, and two patents for the electronic management of prescriptions in the physician's office. The Company has taken an incremental approach to practice automation. The Company gains entry to the practice through its line of laboratory and prescription management products. The Company believes its laboratory and prescription management products provide high value, are easy to use, and encourage the physician and his/her office staff to access the computer to manage laboratory orders and results as well as write prescriptions. A position on the physician's "desktop" is necessary to capture the physician's orders electronically and is critical to being a leader in the e-commerce industry. The Company plans to increase its application offerings into the executive desktop used by the nurse assistants and incrementally increase automation of the clinical workflow. The Company's strategy is to: - Use the Company's understanding of physician technology adoption for key clinical transactions. Create additional distribution channels to penetrate physician offices and further secure a position on the physician's desktop. - Gain additional strategic, industry-leading customers. 8 9 - Provide high levels of service to a national physician and healthcare organization customer base. - Gain critical mass through organic growth and acquisitions. Proprietary Rights The Company is relying upon the effectiveness of protection provided by a combination of patent, trade secret, and copyright laws, nondisclosure and other contractual provisions, and technological measures to protect its proprietary position in its methodologies, databases and software. The Company has two issued U.S. patent applications by the United States Patent and Trademark Office, and a foreign patent application having subject matter common with both U.S. applications. The patents are directed to the Company's electronic prescription management system and related technologies. No assurance can be given that patent, trade secrets, copyright, or other intellectual property rights can be successfully asserted in any court action. The Company also has copyrights in its software, user documentation and databases. The copyright protection accorded to databases, however, is fairly limited. While the arrangement and selection of data are protectable, the actual data are not, and others are free to create databases that perform the same function. The Company distributes its clinical information systems products under agreements that grant customers non-exclusive licenses and generally contain terms and conditions restricting the disclosure and use of the Company's systems. In addition, the Company attempts to protect the secrecy of its proprietary databases and other trade secrets and proprietary information through confidentiality agreements with employees, consultants and third parties. The Company believes that, aside from the various legal protections of its proprietary information and technologies, factors such as the technological and creative skills of its personnel and product maintenance and support are integral to establishing and maintaining its position within the healthcare industry. Although the Company believes that its products do not infringe upon the proprietary rights of third parties, there can be no assurance that third parties will not assert infringement claims against the Company in the future. In addition, under the Cybear Loan, the Company has pledged a security interest in all of its intellectual property to Cybear. Government Regulation As a participant in the healthcare industry, the Company's operations and relationships are subject to extensive and increasing regulation by a number of governmental entities at the federal, state, and local levels. The Company believes its operations are in material compliance with applicable laws. Nevertheless, because of the nature of the Company's relationship with a wide variety of healthcare providers and managed care organizations and the uncertainty of new regulations, many aspects of the Company's business operations have not been the subject of formal state or federal regulatory interpretations, and there can be no assurance that a review by courts or regulatory authorities of the Company's business or that of its affiliated physician organizations will not result in a determination that could adversely affect the operations of the Company. Electronic Transmission of Prescriptions: A primary feature of the Company's products and services is the ability to electronically transmit (either by computer-to-facsimile or computer-to-computer) prescriptions from a doctor's office to a pharmacy. The ability of a pharmacist to fill an electronically transmitted prescription is governed by federal and state law. The United States Drug Enforcement Agency ("DEA") regulates the issuance and content of prescriptions for controlled substances. The United States Congress has approved the dispensing of prescriptions transmitted via facsimile of original, signed prescriptions for controlled substances other than for Schedule II drugs (narcotics). Neither Congress nor the DEA has addressed publicly electronic 9 10 transmission of computer-generated prescriptions for controlled substances. The DEA is investigating the possibility of adopting a policy regarding electronic transmission of prescription orders, such as that used by the electronic prescription writing and management systems (the "Prescription Systems"), for controlled substances. No assurance can be given that Congress or the DEA will accept the method of transmitting prescriptions by electronic means for controlled substances in the future. The application of state rules to the use of the Prescription Systems varies. Additionally, other state laws that may affect the Company's ability to sell its products in certain states include certain state requirements that require licensure as either a doctor or a pharmacy in order for a third party to send or receive a prescription. A common carrier, such as a telephone company, is often excluded from such requirements. The Company's ability to market in such states would depend upon each state's willingness to deem the Company to be a common carrier of such prescriptions, the assurance of which cannot be given. Modification or further clarification of federal and state rules regarding use of the Prescription Systems in a manner that reduces their utility may have a material adverse effect on the Company. FDA Regulation: Certain products, including software applications, intended for use in the diagnosis of disease or other conditions, or in the cure, treatment, mitigation, or prevention of disease, are subject to regulation by the Food and Drug Administration ("FDA") as medical devices under the Federal Food, Drug and Cosmetic Act of 1938, as amended (the "FDCA"). The FDCA imposes substantial regulatory controls over the manufacturing, testing, labeling, sale, distribution, marketing, and promotion of medical devices and other related activities. These regulatory controls can include, for example, compliance with the following: manufacturer establishment registration and device listing; current good manufacturing practices; FDA clearance of a pre-market notification submission or FDA approval of a pre-market approval application; medical device adverse event reporting; and prohibitions on misbranding and adulteration. Violations of the FDCA can result in severe criminal and civil penalties and other sanctions, including, but not limited to, product seizure, recall, repair, or refund orders, withdrawal or denial of pre-market notifications or pre-market approval applications, denial, or suspension of government contracts, and injunctions against unlawful product manufacture, labeling, promotion, and distribution, or other activities. In its 1989 Draft Policy For the Regulation of Computer Products ("Draft Policy"), the FDA stated their policy regarding the regulation of software products, including its intent to exempt certain clinical decision support software products from a number of regulatory controls. Under the Draft Policy, the FDA stated that it intended to exempt certain decision support software products that involve "competent human intervention before any impact on human health occurs (e.g., where clinical judgment and experience can be used to check and interpret a system output)" from the following controls: manufacturer establishment registration and device listing, pre-market notification, and compliance with the medical device reporting and current good manufacturing practice regulations. In the Draft Policy, the FDA stated that until it formally exempted decision support software products from these requirements, manufacturers of eligible decision support software products would be required to comply with those controls. Since issuing the Draft Policy, the FDA has not issued a final policy on this issue, not formally exempted any products as discussed in the Draft Policy, and has regulated additional software products. The FDA has referred to the Draft Policy in official presentations regarding software regulation and in decisions and opinions regarding the regulatory status of various products. Over the last several years, however, the FDA has stated that it intends to issue a new policy 10 11 concerning computer products and has been increasing its efforts to develop this policy in recent months. Under this new policy being considered, exemptions from regulatory controls, if any, may be based upon a product specific "risk factor" analysis. For purposes of this analysis, the FDA may consider, among other things, the following: (i) seriousness of the disease to be diagnosed or treated, (ii) the time frame for use of the information, (iii) whether the data output is provided or manipulated in a novel or non-traditional manner, (iv) whether the software provides individualized patient care recommendations, (v) whether the mechanism by which the software arrives at a decision is hidden or transparent and (vi) whether the product provides new capabilities for the user. Given the FDA's intent to issue a new policy concerning the regulation of computer software, which policy may or may not conform to FDA's current reasoning, there can be no assurance as to the effect of such a policy, if any, upon the regulatory status of the Company's products. The Company's clinical information systems are intended to assist healthcare providers in analyzing economic and quality data related to patient care and expected outcomes in order to maximize the cost-effectiveness of general treatment plans and practice protocols. These products are not intended to generate the primary source of specific diagnostic data, result or affect the use of specific therapeutic interventions for individual patients. As such, the Company believes that its clinical information systems are not medical devices under the FDCA, or, if medical devices not actively regulated by the FDA at this time, and, thus, are not subject to many, if any, of the controls imposed on manufacturers of medical devices. The Company further believes that to the extent that its products might be determined to be medical devices, and not otherwise exempt from regulation, they fall within the exemptions for decision support systems provided by the Draft Policy. The Company has not taken action to comply with the requirements that would otherwise apply if the Company's products were determined to be non-exempt medical devices. There can be no assurance that the FDA will not make a request or take other action to require the Company to comply with any or all current or future controls applicable to medical devices under the FDCA. There can be no assurance that, if such a request were made or other action were taken, the Company could comply in a timely manner, if at all, or that any failure to comply would not have a material adverse effect on the Company's business, financial condition or results of operations, or that the Company would not be subjected to significant penalties or other sanctions. There can be no assurance that the FDA will continue to permit any or all of the exemptions provided in the Draft Policy, or in a new policy statement, if any, or that the FDA will promulgate regulations formally implementing such exemptions. There can be no assurance that the Company's current or future clinical information systems will qualify for future exemptions, if any, nor can there be any assurance that any future requirements will not have a material adverse effect on the Company's business, financial condition, or results of operations. Confidentiality of Medical Information: The confidentiality of patient records and the circumstances under which such records may be released is subject to substantial regulation under state and federal laws and regulations. These federal and state laws and regulations govern both the disclosure and the use of confidential patient medical record information. Although compliance with these laws and regulations is at present principally the responsibility of the hospital, physician, managed care organization, or other healthcare provider, regulations governing patient confidentiality rights are evolving rapidly. With respect to its electronic clinical information systems, the Company uses a state-of-the-art security system, including user passwords, 40-128-bit key encryption technology and a Microsoft Secure Socket Layer (SSL) encryption algorithm, to safeguard the privacy of clinical data 11 12 accessed or transmitted on both private and public networks, including the Internet, and will continue to employ such security measures in the future. The Company believes that its procedures currently comply with the laws and regulations regarding the collection of patient data in substantially all jurisdictions, but regulations governing patient confidentiality rights are evolving rapidly and are often difficult to apply. Each state has various laws protecting the confidentiality of patient medical information, including laboratory and prescription information. Although it is not uncommon for a third party to have access to such information, in most states, such third party has an obligation to maintain the confidentiality of such information and could be subject to liability if that obligation is breached. Although, as discussed above, the Company has procedures to maintain the confidentiality of the information it receives, there can be no assurance that inadvertent disclosure of information will not occur to the detriment of the Company's business. Additional legislation governing the dissemination of medical record information has been proposed at both the state and federal level. Furthermore, the Health Insurance Portability and Accountability Act was enacted on August 21, 1996 ("HIPPA") and required the Secretary of Health and Human Services to adopt national standards for the transmission of certain types of patient medical information and the data elements used in such transmissions, and to adopt standards to ensure the integrity and confidentiality of such information. In August 1998, Secretary Shalala proposed security and electronic signature standards for the electronic transmission of medical information and on November 3, 1999, the Secretary promulgated proposed regulations designed to protect the privacy of electronically transmitted or maintained, individually identifiable health information, which privacy regulations are expected to become final at the end of June 2000. We do not know if these regulations will be adopted in their present form, a different form, or at all. However, if adopted, such regulations could require the Company to expend substantial additional resources to comply with the revised standards. Also, authorizations may be required before identifiable patient information could be electronically transmitted to third parties for any purpose other than treatment, payment or health care operations, which include such activities as quality assessment, verification of a healthcare providers credentials, insurance rating, peer review, fraud and abuse compliance review and document production for use in civil or criminal legal proceedings. These regulations also would require that we enter into agreements with certain of our customers governing the dissemination of such information and would require that holders or users of such information implement specified security measures. We continue to monitor HIPAA activity and prepared to incorporate any changes to our software products or our operations that are necessary to ensure compliance. Fraud and Abuse Statutes: Certain provisions of the Social Security Act, commonly referred to as the "Anti-kickback Statute," prohibit the offer, payment, solicitation, or receipt of any form of remuneration which is intended to induce business for which payment may be made under a federal healthcare program. A federal healthcare program is any plan or program that provides health benefits, whether directly, through insurance or otherwise, which is funded directly, in whole or in part, by the United States government (e.g., Medicare, Medicaid and CHAMPUS). Excluded from the definition of federal healthcare program is the Federal Employee Health Benefits Program. As a provider of connectivity products between pharmacies and managed care companies or laboratories and providers, we and our customers are also subject to the Anti-kickback Statute. The type of remuneration covered by the Anti-kickback Statute is very broad. It includes not only kickbacks, bribes, and rebates, but also proscribes any such remuneration, whether made 12 13 directly or indirectly, overtly or covertly, in cash or in kind. In general, the Anti-kickback Statute has been broadly interpreted by courts in many jurisdictions. Read literally, the statute places at risk many business arrangements potentially subjecting such arrangements to lengthy expensive investigations and prosecutions initiated by federal and state government officials. Many states, including some of those in which the Company does business, have adopted similar prohibitions against payments intended to induce referrals of Medicaid and other third-party payor patients. The Anti-kickback Statute provides a number of exceptions or "safe harbors" for specific transactions. We believe that our arrangements with our customers are in material compliance with the Anti-kickback Statute and the various other similar state laws. Nevertheless, because of the breadth of federal and state anti-kickback statutes and the absence of court decisions interpreting their application to arrangements such as those entered into by the Company, there can be no assurance that the Company's activities will not be challenged by regulatory authorities or that the Company's position will prevail if challenged. To the extent the Company is deemed to be a referral source under any agreements, the Company could be subject to scrutiny and prosecution under the Anti-kickback Statute. Violation of the Anti-kickback Statute is a felony, punishable by criminal fines up to $25,000 per violation and imprisonment for up to five years; a civil monetary penalty of $50,000; and/or civil damages of not more than three times the amount of remuneration offered, paid, solicited or received without regard to whether any portion of such remuneration was for a lawful purpose. In addition, the U.S. Department of Health and Human Services ("HHS") may impose civil penalties excluding violators from participation in Medicare or state health programs. Healthcare Reform: As a result of the continued escalation of healthcare costs and the inability of many individuals to obtain health insurance, numerous proposals have been and continue to be introduced in the U.S. Congress and state legislatures relating to healthcare reform, which may contain proposals to increase government involvement in healthcare, lower reimbursement rates and otherwise change the operating environment for the Company's customers. There can be no assurance as to the ultimate content, timing, or effect of any healthcare reform legislation, nor is it possible at this time to estimate the impact of potential legislation, which may be material to the Company. Employees As of March 31, 2000, the Company had a total of approximately 55 employees. The Company is not and never has been a party to a collective bargaining agreement. The Company has never experienced a work stoppage and believes that its employee relations are satisfactory. ITEM 2. PROPERTIES The Company currently leases 26,302 square feet of office space in Tarrytown, New York, 17,552 square feet of which it occupies, and 8,750 square feet of which it sublets. The Company is responsible for an annual rent of approximately $550,000, which includes the sublet portion that generates approximately $180,000 of rental income. Both the lease and the sublease expire March 2002. The Company also leases 8,100 square feet in Hawthorne, New York, which expires October 30, 2000, at an annual rent of approximately $120,000. The Advanced Health Technologies subsidiary occupies 8,028 square feet of leased office space in Fort Washington, Pennsylvania, which expires December 2002 and has an annual rent of approximately $133,000, and 4,184 square feel of office space in Chicago, Illinois which expires April, 2002, and has an annual rent of approximately $90,000 annually. 13 14 ITEM 3. LEGAL PROCEEDINGS From July 1 through August 17, 1998, eleven putative class actions were filed in the United States District Court for the Southern District of New York, all of which have been consolidated under the caption In re Advanced Health Corporation Securities Litigation (the "Class Action"). The consolidated complaint, filed in February 1999, alleged that the Company and its current or former officers or directors, Jonathan Edelson, M.D., Steven Hochberg, Alan B. Masarek, Robert Alger and Michael W. Rogers are liable for certain misrepresentations and omissions regarding, among other matters, the Company's operations, performance, and financial condition. The consolidated class action complaint sought, among other remedies, certification as a class action and unspecified damages. On January 27, 2000, the Company agreed to a settlement of the Class Action, pursuant to which the Company has deposited $300,000 in escrow to cover the costs of notice to the class, administration of the settlement and plaintiff attorneys' expenses and will, upon final approval of the settlement, issue 886,437 shares of common stock to class members and class counsel (subject to possible enhancement if the Company's stock price drops below a certain level or if the Company authorizes and issues additional stock). The settlement is subject to the District Court's approval. The Court has scheduled a hearing on the settlement for April 18, 2000. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS No matters were submitted to a vote of securityholders during the fourth quarter of the fiscal year ended December 31, 1999. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Common Stock trades on the NASDAQ National Market under the symbol "AHTC." (a) Market Information The following sets forth the high and low bid price for the period commencing January 1, 1999 through December 31, 1999 as reported by NASDAQ. Quotations reflect inter dealer prices without retail mark-up, mark-down, or commission, and may not represent actual transactions.
Common Stock High Low January 1, 1999 through December 31, 1999 $ 6.250 $ 1.813 First Quarter ended March 31, 1999 4.500 1.813 Second Quarter ended June 30, 1999 6.250 2.750 Third Quarter ended September 30, 1999 4.438 2.750 Fourth Quarter ended December 31, 1999 5.500 2.688
(b) Approximate Number of Equity Stockholders 14 15 Based upon information supplied from the Company's transfer agent, the Company believes that the number of record holders of the Company's equity securities as of March 25, 2000 is approximately 150. The Company believes that the number of beneficial holders of the Company's Common Stock as of March 25, 1999 is in excess of 300. (c) Dividends The Company has not declared or paid any cash dividends on its capital stock since inception and does not expect to pay cash dividends in the foreseeable future. The Company presently intends to retain future earnings, if any, to finance the expansion of its business. The payment of any cash dividends in the future will depend on the Company's earnings, financial condition, results of operations, capital needs and other factors deemed pertinent by the Company's Board of Directors, subject to laws and regulations then in effect. ITEM 6. SELECTED FINANCIAL DATA. The selected consolidated statement of operations data for the three years ended December 31, 1999, 1998 and 1997, and the consolidated balance sheet data as of December 31, 1998 and 1999, are derived from the consolidated Financial Statements of the Company included elsewhere in this Annual Report on Form 10-K, which have been audited by Arthur Andersen LLP, independent public accountants. The selected consolidated statement of operations for the years ending December 31, 1995 and 1996 and the consolidated balance sheet data as of December 31, 1995, 1996 and 1997, all of which are included on in this Annual Report on Form 10-K, and are derived from the consolidated financial statements of the Company, which have been audited by Arthur Andersen LLP, independent public accountants. The selected consolidated financial data set forth below is qualified by reference to, and should be read in conjunction with, the Company's Consolidated Financial Statements and the Notes, thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained elsewhere in this Annual Report on Form 10-K.
1995 1996 1997 1998 1999 -------- -------- -------- -------- -------- REVENUE $ 1,054 $ 2,657 $ 11,910 $ 3,530 $ 1,086 COST OF REVENUES 340 799 1,030 1,942 1,261 --------------------------------------------------- Gross profit/(loss) 714 1,858 10,880 1,588 (175) OPERATING EXPENSES RESTRUCTURING CHARGES 6,412 6,042 5,169 14,133 13,446 -- -- -- 7,645 -- --------------------------------------------------- Operating income/(loss) (5,698) (4,184) 5,711 (20,190) (13,621) OTHER INCOME, Net (8) 15 1,144 2,073 793 GAIN ON SALE OF INVESTMENT -- -- -- -- 486 (LOSS) ON IMPAIRMENT OF INVESTMENTS -- -- -- -- (11,000) ----------------------------------------------------- Net income/(loss) before taxes (5,706) (4,169) 6,855 (18,117) (23,342) INCOME TAX (BENEFIT) PROVISION -- (1,668) 365 4,722 36 --------------------------------------------------- Net income/(loss) from continuing operations (5,706) (2,501) 6,490 (22,839) (23,378) DISCONTINUED OPERATION: Income/(loss) from discontinued operation, net of income taxes -- 1,036 668 (29,280) 2,574
15 16 GAIN/(LOSS) ON DISPOSITION OF DISCONTINUED OPERATION (23,074) --------------------------------------------------- Net income/(loss) $ (5,706) $ (1,465) $ 7,158 $(75,193) $(20,804) =================================================== PER SHARE INFORMATION Basic net loss per share: Loss from continuing operation ($ 1.47) ($ 0.48) $ 0.82 ($ 2.27) ($ 2.19) Gain from discontinued operation $ 0.00 $ 0.20 $ 0.09 ($ 2.90) $ 0.24 Loss from sale of discontinued operation $ 0.00 $ 0.00 $ 0.00 ($ 2.29) $ 0.00 --------------------------------------------------- Basic net loss per share ($ 1.47) ($ 0.28) $ 0.91 ($ 7.46) ($ 1.95) =================================================== Diluted net loss per share: Loss from continuing operation ($ 1.47) ($ 0.48) $ 0.73 ($ 2.27) ($ 2.19) Gain from discontinued operation $ 0.00 $ 0.20 $ 0.08 ($ 2.90) $ .24 Loss from sale of discontinued operation $ 0.00 $ 0.00 $ 0.00 ($ 2.29) $ .00 --------------------------------------------------- Basic net loss per share ($ 1.47) ($ 0.28) $ 0.81 ($ 7.46) ($ 1.95) =================================================== Common shares used in computing per share amounts: Basic 3,893 5,149 7,872 10,085 10,675 Diluted 3,893 5,149 8,891 10,085 10,675
(In thousands) 1995 1996 1997 1998 1999 ------ ------- ------- ------- -------- Balance Sheet Data Cash and cash equivalents $1,464 $12,086 $ 7,534 $ 9,269 $ 2,528 Investments in marketable securities -- 7,390 34,082 6,972 -- Certificates of deposit -- -- 5,399 2,580 150 Working capital (deficit) 758 26,603 61,644 7,779 679 Total assets 2,888 35,400 94,358 44,634 13,890 Total debt 138 -- -- 809 -- Total Stockholders' equity 2,675 31,884 93,100 29,890 10,564
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 16 17 The following discussion of the results of operations and financial condition of the Company should be read in conjunction with the Consolidated Financial Statements and the notes thereto included elsewhere in this Annual Report on Form 10-K. CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS The Company's actual results could differ materially from its historical results or from any forward-looking statements made or incorporated into this Annual Report. Factors that may cause such differences include, but are not limited to, failure of the clinical e-commerce industry to develop at anticipated rates, failure of the Company's clinical information technology products and services to gain significant market acceptance, failure to meet operating objectives or to execute the operating plan, competition and other economic factors. OVERVIEW AHT Corporation (the "Company") is a national provider of Internet-based clinical e-commerce among physicians, other healthcare providers, and healthcare organizations. The Company is focused on automating laboratory and prescription transactions, the two most frequent clinical transactions initiated by physicians today. In October 1999, the Company launched its @Rx(TM) prescription product which is the nation's first comprehensive internet tool to manage all phases of the prescription writing process from the physician's office. The Company generates revenues from fees for the use and support of its clinical information systems, including transaction, license, software installation, software integration, system support, training and data conversion fees. The Company believes that its historical results of operations from period to period are not comparable and that such results are not necessarily indicative of results for any future periods because the Company has restructured its continuing business operations, acquired new technology to develop and market and has discontinued the development and marketing of certain products from its product line and is marketing its products to different customers. For the year ended December 31, 1999, the Company reported an operating loss of $13.6 million and a net loss from continuing operations of $23.4 million that includes a loss on impairment of minority investments in affiliates of $11.0 million, a gain on sale of investment in affiliate of $.5 million, and a net gain from discontinued operations of $2.6 million for a total net loss of $20.8 million. Included in the net loss from continuing operations are non-recurring expenses of $2.5 million which included the settlement cost of $1.5 million of the action commenced against the Company by Bukstel & Halfpenny, Inc., legal costs associated with this action and other costs associated with the 17 18 migration of operations from Chicago to the Philadelphia office. In addition, and as included in the net loss from continuing operations, the Company changed its goodwill amortization period from 20 to 3 years, thereby increasing the comparable non-cash expense by approximately $.2 million. In May 1999, the Company, sold its physician practice management division for approximately $3.1 million in cash plus the assumption of certain payables and capital leases associated with this division. The Company will now be able to devote its full resources to expanding its Internet-based laboratory and prescription transaction management business. The restructuring action described below contains forward-looking statements that may be significantly impacted by certain risks and uncertainties, including failure to meet operating objectives or to execute the operating plan and failure to successfully restructure the Company's business. In March 2000, Cybear purchased from the Company for $4 million in cash a 10% Senior Convertible Note due March 31, 2001 (the "Cybear Loan") secured by the Company's assets, including its intellectual property, and which is convertible at Cybear's option into shares of the Company's common stock at a conversion price per share equal to the lower of $4.34 or 80% of the average market price prior to the conversion date, provided that Cybear cannot acquire upon conversion more than approximately 1.9 million of the Company's shares. In addition, Cybear has received from the Company a five year warrant to purchase up to 300,000 shares of the Company's common stock at an exercise price per share of $4.34. In the event that the Company materially defaults under its agreements with Cybear, then Cybear could take title to some or all of the Company's assets. The agreements include a co-marketing and distribution agreement for the Company's Web-based @Rx(TM) electronic prescribing service and Dr. Chart (R) clinical laboratory transaction management product and Cybear's Internet portal, dr.cybear.com. In a related agreement, the Company granted Cybear the exclusive right to migrate the @Rx(TM) prescription system to a hand held computer that will be marketed exclusively by the Company and Cybear. In 1998, the Company restructured its information technology unit to increase its focus on product development and sales in areas such as electronic laboratory and prescription management. The Company intends to limit product development efforts that does not focus on electronic laboratory and prescription management. Further, the Company has redirected its sales efforts to increase sales for its product lines that offer laboratory and prescription functionality and to develop distribution channels including Internet portals. Sales efforts will be focused on strategic sales initiatives that emphasize long-term, recurring revenue streams rather than large, one-time revenue events so as to better position the Company to benefit from the electronic commerce market. Currently, the Company has a contract backlog of approximately $1.3 million of revenue that it expects to recognize in 2000 and $.5 million of deferred revenue that represents cash received from customers who are in the process of installing the Company's proprietary software based on specific milestones. RESULTS FROM CONTINUING OPERATIONS YEAR ENDED DECEMBER 31, 1999 AND 1998 Total revenue from continuing operations for the year ended December 31, 1999 decreased to $1.1 million from $3.5 million in the comparable period ended December 31, 1998, primarily as a result of a change in the Company's strategy to market and support only its core product offerings of laboratory and prescription software rather than seeking large, one-time software sales or licensing from other system offerings. The Company earned these fees for the use and support of its clinical information systems, including the recognition of non-recurring license revenues, system support, implementation, programming and training revenues. Cost of revenues for the year ended December 31, 1999 decreased to $1.3 million from $1.9 million for the comparable period ended December 31, 1998. Cost of revenues includes direct costs associated with core product installation efforts incurred and amortization expense related to previously capitalized software development costs. The decrease in cost of revenues related primarily to the 1998 re-structuring action. Cost of revenues for the year ended December 31, 1998 included amortization of capitalized research and development costs prior to the write-off of these assets and the purchase of hardware associated with revenue derived from a customer agreement, both of which are non-recurring expenses. Operating expenses for the year ended December 31, 1999 decreased to $13.4 million from $14.1 million for the comparable period ended December 31, 1998, primarily as a result of restructuring actions taken during the second half of 1998 in connection with the Company's business strategy. These restructuring actions reduced expenses to better align costs with the Company's core product offerings. Operating expenses for the year ended December 31, 1999 included software research and development costs of approximately $1.3 million, depreciation and amortization 18 19 expense of approximately $1.4 million and non-recurring expenses of $2.5 million which included the $1.5 million cost of settling an action commenced against the Company by Bukstel & Halfpenny, Inc., legal costs associated with this action and other costs associated with the migration of operations from its Chicago office to the Philadelphia office. The cost of launching the Company's @RX TM prescription product is also included in operating expenses. In 1998, the Company decided to focus its technology sales efforts around its laboratory and prescription software products and as a result of this action, software development assets related to other products, amounting to $6.2 million, were determined to be unrealizable and the remaining net value of these assets was charged to restructuring. Since the quarter ended March 31, 1998, the Company has not incurred any software development costs that could be capitalized. These costs are being treated as period costs, which are included as operating expenses in the Company's consolidated financial statements. The foregoing write-off left $.4 million remaining in unamortized capitalized software development costs relating to laboratory and prescription software products. There were no restructuring charges for the year ended December 31, 1999. Restructuring charges for the year ended December 31, 1998 amounted to approximately $7.6 million and represent amounts primarily associated with the write-down of capitalized software assets as explained above. The remaining $1.5 million of the $7.6 million restructuring charge relates primarily to facility closures and personnel reductions. Other income, net for the year ended December 31, 1999, was $.8 million as compared to $2.1 million for the year ended December 31, 1998 and was attributable to interest earned from investments in marketable securities as a result of the investment of proceeds from the Company's 1997 follow-on public offering and operating cash. LOSS ON IMPAIRMENT OF ASSET YEAR ENDED DECEMBER 31, 1999 AND 1998 Based on an independent appraisal received by the Company, its minority investments in affiliates has been written down by $11.0 million to reflect its estimated fair market value. GAIN ON SALE OF INVESTMENT IN AFFILIATE YEAR ENDED DECEMBER 31, 1999 AND 1998 In 1999, the Company sold its minority investment in Caresoft, a company that provides business solutions to the healthcare community, for approximately $1.0 million. The Company initially invested $.5 million in 1997. Provision for income taxes includes payments made for state and local income taxes based on amounts other than taxable income. For the year ended December 31, 1998, a charge of $4.1 million was recorded to provide a valuation allowance against prior year deferred tax assets, as it is more likely than not that these assets will not be realized. The net loss from continuing operations for the year ended December 31, 1999 was $23.4 million compared to a net loss of $22.8 million for the year ended December 31, 1998 due to the factors described above. RESULTS OF DISCONTINUED OPERATIONS YEAR ENDED DECEMBER 31, 1999 AND 1998 In January 1999, the Company's Board of Directors approved a plan to divest its practice management services unit and sold the unit in May 1999. Prior to this action, the Company had restructured this unit into an outsourcing services company designed to provide professional services to the healthcare industry that would selectively contract with customers that would potentially generate increased profitability. For the year ended December 31, 1999, the Company reported a net gain from discontinued operations net of income taxes of $2.6 million compared to a net loss from discontinued operations net of income taxes of $29.3 million and an estimated loss of $23.1 million from the anticipated disposition of the management services unit of which $16.0 million is non-cash, for each of the discontinued operations and disposition for the comparable period ending December 31, 1998. The Company's historical financial information has been restated to report the results of the discontinued operation on a consistent basis for the years ended December 31, 1999, 1998 and 1997. 19 20 LIQUIDITY AND CAPITAL RESOURCES At December 31, 1999, the Company had aggregate cash, cash equivalents, certificates of deposit and marketable securities of $2.7 million, as compared to $17.1 million at December 31, 1998. At December 31, 1999, the Company had negative cash flow from its operating activities of ($13.1) million, compared with a negative ($10.2) million at December 31, 1998. Included in cash flow from operations for the year ended December 31, 1999 was $1.5 million for the settlement of an action commenced by Bukstel & Halfpenny, Inc., and $1.0 million of additional one-time charges for legal costs associated with this action and other expenses associated with the migration of the Company's Chicago operations to its Philadelphia office. Net cash provided by investing activities from continuing operations was $8.2 million for the year ended December 31, 1999, principally attributable to the net proceeds from investments in marketable securities and certificates of deposit. Net cash provided by investing activities from continuing operations was $27.7 million for the comparable period ended December 31, 1998, principally attributable to the net proceeds from investments in marketable securities, an additional investment ($5.0 million) in an affiliated entity in which the Company previously had a minority interest, and increased capitalized software development costs (other assets) during the first quarter of 1998 ($1.1 million, net of amortization). Net cash provided by financing activities from continuing operations was $.8 million for the year ended December 31, 1999, principally attributable to net proceeds from the exercise of incentive stock options. Net cash provided by financing activities from continuing operations was $.4 million for the year ended December 31, 1998, principally attributable to net proceeds from the exercise of incentive stock options offset by the purchase of treasury stock under the Company's stock repurchase program. Net cash flows from discontinued operations for the year ended December 31, 1999 was a negative $2.7 million compared with a negative $16.3 million for the comparable period ended December 31, 1998. Included in discontinued operating cash flow at December 31, 1999 was the sale of the Company's investment in Southern States Eye Care, LLC. Based on its current assessment, the Company has recognized an $11.0 million loss on the minority investments it has made, based on an independent appraisal received by the Company. The Company's operating plan for 2000 includes the continuing support and maintenance of the Company's electronic laboratory and prescription management products described above, and developing strategic customers, including Merck Medco, Planet Rx, and Drugstore.com and new proprietary distribution channels including Internet portals. The principal categories of expenditures include research and development of the Company's electronic laboratory and prescription management products as well as ongoing business development and marketing. While the Company has incurred certain non-recurring charges for settling a lawsuit, costs associated with such legal action and other one-time charges that have accelerated its use of cash, the Company believes that based on its cash and investments on hand, including the March 2000 purchase by Cybear for $4 million in cash of a 10% Senior Convertible Note due March 31, 2001 with interest paid quarterly, interest income, collection of officer loans, other receivables and revenues from operations, it will generate sufficient cash to fund planned operations of the Company through at least the end of the 20 21 first quarter of 2001. To the extent that the clinical e-commerce industry does not develop at anticipated rates, or there is a failure of the Company's clinical information technology products and services to gain significant market acceptance, or competition or other economic factors impedes the operating objectives and operating plan, the Company, based on the nature of its business, has significant variable costs that can be effectively and timely reduced to offset the above mentioned factors. The Company has no other planned material capital expenditures or capital commitments. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA FINANCIAL STATEMENTS Report of Independent Public Accountants................................................... F-1 Consolidated Balance Sheets as of December 31, 1998 and 1999 .............................. F-2 Consolidated Statements of Operations for the three years ended December 31, 1999 ......... F-3 Consolidated Statements of Stockholders' Equity for the three years ended December 31, 1999 F-4 Consolidated Statements of Cash Flows for the three years ended December 31, 1999 ......... F-5 Notes to Consolidated Financial Statements ................................................ F-6
Financial Statement Schedules All schedules, other than those disclosed, have been omitted because they are not applicable or not required or because the required information is included in the Consolidated Financial Statements or notes thereto. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information called for by this item is incorporated herein by reference to the sections of the definitive Proxy Statement to be filed with the Securities and Exchange Commission not later than 120 days after December 31,1999 and delivered to stockholders in connection with the 2000 Annual Meeting of Stockholders, captioned "Election of Directors," "Executive Officers" and "Disclosure Pursuant to Section 16 of the Exchange Act." 21 22 ITEM 11. EXECUTIVE COMPENSATION The information called for by this item is incorporated herein by reference to the sections of the definitive Proxy Statement to be filed with the Securities and Exchange Commission not later than 120 days after December 31,1999 and delivered to stockholders in connection with the 2000 Annual Meeting of Stockholders, captioned "Meetings of the Board of Directors and Committees of the Board of Directors; Compensation of Directors" and "Executive Compensation and Related Information." ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information called for by this item is incorporated herein by reference to the section of the definitive Proxy Statement to be filed with the Securities and Exchange Commission not later than 120 days after December 31, 1999 and delivered to stockholders in connection with the 1999 Annual Meeting of Stockholders, captioned "Security Ownership of Certain Beneficial Owners, Directors and Management." ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information called for by this item is incorporated herein by reference to the section of the definitive Proxy Statement to be filed with the Securities and Exchange Commission not later than 120 days after December 31, 1999, and delivered to stockholders in connection with the 2000 Annual Meeting of Stockholders, captioned "Certain Transactions." ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) Documents Filed as Part of the Report 1. Financial Statements. The financial statements listed under Item 8 are filed as part of this report. 2. Financial Statement Schedules. Certain schedules have been omitted because they are either not applicable or the required information has been disclosed in the financial statements or notes thereto. 3. Exhibits. The exhibits listed on the accompanying Exhibit Index are filed as part of this report or incorporated by reference herein. (b) Reports on Form 8-K The registrant filed no Current Reports on Form 8-K during the fourth quarter of the year ended December 31, 1999. 22 23 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, on the 12th day of April, 2000. ADVANCED HEALTH CORPORATION By /s/ Jonathan Edelson --------------------------------- Jonathan Edelson, M.D., Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE - --------- ----- ---- /s/ Jonathan Edelson Chairman of the Board, Chief April 12, 2000 Jonathan Edelson, MD Executive Officer, President and Director (Principal Executive Officer) /s/ Jeffrey M. Sauerhoff Chief Financial Officer (Principal April 12, 2000 Jeffrey M. Sauerhoff Financial and Accounting Officer) /s/ Robert J. Alger Executive Vice President and April 12, 2000 Chief Information Officer and Director /s/ James T. Carney Director April 12, 2000 James T. Carney /s/ Barry Kurokawa Director April 12, 2000 Barry Kurokawa /s/ Arthur M. Southam Director April 12, 2000 Arthur M. Southam, MD
23 24 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE - ----------------------------------------------------------------------------------------------------------------------------------- **3.1 Restated Certificate of Incorporation of the Company **3.2 By-laws of the Company **10.7 Tarrytown, New York Office Lease Agreement dated November 30, 1995, between Tarrytown Corporate Center IV, L.P. and the Company. **10.8 First Amendment to Lease Agreement between Reckon Operating Partnership, LP, as Owner, and the Company, as Tenant *10.9 Chicago Office Lease Agreement dated April 16, 1999, between EOP Operating Limited Partnership and the Company **10.10 Fort Washington Lease Agreement dated November 13, 1997, between Comdrive Associates, L.P. and Company as Tenant **10.11 Hawthorne Lease Agreement dated January 8, 1998, between United Parcel Service, Inc. and Company as Tenant **10.12 Form of Director Indemnification Agreement **10.13 Employment Agreement between the Company and Jonathan Edelson, M.D. **10.16 Employment Agreement between the Company and Robert Alger **10.17 Employment Agreement between the Company and Jeffrey M. Sauerhoff **10.18 Employment Agreement between the Company and Eddy W. Friedfeld **10.20 Amended and Restated Advanced Health Corporation 1995 Stock Option Plan * 10.21 Asset Purchase Agreement between the Company and Practicare * 10.22 Securities Purchase Agreement between the Company and Cybear dated March 27, 2000 * 10.23 10% Senior Secured Convertible Note in favor of Cybear, Inc., dated March 27, 2000 * 10.24 Warrant to purchase 300,000 shares of the Company's Common Stock issued to Cybear, Inc., dated March 27, 2000 **10.21 Employee Stock Purchase Plan
24 25 **21 List of Subsidiaries *23.0 Consent of Arthur Andersen LLP *27 Financial Data Schedule
* Filed herewith. ** Filed as an exhibit to the Company's Registration Statement on Form S-1, as amended (Registration No. 333-06283), Company's Registration Statement on Form S-1, as amended (Registration No. 333-35115), and Company's Form 10-K, dated March 30, 1999 incorporated herein by reference. 25 26 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To AHT Corporation: We have audited the accompanying consolidated balance sheets of AHT Corporation (a Delaware corporation) and subsidiaries as of December 31, 1998 and 1999, and the related consolidated statements of operations, shareholders' equity and cash flows for the three years ended December 31, 1999. 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 auditing standards generally accepted in the United States. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of AHT Corporation and subsidiaries as of December 31, 1998 and 1999, and the results of their operations and their cash flows for the three years ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP New York, New York April 13, 2000 F-1 27 AHT CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (000'S OMITTED, EXCEPT SHARE DATA)
December 31 ---------------------- ASSETS 1998 1999 ------ --------- --------- CURRENT ASSETS: Cash and cash equivalents $ 9,269 $ 2,528 Certificates of deposit 2,580 150 Investments in marketable securities 6,972 -- Accounts receivable, net 320 262 Other current assets 362 561 Current assets of discontinued operations 2,065 -- -------- ------- Total current assets 21,568 3,501 PROPERTY AND EQUIPMENT, net 2,565 2,055 GOODWILL, net 1,861 2,227 INVESTMENTS IN AFFILIATES 14,000 2,500 OTHER ASSETS 2,001 3,607 NONCURRENT ASSETS OF DISCONTINUED OPERATIONS 2,639 -- -------- -------- Total assets $ 44,634 $ 13,890 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Accounts payable and accrued expenses $ 3,610 $ 2,699 Other current liabilities 875 123 Current liabilities of discontinued operations 9,304 -- -------- -------- Total current liabilities 13,789 2,822 DEFERRED REVENUE 250 504 NON CURRENT LIABILITIES OF DISCONTINUED OPERATIONS 705 -- -------- -------- Total liabilities 14,744 3,326 -------- -------- COMMITMENTS AND CONTINGENCIES (Notes 14 and 16) SHAREHOLDERS' EQUITY: Preferred stock, $.01 par value; 5,000,000 shares authorized; 0 shares issued and outstanding, respectively -- -- Common stock, $.01 par value; 15,000,000 shares authorized; 10,424,127 and 11,069,549 shares issued and outstanding, respectively 103 110 Additional paid-in capital 108,450 109,970 Accumulated deficit (78,277) (99,081) Net unrealized gain on marketable securities, net of deferred income taxes 3 -- Less- Treasury stock, at cost; 153,937 and 166,337 shares, respectively (389) (435) -------- -------- Total shareholders' equity 29,890 10,564 -------- -------- Total liabilities and shareholders' equity $ 44,634 $ 13,890 ======== ========
The accompanying notes are an integral part of these consolidated balance sheets. F-2 28 AHT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (000's omitted, except share and per share data)
For the Years Ended December 31 ------------------------------------------- 1997 1998 1999 ----------- ------------ ------------ REVENUES $ 11,910 $ 3,530 $ 1,086 COST OF REVENUES 1,030 1,942 1,261 ----------- ------------ ------------ Gross profit 10,880 1,588 (175) OPERATING EXPENSES 5,169 14,133 13,446 RESTRUCTURING CHARGES -- 7,645 -- ----------- ------------ ------------ Operating (loss) income 5,711 (20,190) (13,621) INTEREST EXPENSE (11) (20) (60) INTEREST INCOME 1,155 2,093 853 GAIN ON SALE OF INVESTMENT -- -- 486 LOSS ON IMPAIRMENT OF INVESTMENTS -- -- (11,000) ----------- ------------ ------------ Net (loss) income from continuing operations before income taxes 6,855 (18,117) (23,342) INCOME TAX PROVISION 365 4,722 36 ----------- ------------ ------------ Net (loss) income from continuing operations 6,490 (22,839) (23,378) ----------- ------------ ------------ DISCONTINUED OPERATIONS: (Loss) income from discontinued operations (Note 2) 668 (29,280) 2,574 Loss on disposal of discontinued operations (Note 2) -- (23,074) -- ----------- ------------ ------------ Net (loss) income $ 7,158 $ (75,193) $ (20,804) =========== ============ ============ PER SHARE INFORMATION: Basic net (loss) income per share- (Loss) income from continuing operations $ 0.82 $ (2.27) $ (2.19) (Loss) income from discontinued operations 0.09 (2.90) 0.24 (Loss) on disposal of discontinued operations -- (2.29) -- ----------- ------------ ------------ Basic net (loss) income per share $ 0.91 $ (7.46) $ (1.95) =========== ============ ============ Diluted net (loss) income per share- (Loss) income from continuing operations $ 0.73 $ (2.27) $ (2.19) (Loss) income from discontinued operations 0.08 (2.90) 0.24 (Loss) on disposal of discontinued operations -- (2.29) -- ----------- ------------ ------------ Diluted net (loss) income per share $ 0.81 $ (7.46) $ (1.95) =========== ============ ============ Common shares used in computing per share amounts- Basic 7,872,204 10,085,407 10,674,987 =========== ============ ============ Diluted 8,890,856 10,085,407 10,674,987 =========== ============ ============
The accompanying notes are an integral part of these consolidated statements. F-3 29 AHT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (000's omitted, except share data)
Unrealized Gain (Loss) Common Stock Additional on ----------------------- Paid-in Accumulated Marketable Shares Par Value Capital Deficit Securities ----------- --------- ---------- ----------- ----------- BALANCE, January 1, 1997 7,166,941 $ 72 $ 42,069 $ (10,242) $ 60 Issuance of common stock, net of expenses of $4,102 2,250,000 22 45,939 -- -- Exercise of stock options 352,614 4 1,249 -- -- Common stock issued for acquisitions 100,164 1 3,759 -- -- Unrealized gain on marketable securities, net of deferred income taxes of $79 -- -- -- -- 124 Income tax benefit from exercise of stock options -- -- 2,960 -- -- Net income -- -- -- 7,158 -- ----------- -------- --------- --------- ------- BALANCE, December 31, 1997 9,869,719 99 95,976 (3,084) 184 Exercise of stock options 199,553 1 1,283 -- -- Common stock issued for acquisitions 354,855 3 4,891 -- -- Stock options granted for acquisitions -- -- 6,300 -- -- Repurchase of treasury stock -- -- -- -- -- Unrealized loss on marketable securities, net of deferred income taxes of $0 -- -- -- -- (181) Net loss -- -- -- (75,193) -- ----------- -------- --------- --------- ------- BALANCE, December 31, 1998 10,424,127 103 108,450 (78,277) 3 Unrealized loss on marketable securities, net of deferred income taxes of $0 -- -- -- -- (3) Exercise of stock options 523,151 6 859 -- -- Common stock issued for acquisitions 122,271 1 661 -- -- Repurchase of treasury stock -- -- -- -- -- Net loss -- -- -- (20,804) -- ----------- -------- --------- --------- ------- BALANCE, December 31, 1999 11,069,549 $ 110 $109,970 $ (99,081) $ -- =========== ======== ========= ========= =======
Treasury Stock -------------------- Shares Amount Total --------- -------- --------- BALANCE, January 1, 1997 8,937 $ (75) $31,884 Issuance of common stock, net of expenses of $4,102 -- -- 45,961 Exercise of stock options -- -- 1,253 Common stock issued for acquisitions -- -- 3,760 Unrealized gain on marketable securities, net of deferred income taxes of $79 -- -- 124 Income tax benefit from exercise of stock options -- -- 2,960 Net income -- -- 7,158 ----------- -------- --------- BALANCE, December 31, 1997 8,937 (75) 93,100 Exercise of stock options -- -- 1,284 Common stock issued for acquisitions -- -- 4,894 Stock options granted for acquisitions -- -- 6,300 Repurchase of treasury stock 145,000 (314) (314) Unrealized loss on marketable securities, net of deferred income taxes of $0 -- -- (181) Net loss -- -- (75,193) --------- -------- --------- BALANCE, December 31, 1998 153,937 (389) 29,890 Unrealized loss on marketable securities, net of deferred income taxes of $0 -- -- (3) Exercise of stock options -- -- 748 Common stock issued for acquisitions -- -- 2,606 Repurchase of treasury stock 12,400 (46) (46) Net loss -- -- (20,804) --------- -------- --------- BALANCE, December 31, 1999 166,337 $ (435) $ 10,564 ========= ======== =========
The accompanying notes are an integral part of these consolidated statements. F-4 30 AHT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (000'S OMITTED)
For the Years Ended December 31 -------------------------------- 1997 1998 1999 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income from continuing operations $ 6,490 $(22,839) $(23,378) Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities- Depreciation and amortization 1,123 2,477 1,354 Deferred income taxes -- 4,092 -- Allowance for doubtful accounts 450 553 18 Gain on sale of investment -- -- (486) Loss on impairment of investment -- -- 11,000 Changes in operating assets and liabilities- Accounts receivable (1,330) 1,133 40 Other current assets 205 251 (199) Accounts payable, accrued expenses and other current liabilities (2,024) 3,918 (1,663) Deferred revenue (200) 250 254 -------- -------- -------- Net cash (used in) provided by operating activities 4,714 (10,165) (13,060) -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Minority investment in affiliated entities (9,000) (5,000) -- Other assets (5,307) 4,876 (119) Investments in certificates of deposit, net (5,399) 2,819 702 Investments in marketable securities, net (26,692) 27,110 6,969 Intangible assets (317) (1,495) -- Sale of investment -- -- 986 Purchases of property and equipment, net (2,246) (592) (337) -------- -------- -------- Net cash provided by (used in) investing activities (48,961) 27,718 8,201 -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from sale and issuance of common stock 45,961 -- -- Net proceeds from exercise of stock options 1,254 759 865 Purchase of treasury stock -- (314) (46) -------- -------- -------- Net cash provided by financing activities 47,215 445 819 -------- -------- -------- NET CASH USED IN DISCONTINUED OPERATIONS (7,520) (16,263) (2,701) -------- -------- -------- Net change in cash and cash equivalents (4,552) 1,735 (6,741) CASH AND CASH EQUIVALENTS, beginning of year 12,086 7,534 9,269 -------- -------- -------- CASH AND CASH EQUIVALENTS, end of year $ 7,534 $ 9,269 $ 2,528 ======== ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for- Interest $ 11 $ 100 $ 60 Income taxes 248 648 36 SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES: Fair market value of common stock issued for acquisitions 3,760 5,415 662 Unrealized gain (loss) on marketable securities 297 (181) --
The accompanying notes are an integral part of these consolidated statements. F-5 31 AHT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997, 1998 and 1999 (000's omitted, except share and per share data) 1. ORGANIZATION AND BUSINESS AHT Corporation and subsidiaries ("AHT" or the "Company"), a Delaware corporation, is a provider of Internet-based clinical e-commerce applications for physicians and other healthcare providers and organizations. The Company's clinical information systems consist of proprietary software, third-party hardware, proprietary third-party databases, and related support services. Such systems are designed to complement existing healthcare information systems and to function with third-party applications. The Company is focused on automating laboratory and prescription transactions, the two most frequent transactions initiated by physicians today. The Company was formerly a provider of primarily professional practice and network management services to physician groups and networks (Note 2). The Company has suffered losses from continuing operations, decreasing revenues and negative cash flow from operating activities for the years ended December 31, 1998 and 1999, all of which are primarily due to the exiting of the physician practice management business and the refocus of the Company's strategy to be a provider of Internet-based clinical e-commerce products. Management has developed a detailed plan and has taken certain actions in order to generate the funding necessary for the Company's operations, including: (1) issuance of additional capital and debt (Note 17); (2) devoting the Company's full resources to expanding the Company's Internet-based laboratory and prescription transaction management business; (3) developing strategic relationships (Notes 15 and 17); (4) immediate reduction of costs; and (5) to the extent that the Company's operating plans are impeded by outside factors, the timely and effective reduction of variable costs to offset these factors. Management of the Company believes that these plans will be adequate to support the Company's operations at least through March 31, 2001. 2. DISCONTINUED OPERATIONS In January 1999, the Company's Board of Directors approved a plan to seek strategic alternatives for the disposal of the Company's physician practice management line of business, which had been its primary business operation. This determination was made due to the fact that this business operation was deemed to be no longer core to the Company's strategy of focusing on healthcare e-commerce. Accordingly, the results of the physician practice management business has been accounted for as discontinued operations, and the accompanying consolidated financial statements presented herein have been restated to report separately the net assets, net liabilities, operating results and net cash flows of this discontinued operation. The loss from discontinued operations for the year ended December 31, 1998 includes the write-down of the assets of the physician practice management operations to estimated net realizable values and the estimated costs of disposing of this discontinued operation, less the expected tax benefits applicable thereto. The loss from discontinued operations for the year ended December 31, 1999 reflects the operating loss of the physician practice management unit. In May 1999, the Company sold the majority of its net assets attributable to the Company's former physician management services unit to a third party for approximately $3.1 million in cash plus the assumption of certain payables and capital leases. Summarized financial information for the discontinued operation is as follows:
Years Ended December 31 ---------------------------- 1997 1998 1999 ------- -------- ------ Revenue $50,887 $ 57,979 $2,165 ======= ======== ====== (Loss) income before income taxes $ 705 $(29,280) $1,651 Income tax provision 37 -- -- ------- -------- ------ Net (loss) income $ 668 $(29,280) $1,651 ======= ======== ======
F-6 32 AHT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997, 1998 and 1999 (000's omitted, except share and per share data) No benefit for income taxes has been reflected for 1998 and 1999 in the above table as the Company has recorded a full valuation allowance against the related deferred tax assets due to the uncertainty of the realization of these assets.
December 31 ----------- 1998 ------- Accounts receivable, net $ 1,427 Other current assets 638 ------- Total current assets 2,065 ------- Property, plant and equipment 831 Other assets 1,808 ------- Total noncurrent assets 2,639 ------- Current liabilities (9,304) Noncurrent liabilities (709) ------- Net assets (liabilities) of discontinued operations $(5,309) =======
There were no assets or liabilities from discontinued operations as of December 31, 1999. Management Service Organizations The Company previously established Management Service Organizations by forming majority-owned subsidiaries to facilitate the provision of management services to physician practice and network clients. In the two years ended December 31, 1999, the Company obtained a 51% interest in each of eight and one newly formed MSOs, respectively, whereby the Company acquired these interests as part of the formation of the MSOs and concurrent with the signing of long-term management services agreements between the MSOs and physician practices. The Company did not acquire any interests during 1999. In forming these MSOs, the Company conveyed 49% interests to the physician practice or network in exchange for the execution of the long-term management services agreements described above. The Company recorded the fair value of these arrangements, which was, in the opinion of management, was more readily determinable than the 49% MSO interest conveyed. The structure of the Company's wholly or majority-owned MSOs provided for the Company to receive activity-based fee income from the MSOs for management services provided and reimbursement from the MSOs for certain expenses incurred, with the result being that there are no profits in the MSO entity for which a minority interest is required to be calculated. Accordingly, the income (loss) from discontinued operations does not reflect any minority interest in the operations of the MSOs. All intercompany accounts and transactions have been eliminated in consolidation. The results of operations, assets and liabilities attributable to the MSOs are included in discontinued operations in the accompanying consolidated financial statements. The stockholders' agreements for these MSOs, among other issues, (i) restricted the transfer of MSO equity, (ii) provided the terms upon which the MSO can, at the Company's option, be merged with and into a wholly F-7 33 AHT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997, 1998 and 1999 (000's omitted, except share and per share data) owned subsidiary of the Company in a transaction in which the physician practice or network will receive stock of the Company in exchange for shares in the MSO, and (iii) granted to the physician practice or network the right to put its equity share in the MSO to the Company within one year of the Company's satisfaction of certain specified targets if the Company has not called its right to acquire those interests within that period. The Company had not met the specified targets prior to the sale of physician practice management unit. The agreements provided that these call transactions will be paid in the Company's common stock, and put transactions will be paid in cash, and that either transaction, if effected, would be based on an agreed-upon amount at the time of the transaction. No such transactions have taken place as a result of the sale of the Company's physician practice management business. Revenues from Discontinued Operations The Company's revenues from discontinued operations consist primarily of revenues from the provision of physician and network management services. A physician group practice is a single legal entity comprised of multiple physicians. Through its majority or wholly owned consolidated MSOs, the Company entered into management services agreements with physician group practices, whereby such physician practices outsourced their nonmedical and administrative functions to the MSO. Activity-based fees were generated by the MSO through the provision of these outsourced services as well as certain additional management, marketing and information services. Fees for such services were either fixed or based on the level of services provided, as negotiated in the Company's various agreements for the provision of services, and were recognized monthly or as these services are rendered, respectively, based on the terms of the related agreements. The Company's contracts with its physician group practices also included predetermined incentives, which were earned and recognized as revenue in the event that the Company is successful in reducing a physician group practice's administrative overhead as a percentage of collections. Acquisitions from Discontinued Operations In connection with a 1995 acquisition agreement, the Company issued options to purchase 283,010 shares of common stock at $.0112 per share. These options are only exercisable, as contingent consideration, upon the achievement of certain capitalization levels related to regulatory requirements. The entire purchase price of this acquisition has been allocated to intangible assets included in noncurrent assets from discontinued operations in the accompanying consolidated balance sheets. The Company reached the stated capitalization level during 1998, and therefore the stock options became exercisable. As a result, the Company recorded a $6,300 purchase price adjustment, which represents the fair market value of the stock options on the date they became exercisable. The remaining net intangible assets relating to this acquisition were subsequently charged to loss from discontinued operations in the accompanying consolidated statements of operations during the year ended December 31, 1998. In 1997, as a result of the achievement of certain targeted operating goals, as defined in previous purchase agreements, certain related parties exercised warrants for 72,196 shares of the Company's common stock valued at $1,354, which represents the difference between the market value of the stock at the date of exercise ($23.13 per share) and the value at the date of grant ($4.38 per share), and the Company issued 33,966 shares of common stock at a value of $21 per share for a total value of $713. These amounts were recorded as adjustments to the original purchase prices and the remaining net intangible assets relating to these acquisitions were disposed of in 1999 as part of the sale of the physician practice management unit. During 1998, the Company acquired all of the outstanding stock of Integrated Medical Management, Inc. ("IMM"), a physician practice management organization, for $1,520 in cash and 354,855 shares of common stock ($13.79 per share, which was the then fair market value of the Company's common stock), for an F-8 34 AHT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997, 1998 and 1999 (000's omitted, except share and per share data) aggregate purchase price of approximately $6,400. Furthermore, the IMM purchase agreement calls for the issuance of additional shares of common stock, as contingent consideration based upon certain targets. As a result of this acquisition, the Company recorded the excess purchase price over net liabilities acquired of $8,570, as goodwill. The results of operations, net assets and resulting goodwill from this entity are included within the discontinued operations in the accompanying consolidated financial statements. During 1999, the Company and IMM's former shareholders amended the contingent consideration provision in the acquisition agreement as a result of the Company's intention to dispose of its physician practice management businesses. Pursuant to the amended agreement, the Company paid $1,300 to the former shareholders, and the former shareholders forfeited their rights to certain of their respective common stock options. The Company has recorded a charge for such amount in the results from discontinued operations for the year ended December 31, 1998. The net assets from this acquisition were included in the sale of the Company's physician practice management unit in 1999. Madison Medical - The Private Practice Group of New York, L.L.P. ("Madison") During 1997, the Company loaned $2,000 to Madison at the prime rate plus 2%, not to exceed 10%, with interest payable monthly and the outstanding principal payable in twelve monthly installments beginning in January 1998. Further, the Company guaranteed a letter of credit in favor of Madison, in the amount of $1,727, by depositing and restricting cash in the same amount with the same financial institution providing that letter of credit. These obligations were secured by the 49% ownership interest in Uptown Physician Management, Inc., an MSO in which the Company had a 51% interest. On December 12, 1998, the Company commenced legal action. On January 15, 1999, the Company commenced an arbitration proceeding against Madison to collect $2,100 in fees owed pursuant to a management services agreement between the parties. Madison has asserted a defense in the action and a counterclaim in the arbitration seeking $2,400 in damages based on the Company's and Uptown's alleged breaches of the management services agreement. The Company and Madison settled there action in April 1999, whereby Madison will pay the Company $2.5 million for all amounts owed and both parties would withdraw all of their respective claims of the amount owed. $700 was paid within one month of the settlement and the remaining principal plus interest incurring thereon at 8% per annum is to be paid in equal installments over a five-year period. As of December 31, 1999, $1,604 remains outstanding under the settlement agreement. However, the Company has provided a full valuation reserve for this note due to the uncertainty of its collectibility. Loans to Affiliates During 1998, the Company loaned $2,000 to a physician, who was a principal in one of the physician practices with which the Company maintained a management services agreement, at 10% interest and payable in full on December 31, 1998. The physician subsequently informed the Company of his inability to repay the loan and as a result he Company agreed to restructure the loan. The restructuring did not have a materially adverse effect on the Company's consolidated financial statements as of and for the year ended December 31, 1998. Litigation and Disputes from Discontinued Operations F-9 35 AHT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997, 1998 and 1999 (000's omitted, except share and per share data) In January 1999, a physician practice client of the Company, Millennium Management Group, P.C. ("Millennium") who was in bankruptcy, filed an adversary proceeding in United States Bankruptcy Court, District of New Jersey, asserting claims for breach of fiduciary duty, breach of contract and conversion based on the management services agreement among the parties. The complaint sought the return of certain property allegedly belonging to Millennium in exchange for a lien against the assets of Millennium that is senior to all claims other than Millennium's bank debt. This matter was settled in 1999 and the resolution of this matter did not have a material impact on the company's consolidated financial statements. In September 1998, the Company received notice from Advanced Heart Physicians and Surgeons Network, P.C. ("Advanced Heart") that Advanced Heart was dissolving due to irreconcilable differences. Advanced Heart claims that under the terms of the management services agreement between Advanced Heart and the Company, this action would cause the management services agreement to be terminated, the Company would be required to refund certain fees previously received from Advanced Heart and the Company would be required to repurchase certain outstanding common shares of the Company held by one of the principals of Advanced Heart. During 1999, Advanced Heart and the Company agreed to terminate the management services agreement and settled the matter and the resolution of this matter did not have a material impact on the Company's consolidated financial statements. In December 1998, the Philadelphia Cardiology Group P.C. ("PCG") served the Company with a notice of default and termination under the management services agreement. PCG filed a complaint against the Company alleges among other items that the Company is liable for breach of contract under the parties' management services agreement for alleged performance defaults. The action is still in the preliminary stages, and the Company believes that PCG's claims are without merit and intends to defend against them virgiously. In management's opinion, the resolution of this matter will not have a materially adverse effect on the Company's consolidated financial statements. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Consolidation The accompanying consolidated financial statements include the accounts of AHT and its wholly owned subsidiaries, Advanced Health Management Corporation ("AHM"), Advanced Health Technologies Corporation, Advanced Health Bukstel & Halfpenny Corporation and its majority owned Management Service Organizations ("MSOs") discussed above. All intercompany transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions specifically for, but not limited to, the useful lives of capitalized software costs and intangible assets and the loss on disposal of discontinued operations that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-10 36 AHT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997, 1998 and 1999 (000's omitted, except share and per share data) Revenue Recognition The Company's revenue from continuing operations is generated from the licensing and support of its software to third parties. The Company recognizes revenue in accordance with Statement of Position ("SOP") 97-2 "Software Revenue Recognition." SOP 97-2 applies to all entities that earn revenue by licensing, selling, leasing or otherwise marketing computer software. It does not apply to revenue earned on products or services when the software contained in those products or services is incidental to the products or services as a whole. SOP 97-2 requires that revenue be allocated to each product or service upon a high threshold of "vendor-specific objective evidence" and deferred until all of the following four criteria are met for that particular product or service: (1) persuasive evidence of an agreement must exist, (2) delivery must have occurred, (3) the vendor's fee must be fixed or determinable, and (4) collectibility must be probable. Cash and Cash Equivalents Cash and cash equivalents include cash and highly liquid investments with original maturities of three months or less when purchased. Certificates of Deposit Certificates of deposit consist of a series of time deposits with maturities from three to twelve months that were pledged as collateral on outstanding letters of credit related to the Company's management service agreements previously discussed. Investments in Marketable Securities The Company accounts for investments in accordance with Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities." In accordance with this pronouncement, the investment and debt securities held by the Company and included in the accompanying consolidated balance sheets that may be sold in response to changes in interest rates, prepayments, and other factors have been classified as available-for-sale. Such securities are reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity (on an after-tax basis). Gains and losses on the disposition of securities are recognized on the specific identification method in the period in which they occur. Property and Equipment Property and equipment, consisting primarily of electronic data processing equipment, are stated at cost and depreciated on a straight-line basis over the useful lives of the assets (3 to 5 years). Equipment held under capital leases is amortized utilizing the straight-line method over the lesser of the term of the lease or the estimated useful life of the asset. Capitalized Software Costs The Company develops computer software, which is marketed to third parties. Development costs incurred in the research and development of new software products and enhancements to existing software products are expensed as incurred until technological feasibility is established. Any additional development costs are capitalized in accordance with SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold, F-11 37 AHT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997, 1998 and 1999 (000's omitted, except share and per share data) Leased or Otherwise Marketed." Amortization of such costs is provided using the straight-line basis over the estimated economic life of the products, as determined. The Company performs an annual review of the recoverability of such capitalized software costs. At the time a determination is made that capitalized amounts are not recoverable based on estimated cash flows to be generated from the applicable software, any remaining capitalized amounts are expensed. Certain previously capitalized software costs were charged to restructuring charges during 1998 (Note 4). Computer software amortization charged to expense aggregated $300, $1,054 and $241, respectively, for each of the three years ended December 31, 1999. Intangible Assets Goodwill, which represents the excess of the purchase price over the fair value of the net assets acquired, and covenants not-to-compete are included in intangible assets and were being amortized over a period of 20 years on a straight-line basis through the 4th quarter of 1999. During the 4th quarter of 1999 management reevaluated the useful lives and adjusted the amortization period to 3 years for the remaining goodwill. These amortization periods are evaluated by management on a continuing basis, and will be adjusted if the lives of the related intangible assets are impaired. Amortization was $187, $96 and $268, respectively, for the three years ended December 31, 1999. Accounting for Long-Lived Assets The Company accounts for long-lived assets under the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This statement establishes financial accounting and reporting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used, and for long-lived assets and certain identifiable intangibles to be disposed of. Management has performed a review of all long-lived assets and has determined that there are impairments of the respective carrying values of certain long-lived assets as of December 31, 1999 (Notes 2, 4 and 9). Investments in Affiliates Investments in affiliates represent purchased interests of less than 20% and are accounted for on the cost method. Annually, the Company reviews these investments for impairment or whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable. Computer Software for Internal Use In April 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," which provides guidance for determining whether computer software is internal-use software and on accounting for the proceeds of computer software originally developed or obtained for internal use and then subsequently sold to the public. It also provides guidance on capitalization of the costs incurred for computer software developed or obtained for internal use. The adoption of SOP 98-1 in 1999 did not have a material effect on the Company's consolidated financial statements. The Company has expensed all software development costs for the three years ended December 31, 1999, as the Company has not incurred any costs that are capitalizable under SOP 98-1. Research and Development Research and development costs are expensed as incurred by the Company. Research and development expense aggregated $770, $2,400 and $1,300, respectively, for the three years ended December 31, 1999. Fair Value of Financial Instruments The carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value due to the short-term maturity of these instruments. The carrying amounts of notes receivable capital lease obligations, including current portions, approximate fair value. F-12 38 AHT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997, 1998 and 1999 (000's omitted, except share and per share data) Income Taxes The Company accounts for income taxes under SFAS No. 109, "Accounting for Income Taxes," which requires recognition of deferred tax liabilities and assets for the estimated future tax effects of events that have been recognized in the financial statements or income tax returns. Under this method, deferred tax liabilities and assets are determined based on (1) differences between the financial accounting and income tax bases of assets and liabilities and (2) net operating loss carryforwards, using enacted tax rates in effect for the years in which the differences and carryforwards are expected to reverse and be utilized, respectively (Note 13). Net Income (Loss) Per Common Share The Company calculates net income (loss) per common share under the provisions of SFAS No. 128 "Earnings Per Share." Basic net income (loss) per common share ("Basic EPS") is computed by dividing net income (loss) by the weighted average number of common shares outstanding. Diluted net income (loss) per common share ("Diluted EPS") is computed by dividing net income (loss) by the weighted average number of common shares and dilutive potential common shares then outstanding. SFAS No. 128 requires the presentation of both Basic EPS and Diluted EPS on the face of the consolidated statements of operations. Shares used in calculating Basic and Diluted EPS are reconciled as follows:
1997 1998 1999 --------- ---------- ---------- Average shares outstanding for basic net (loss) income per share 7,872,204 10,085,407 10,674,987 Diluted effect of stock options and warrants 1,018,652 -- -- --------- ---------- ---------- Weighted average shares outstanding for diluted net (loss) income per share 8,890,856 10,085,407 10,674,987 ========= ========== ==========
Diluted EPS for 1998 and 1999 does not include the impact of 1,460,607 and 2,138,771 stock options and warrants, respectively, then outstanding, as the effect of their inclusion would be antidilutive. Stock-Based Compensation The Company has elected to follow the accounting set forth in Accounting Principles Board No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25") and to provide the necessary pro forma disclosures as if the fair value method had been applied (Note 12). Comprehensive Income The components of comprehensive income are as follows:
For the Years Ended December 31, -------------------------------- 1997 1998 1999 ------- ------- ------- Net (loss) income $7,158 $(75,193) $(20,804) Unrealized (loss) gain on marketable securities 124 (181) -- ------ -------- -------- Comprehensive (loss) income $7,282 $(75,374) $(20,804) ====== ======== ========
F-13 39 AHT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997, 1998 and 1999 (000's omitted, except share and per share data) Concentration of Credit Risk Financial instruments, which subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents, certificates of deposit, marketable securities and trade accounts receivable. The Company maintains cash and cash equivalents, certificates of deposit and marketable securities with various financial institutions. The Company performs periodic evaluations of the relative credit standing of these institutions. The Company's clients are concentrated in the United States. The Company performs ongoing credit evaluations, generally does not require collateral and establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of customers, historical trends and other information. Segment Reporting The Company adopted SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," in 1998. This statement establishes standards for the way public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. The Company currently operates in one segment. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and Hedging," which establishes accounting and reporting standards of derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. The Company does not expect the adoption of this standard to have a material effect on the Company's results of consolidated operations, financial position or cash flows. Reclassifications Certain prior year amounts have been reclassified to conform to the current year's presentation. 4. RESTRUCTURING CHARGES During the third and fourth quarters of 1998, the Company recorded total restructuring charges of $7,648 relating to the Company's former information technology line of business. Included in this total are noncash write-downs of capitalized software no longer marketed or supported by the Company of $6,160, facility closure costs of $281, noncash write-downs of property, plant and equipment of $70, and severance and other employee-related costs of $1,137. All of the restructuring costs have been paid as of December 31, 1999. 5. ACQUISITION OF BUSINESSES During 1997, the Company acquired certain assets of Bukstel & Halfpenny, Inc. ("B&H"), a clinical information technology company, for $306 in cash, 66,201 shares of common stock ($21.81 per share) and options for the purchase of 12,012 shares ($21.00 per share, which was the then fair market value of the Company's common stock) of the Company's common stock, for an aggregate purchase price of $2,000. Furthermore, the B&H purchase agreement calls for the issuance of an additional 114,613 shares of common stock, as contingent consideration. These shares were issued in 1999 and, as a result, the Company recorded a F-14 40 AHT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997, 1998 and 1999 (000's omitted, except share and per share data) $623 purchase price adjustment, which represents the fair market value of the common stock on the date of issuance. In September 1998, B&H commenced an action in the Supreme Court of the State of New York against the Company. In addition to the Company, the complaint named as defendants Advanced Health Med-E-Systems Corporation, Advanced Health Bukstel & Halfpenny Corporation and certain current or former officers or directors of the Company. The complaint asserts violations of the federal securities laws, common law fraud and other common law claims in connection with the Company's September 17, 1997 purchase of certain assets from B&H and seeks rescission of the asset purchase agreement or unspecified damages. On October 30, 1998, B&H obtained an order to show cause and temporary restraining order, which temporarily prevented the Company from transferring certain software code to a certain customer and from including certain "software escrow" provisions in certain software licensing agreements. In August 1999, this lawsuit was settled. Under the terms of the settlement, B&H withdrew its rescission action and released AHT from any other present or future claims in return for a $1.5 million payment. AHT has gained sole discretion and full rights to market, sell and transfer, all software purchased from B&H including the authority to include software licensing escrows in their agreements. Additionally, the Company agreed to forgive a $225 secured promissory note owed by B&H to the Company, in exchange for control of the 12,400 shares of the Company's Common Stock which were pledged as collateral for this note. The Company recorded the then fair market value of the 12,400 common shares as the cost of acquiring treasury stock. The pro forma effects of the Company's acquisitions have not been presented, as the results are immaterial to the Company's consolidated financial statements taken as a whole. 6. RELATED PARTY TRANSACTIONS Software Licensing Agreements During 1997 and 1998, the Company entered into two separate software licensing agreements with a company in which AHT holds a common stock investment (Note 9(a)). The Company recognized $2,500 of licensing revenue from each transaction for each of the years ended December 31, 1997 and 1998, respectively. Transactions with Officers In accordance with the Company's Senior Executive Loan Policy, which is administered by the Compensation Committee of the Board of Directors, the Company made loans to certain senior executives of the Company aggregating $1,570 and $1,801, which are included in other assets in the accompanying consolidated balance sheets as of December 31, 1998 and 1999, respectively. These loans are due three years from the loan date with interest payable monthly at a rate of 6% per annum. As of December 31, 1999, certain interest and principal payments have been made. Subsequent to December 31, 1999, approximately $340 of interest and principal of the loans have been repaid. Management of the Company believes that these related party transactions were effected on terms, which approximate fair market value. F-15 41 AHT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997, 1998 and 1999 (000's omitted, except share and per share data) 7. INVESTMENTS IN MARKETABLE SECURITIES The carrying amounts, gross unrealized gains and losses and estimated market values of investment securities as of December 31, 1998, are summarized as follows:
Gross Gross Estimated Carrying Unrealized Unrealized Market Amount Gains (Losses) Value ------ ---------- ---------- --------- Commercial paper $2,200 $ -- $ -- $2,200 U.S. Government and agencies 2,015 -- -- 2,015 Corporate bonds 2,754 3 -- 2,757 ------ ------ ------ ------ $6,969 $ 3 $ -- $6,972 ====== ====== ====== ======
All investment securities held as of December 31, 1998 are due in one year or less. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The Company had no marketable securities at December 31, 1999. 8. PROPERTY AND EQUIPMENT Property and equipment consist of the following:
December 31 --------------- 1998 1999 ------ ------ Computer equipment and software $4,223 $3,582 Equipment under capital leases 438 58 Furniture and fixtures 632 648 Leasehold improvements 62 79 ------ ------ 5,355 4,367 Less- Accumulated depreciation and amortization 2,790 2,312 ------ ------ Property and equipment, net $2,565 $2,055 ====== ======
Depreciation and amortization aggregated $753, $1,178 and $1,157, respectively, for the three years ended December 31, 1999. 9. INVESTMENTS IN AFFILIATES Investments in affiliates consist of the following:
December 31 ----------------- 1998 1999 ------- ------- PatientCare Dynamics, LLC (a) $10,000 $ 1,500 ACRM, Inc. (b) 3,500 1,000 Caresoft, Inc. (c) 500 -- ------- ------- $14,000 $ 2,500 ======= =======
F-16 42 AHT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997, 1998 and 1999 (000's omitted, except share and per share data) (a) On December 30, 1997, the Company purchased Class B Shares and a Warrant, with a total value of $5,000, of PatientCare Dynamics, LLC, a corporation that, among other things, provides technology-based support systems and services to healthcare professionals. In 1998, the Company purchased additional Class B Shares and a Warrant with a total value of $5,000. Management has determined that there is a permanent impairment in the value of the investment at December 31, 1999 based upon an independent third-party valuation. Therefore, the Company has adjusted the value of the investment to its net realizable value of $1,500. As of December 31, 1999, the Company owns approximately 17.7% of PCD and has therefore accounted for the remaining investment under the cost method. (b) On September 30, 1997, the Company paid $1,000 for 9.9% preferred stock ownership of Eminent Research Systems, Inc. (formerly ACRM, Inc.), a corporation that provides advanced cardiovascular research management. In 1997, the Company loaned $2,500 to Eminent under a loan agreement. In July 1998, the preferred stock interest and the loan were converted into a $3,500 newly issued convertible debenture, bearing interest at 6.0% per annum and payable in full on July 1, 2003. The debenture was converted into 15% of the then outstanding shares of Eminent common stock. Management has determined that there is a permanent impairment in the value of the investment at December 31, 1999 based upon an independent third-party valuation. Therefore, the Company has adjusted the value of the investment to its net realizable value of $1,000. (c) In June 1997, the Company purchased $500 of Series A Preferred Stock issued by Caresoft, Inc., a corporation that, among other things, develops chronic disease and patient compliance software. As of December 31, 1998, the Company owned less than 20% of Caresoft, Inc. and therefore accounted for this investment under the cost method. The Company sold this investment in 1999 for $986, recognizing a gain of $486, net of transaction costs, which is included in other income from continuing operations in the accompanying statement of operations for the year ended December 31, 1999. 10. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consist of the following:
December 31 --------------- 1998 1999 ------ ------ Professional fees $1,996 $ 958 Accounts payable 441 625 Other 1,173 1,116 ------ ------ Total accounts payable and accrued expenses $3,610 $2,699 ====== ======
F-17 43 AHT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997, 1998 and 1999 (000's omitted, except share and per share data) 11. OTHER CURRENT LIABILITIES In connection with an acquisition in 1998 (Note 2), the Company assumed amounts due from a $1,000 line of credit with a bank, which bears interest at prime plus 1.25%. As of December 31, 1998, there was $809 outstanding on the line of credit. The amounts were repaid during 1999. 12. SHAREHOLDERS' EQUITY Common Stock In 1995, the Company sold 79,780 common shares pursuant to a private placement agreement dated April 21, 1995 for an aggregate of $625. In accordance with this agreement, the holders of these shares have the right, on two occasions, to participate on a piggyback basis in a registration by the Company under the Securities Act of 1933, as amended, subject to certain restrictions, for a period ending on September 30, 2000, and commencing twelve months from the closing of an initial public offering of the securities of the Company. In October 1997, the Company completed a second public offering of its common stock. The offering included the sale of 2,000,000 shares of common stock by the Company and 500,000 shares of common stock by existing shareholders, at $22.25 per share plus an underwriter's overallotment of 750,000 shares. Total net proceeds to the Company from this offering were $45,961. Stock Repurchase Program In September 1998, the Board of Directors approved a plan to repurchase up to 3,500,000 shares of the Company's outstanding common stock. The plan provides that the shares may be repurchased at the discretion of the Company's senior management over a period of up to six months. As of December 31, 1999, the Company had repurchased 145,000 shares of treasury stock for total payments of $315 under this plan. Stock Options The Company maintains the 1995 Stock Option Plan (the "1995 Plan") for the purpose of granting incentive stock options to employees, officers or directors of, or consultants or advisors to, the Company. Options granted under the 1995 Plan typically vest annually over a three-year period and expire ten years from the date of grant. The Company reserved 1,500,000 shares of common stock for issuance under the 1995 Plan, which was increased in 1997 and 1999 by 600,000 and 200,000 shares, respectively, pursuant to a vote by the Company's shareholders. The Company also maintains the Advanced Health Corporation Employee Stock Purchase Plan (the "Employee Plan") in order to allow the employees of the Company to acquire a proprietary interest in the Company through the purchase of the Company's common stock. Under the Employee Plan, eligible employees will be granted options to purchase shares of common stock through regular payroll deductions. The total number of shares of common stock that are authorized for issuance under the Employee Plan is 1,200,000. No shares have been issued under the Employee Plan. F-18 44 AHT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997, 1998 and 1999 (000's omitted, except share and per share data) In August 1998, the Company canceled and reissued all then outstanding stock options, which had an exercise price above $5.05. Employees whose options were canceled received an amount equal to 75% of their previous option grants. The new options were granted at an exercise price of $2.50 per share, which was equal to or above the then fair market value of the Company's common stock. The Company accounts for these plans under APB Opinion No. 25, under which no compensation cost has been recognized. Had compensation cost for these plans been determined consistent with SFAS No. 123, the Company's net income (loss) and basic net income (loss) per share would have been changed to the following pro forma amounts:
1997 1998 1999 ------- --------- ---------- Net (loss) income: As reported $ 7,158 $ (75,193) $ (20,804) Pro forma 4,370 (81,557) (21,878) Basic and diluted net (loss) income per share: As reported $ .91 $ (7.46) $ (1.95) Pro forma .56 (8.11) (2.05)
Because the SFAS No. 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. A summary of the status of the 1995 Plan at December 31, 1998 and 1999, and changes during the years then ended, is presented in the table and narrative below:
1998 1999 ----------------------- --------------------- Wtd. Avg. Wtd. Avg. Shares Ex Price Shares Ex Price ----------- --------- --------- --------- Outstanding at beginning of year 2,478,800 $ 13.72 $ 2.53 Granted 1,298,718 2.81 1,851,080 2.94 Exercised (199,553) 5.35 523,250 1.43 Forfeited (1,726,885) 10.34 (523,151) 2.53 (235,559) ---------- --------- --------- Outstanding at end of year 1,851,080 2.53 1,615,620 2.53 ========== ========= ========= Exercisable at end of year 1,205,511 2.53 1,052,168 2.53 ========== ========= ========= Weighted average fair value of options granted $ 2.53 N/A $ 2.60 $ N/A
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 1998 and 1999: risk-free interest rates of 5.42% and 5.36%, respectively; expected dividend yields of 0%; expected lives of 3 years; expected stock price volatility of 154% and 113%, respectively. F-19 45 AHT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997, 1998 and 1999 (000's omitted, except share and per share data) 13. INCOME TAXES Income tax provision (benefit) consists of the following:
Years Ended December 31 ------------------------------ 1997 1998 1999 ------- -------- ------- Federal: Current $ -- $ 536 $ -- Deferred 2,556 (19,291) (8,620) State and local: Current -- 95 36 Deferred 451 (3,404) (1,557) Adjustment to valuation allowance for opening net (2,605) 4,092 -- deferred tax assets Valuation allowance for net deferred tax assets -- 22,694 10,177 ------- -------- ------- Total income tax provision (benefit) $ 402 $ 4,722 $ 36 ======= ======== =======
A reconciliation of the difference between the statutory federal income tax rate and the Company's effective tax rate for the three years ended December 31, 1999 are as follows:
1997 1998 1999 ---- ---- ---- Tax provision (benefit) at statutory rate 34% 34% 34% State and local taxes 6 6 6 Adjustment to valuation allowance for opening net -- 6 -- deferred tax assets Valuation allowance for net deferred tax assets (35) (40) (40) ---- ---- ---- 5% 6% --% ==== ==== ====
The tax effects of temporary differences that give rise to a significant portion of the deferred income tax asset, net, at December 31, 1998 and 1999 are as follows:
December 31 ------------------- 1998 1999 -------- ------- Net operating loss carryforward $ 16,011 $ 21,699 Accrued expenses 4,666 1,206 Allowance for doubtful accounts 2,549 20 Amortization 1,746 1,512 Exercise of stock options 577 577 Impairment of investments 4,400 Other (326) (326) -------- -------- 25,223 29,088 Less- Valuation allowance (25,223) (29,088) -------- -------- Total deferred income taxes, net $ -- $ -- ======== ========
F-20 46 AHT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997, 1998 and 1999 (000's omitted, except share and per share data) At December 31, 1999, the Company had net operating loss carryforwards ("NOLs") available to offset taxable income of approximately $55,690, expiring in varying amounts from 2010 through 2019. In 1997, management of the Company determined that, more likely than not, its previously reserved deferred tax assets would be realized and, accordingly, reduced the related valuation allowance. The reduction in the valuation allowance is included in the provision for income taxes in the accompanying consolidated statement of operations for 1997. The determination that the net deferred tax asset of $4,092 at December 31, 1997 was realizable, was based on the Company's profitability during 1997. Based upon the Company's results of operations for the year ended December 31, 1999, the Company determined that more likely than not, its deferred tax assets would not be realized and recorded a full valuation allowance against such assets. The provision for income taxes for the year ended December 31, 1998 represents the charge for the valuation allowance for prior year deferred tax assets. Deferred tax assets of approximately $1,360 for the year ended December 31, 1997, all of which are related to tax benefits associated with the exercise of stock options, did not result in a tax benefit in the accompanying consolidated statements of operations but, rather, an increase to additional paid-in capital. 14. COMMITMENTS The Company leases certain office space for its operations. Leases for this space expire through 2002 and call for annual rent, with immaterial escalations through the end of the leases. The Company has also entered into several operating leases for office equipment. Future minimum payments for operating leases at December 31, 1999 are as follows:
Year ending December 31: 2000 $ 693 2001 621 2002 260
Rent expense was $443, $299 and $515, respectively, for the three years ended December 31, 1999. Employment Agreements The Company maintains employment agreements with certain named executives. The employment agreements provide for aggregate annual base salaries of $855. These executives are also entitled to receive discretionary bonuses. The employment agreements provide for a four-year term that is automatically renewable for successive one-year terms unless either party gives prior written notice of its intent not to renew. 15. STRATEGIC PARTNERSHIP AGREEMENTS In August 1999, the Company entered into a strategic alliance agreement with Laboratory Corporation of America Holdings ("LabCorp"), a national clinical laboratory. Under the agreement, the Company will provide computer interfaces for LabCorp's reference laboratory, hospital, and managed care clients. The agreement provides for AHT to develop and install specific interfaces based on AHT's technology, which allows LabCorp and its hospital partners to exchange laboratory results, demographics, eligibility information, and laboratory orders. The Company will receive fees based upon the number of interfaces provided, as defined under the agreement. F-21 47 AHT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997, 1998 and 1999 (000's omitted, except share and per share data) In November 1999, the Company entered into an agreement with drugstore.com, inc. ("drugstore.com"), an online drugstore and information site offering products and solutions for health, beauty, wellness, personal care, to become a participatory member in drugstore.com's new certification program for electronic prescriptions. The certification program will help define the guidelines for receipt of electronic prescriptions by online pharmacies. Under terms of the agreement, AHT will work with drugstore.com to help establish and promote the National Council for Prescription Drug Programs ("NCPDP") industry standard for transmission of electronic prescriptions to online pharmacies. Through a six-month test period beginning in early 2000, drugstore.com, AHT and other program participants will work through technical, regulatory and operational issues regarding electronic prescriptions with feedback from NCPDP. If successful under the program, the Company will earn fees on electronic prescriptions on a transaction basis. In November 1999, the Company entered into a licensing agreement with PlanetRx.com, Inc. ("PlanetRx"), an Internet healthcare destination for commerce, content and community, for the Company's web-enabled electronic prescription writing and transmission service. Under the terms of the agreement, PlanetRx.com will pay AHT a transaction-processing fee for each electronic prescription submitted for fulfillment to PlanetRx.com's website. No transaction fees were earned during 1999. In December 1999, the Company entered into an strategic agreement with Merck-Medco Managed Care, L.L.C. ("Merck-Medco"), a pharmacy benefit management company serving benefit plans of employers, unions, commercial and government health plans, a subsidiary of Merck & Co., Inc. Under the agreement, the Company will provide its web-based prescription management service, which manages prescriptions electronically to registered users with Merck-Medco, as defined, and to connect with Merck-Medco through the Company's proprietary web site. The Company will earn fees on electronic prescriptions on a transaction basis. 16. LITIGATION AND DISPUTES On September 23, 1997, the Company commenced an action against a customer to collect $1,000 owed by the customer to the Company pursuant to a software license agreement dated as of March 31, 1997, as amended (the "License Agreement"), between the customer and the Company. On October 1, 1997, the customer filed an answer to this lawsuit and asserted various counterclaims against the Company, in which the customer alleges that the subject software and documentation was not timely delivered and installed in accordance with the License Agreement. As relief, the customer sought a declaratory judgment that the customer is not obligated to make the $1,000 payment, as well as unspecified damages. This action was settled in January 1999, all claims were dismissed with prejudice and the settlement did not have a materially adverse effect on the Company's consolidated financial statements. From July 1 through August 17, 1998, eleven putative class actions were filed in the United States District Court for the Southern District of New York, all of which have been consolidated under the caption "In re Advanced Health Corporation Securities Litigation". The amended consolidated complaint filed in February 1999, seeks, among other remedies, certification as a class action and unspecified damages resulting from defendants' alleged violations of federal securities laws. The amended consolidated complaint alleged that the Company and certain of its current or former officers or directors are liable for certain misrepresentations and omissions regarding, among other matters, the Company's operations, performance and financial condition. On January 27, 2000, the Company agreed to a settlement of the Class Action, pursuant to which the Company has deposited $300,000 in escrow to cover the costs of notice to the class, administration of the settlement and plaintiff attorneys' expenses and will, upon final approval of the settlement, issue 886,437 shares of common stock to class members and class counsel (subject to possible enhancement if the Company's stock price drops below a certain level or if the Company authorizes and issued additional stock). The settlement is subject to the District Court's approval. The Court has scheduled a hearing on the settlement for April 18, 2000. F-22 48 AHT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997, 1998 and 1999 (000's omitted, except share and per share data) The settlement provides for the dismissal of the suit without any admission of wrongdoing on the part of the Company. From time to time, the Company is involved in other litigation. Although the actual amount of any liability that could arise with respect to any such litigation cannot be accurately predicted, in the opinion of management, the resolution of these matters is not expected to have a material adverse effect on the Company's business, results of operations or financial condition. 17. SUBSEQUENT EVENT In March 2000, the Company entered into certain agreements with Cybear, Inc. ("Cybear"). As part of the agreements, Cybear purchased a $4 million 10% Senior Convertible Note (the "Cybear Note") for cash from the Company, due March 31, 2001 and secured by the Company's assets. The Cybear Note is convertible at Cybear's option into shares of the Company's common stock at a conversion price equal to the lower of $4.34 per share or 80% of the average market price per share prior to the conversion date, provided that Cybear cannot acquire upon conversion approximately more than 1.9 million of the Company's shares. In addition, Cybear received from the Company a five-year warrant to purchase up to 300,000 shares of the Company's common stock at an exercise price per share of $4.34. The agreements include a co-marketing and distribution agreement for the Company's Web-based electronic prescribing service and clinical laboratory transaction management product and Cybear's Internet portal. In a related agreement, the Company granted Cybear the exclusive right to migrate the Company's Web-based prescription system to a hand held computer that will be marketed exclusively by the Company and Cybear. F-23 49 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE To AHT Corporation: We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements of AHT Corporation and subsidiaries included in this annual report on Form 10-K and have issued our report thereon dated April 13, 2000. Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. This schedule is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP New York, New York April 13, 2000 S-1 50 AHT CORPORATION AND SUBSIDIARIES SUPPLEMENTAL SCHEDULE II (000's omitted)
Additions --------------------------- Balance at Charged to Charged to Beginning of Cost and Other Balance at Description Period Expenses Accounts Deductions End of Period ----------- ------ -------- -------- ---------- ------------- DECEMBER 31: 1997 allowance for doubtful accounts $ 210 $ 450 $ -- $ -- $ 660 1998 allowance for doubtful accounts 660 -- -- (630) 30 1999 allowance for doubtful accounts 30 20 -- -- 50
S-2 EX-10.9 2 CHICAGO OFFICE LEASE AGREEMENT 1 200 WEST ADAMS STANDARD FORM OFFICE LEASE BETWEEN EOP OPERATING LIMITED PARTNERSHIP, a Delaware limited partnership ("LANDLORD") AND ADVANCED HEALTH CORPORATION, a Delaware corporation ("TENANT") 2 I. Basic Lease Information; Definitions ......................... 1 II. Lease Grant .................................................. 3 III. Adjustment of Commencement Date/Possession ................... 3 IV. Rent ......................................................... 4 V. Use .......................................................... 8 VI. Security Deposit ............................................. 9 VII. Services to be Furnished by Landlord ......................... 9 VIII. Leasehold Improvements ....................................... 10 IX. Graphics ..................................................... 10 X. Repairs and Alterations ...................................... 10 XI. Use of Electrical Services by Tenant ......................... 12 XII. Entry by Landlord ............................................ 12 XIII. Assignment and Subletting .................................... 13 XIV. Liens ........................................................ 14 XV. Indemnity and Waiver of Claims ............................... 14 XVI. Tenant's Insurance ........................................... 15 XVII. Subrogation .................................................. 16 XVIII. Landlord's Insurance ......................................... 17 XIX. Casualty Damage .............................................. 17 XX. Demolition ................................................... 17 XXI. Condemnation ................................................. 18 XXII. Events of Default ............................................ 18 XXIII. Remedies ..................................................... 19 XXIV. LIMITATION OF LIABILITY ...................................... 21 XXV. No Waiver .................................................... 21 XXVI. Event of Bankruptcy .......................................... 21 XXVII. Waiver of Jury Trial ......................................... 22 XXVIII. Relocation ................................................... 22 XXIX. Holding Over ................................................. 22 XXX. Subordination to Mortgages; Estoppel Certificate ............. 23 XXXI. Attorneys' Fees .............................................. 23 XXXII. Notice ....................................................... 23 XXXIII. Landlord's Lien .............................................. 24 XXXIV. Excepted Rights .............................................. 24 XXXV. Surrender of Premises ........................................ 25 XXXVI. Miscellaneous ................................................ 25 XXXVII. Entire Agreement ............................................. 27 i 3 OFFICE LEASE AGREEMENT This Office Lease Agreement (the "Lease") is made and entered into as of the 16 day of April, 1999, by and between EOP OPERATING LIMITED PARTNERSHIP, a Delaware limited partnership ("Landlord") and ADVANCED HEALTH CORPORATION, a Delaware corporation ("Tenant"). I. Basic Lease Information; Definitions. A. The following are some of the basic lease information and defined terms used in this Lease. 1. "Additional Base Rental" shall mean Tenant's Pro Rata Share of Basic Costs and any other sums (exclusive of Base Rental) that are required to be paid by Tenant to Landlord hereunder, which sums are deemed to be additional rent under this Lease. Additional Base Rental and Base Rental are sometimes collectively referred to herein as "Rent". 2. "Base Rental" shall mean the sum of One Hundred Forty Four Thousand Three Hundred Forty Eight and no/100 Dollars ($144,348.00), payable by Tenant to Landlord in thirty-six (36) monthly installments as follows: a. Twelve (12) equal installments of Three Thousand Eight Hundred Thirty Five and 33/100 Dollars ($3,835.33), each payable on or before the first day of each month during the period beginning May 1,1999, and ending April 30, 2000, provided that the installment of Base Rental for the first full calendar month of the Lease Term shall be payable upon the execution of this Lease by Tenant. b. Twelve (12) equal installments of Four Thousand Nine and 67/100 Dollars ($4,009.67), each payable on or before the first day of each month during the period beginning May 1, 2000, and ending April 30, 2001. c. Twelve (12) equal installments of Four Thousand One Hundred Eighty Four and No/100 Dollars ($4,184.00), each payable on or before the first day of each month during the period beginning May 1, 2001, and ending April 30, 2002. 3. "Building" shall mean the office building located at 200 West Adams Street, City of Chicago, County of Cook, State of Illinois, commonly known as 200 West Adams. 4. The "Commencement Date", "Lease Term" and "Termination Date" shall have the meanings set forth in subsection l.A.4.a. below or subsection I.A.4.b. below (delete one): a. The "Lease Term" shall mean a period of thirty-six (36) months, commencing on May 1, 1999, (the "Commencement Date") and, unless sooner terminated as provided herein, ending on April 30, 2002, (the "Termination Date"). b. INTENTIONALLY DELETED 5. Premises" shall mean the area located on the seventeenth (171h) floor of the Building, as outlined on Exhibit A attached hereto and incorporated herein and known as Suite #1700. Landlord and Tenant hereby stipulate and agree that the "Rentable Area of the Premises" shall mean 4,184 square feet and the "Rentable Area of the Building" shall mean 661,460 square feet. If the Premises being leased to Tenant hereunder include one or more floors within the Building in their entirety, the definition of Premises with respect to such full floor(s) shall include all corridors and restroom facilities located on such floor(s). Notwithstanding the foregoing, unless specifically provided herein to the contrary, the Premises shall not include any telephone closets, electrical closets, janitorial closets, equipment rooms or similar areas on any full or partial floor that are used by Landlord for the operation of the Building. 4 6. "Permitted Use" shall mean general office use. 7. "Security Deposit" shall mean the sum of None Dollars ($0.00). 8. "Tenant's Pro Rata Share" shall mean six thousand three hundred twenty five ten thousandths percent (0.6325%), which is the quotient (expressed as a percentage), derived by dividing the Rentable Area of the Premises by the Rentable Area of the Building. 9. INTENTIONALLY OMITTED 10. "Notice Addresses" shall mean the following addresses for Tenant and Landlord, respectively: Tenant: On and after the Commencement Date, notices shall be sent to Tenant at the Premises. Prior to the Commencement Date, notices shall be sent to Tenant at the following address: 200 West Adams Street Suite 1000 Chicago, Illinois 60606 With a copy to: Advanced Health Corporation 555 White Plains Road Tarrytown, New York 10591 Attention: Jeff Sauerhoff, CFO Landlord: Equity Office Properties 200 West Adams Street, Suite 1201 Chicago, Illinois 60606 Attention: Property Manager With a copy to: EOP Operating Limited Partnership c/o Equity Office Properties Trust Two North Riverside Plaza, Suite 2200 Chicago, Illinois 60606 Attention: Regional Counsel - Central Payments of Rent only shall be made payable to the order of: Equity Office Properties at the following address: EOP for 200 West Adams Dept. 77-97135 Chicago, Illinois 60678-7135 B. The following are additional definitions of some of the defined terms used in the Lease. 1. INTENTIONALLY OMITTED. 2. "Basic Costs" shall mean all costs and expenses paid or incurred in connection with operating, maintaining, repairing, managing and owning the Building and the Property, as further described in Article IV hereof. 2 5 3. "Broker" means Equity Office Properties Trust. 4. "Building Standard" shall mean the type, grade, brand, quality and/or quantity of materials Landlord designates from time to time to be the minimum quality and/or quantity to be used in the Building. 5. "Business Day(s)" shall mean Mondays through Fridays exclusive of the normal business holidays ("Holidays") of New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Landlord, from time to time during the Lease Term, shall have the right to designate additional Holidays, provided that such additional Holidays are commonly recognized by other office buildings in the area where the Building is located. 6. "Common Areas" shall mean those areas provided for the common use or benefit of all tenants generally and/or the public, such as corridors, elevator foyers, common mail rooms, restrooms, vending areas, lobby areas (whether at ground level or otherwise) and other similar facilities. 7. "Landlord Work" shall mean the work, if any, that Landlord is obligated to perform in the Premises pursuant to the Work Letter Agreement, if any, attached hereto as Exhibit D. (If applicable.) 8. "Maximum Rate" shall mean the greatest per annum rate of interest permitted from time to time under applicable law. 9. "Normal Business Hours" for the Building shall mean 8:00 A.M. to 6:00 P.M. Mondays through Fridays, and 8:00 A.M. to 1:00 P.M. on Saturdays, exclusive of Holidays. 10. "Prime Rate" shall mean the per annum interest rate publicly announced by The First National Bank of Chicago or any successor thereof from time to time (whether or not charged in each instance) as its prime or base rate in Chicago, Illinois. 11. "Property" shall mean the Building and the parcel(s) of land on which it is located and, at Landlord's discretion, the Building garage, if any, and all other improvements owned by Landlord and serving the Building and the tenants thereof and the parcel(s) of land on which they are located. II. Lease Grant. Subject to and upon the terms herein set forth, Landlord leases to Tenant and Tenant leases from Landlord the Premises, together with the right, in common with others, to use the Common Areas. III. Adjustment of Commencement Date/Possession A. INTENTIONALLY OMITTED B. By taking possession of the Premises, Tenant is deemed to have accepted the Premises and agreed that the Premises is in good order and satisfactory condition, with no representation or warranty by Landlord as to the condition of the Premises or the Building or suitability thereof for Tenant's use. C. Notwithstanding anything to the contrary contained in the Lease, Landlord shall not be obligated to tender possession of any portion of the Premises or other space leased by Tenant from time to time hereunder that, on the date possession is to be delivered, is occupied by a tenant or other occupant or that is subject to the rights of any other tenant or occupant, nor shall Landlord have any other obligations to Tenant under this Lease with respect to such space until the date Landlord: (1) recaptures such space from such existing tenant or occupant; and (2) regains the legal right to possession thereof. This Lease shall not be affected by any such failure to deliver possession and Tenant shall have no claim for damages against Landlord as a result thereof, all of which are hereby waived and released by Tenant. 3 6 Landlord and Tenant acknowledge that Tenant is presently occupying other premises in the Building known as Suite 1000 ("Suite 1000") pursuant to that certain Office Lease dated December 8, 1995 by and between Landlord's predecessor-in-interest and Tenant, which lease has been terminated effective March 31, 1999 pursuant to Section 30(a) thereof. In the event Landlord fails or is unable to tender possession of the Premises to Tenant on or before the Commencement Date for any reason whatsoever, Tenant shall continue to occupy Suite 1000 under the terms and provisions of this Lease as if Suite 1000 were the Premises hereunder until such date as Landlord tenders possession of the Premises to Tenant, except that in no event shall Rent and any other charges payable by Tenant hereunder be altered in any way by reason of the fact that Tenant may be occupying Suite 1000 in lieu of the Premises as provided above. D. If Tenant takes possession of the Premises prior to the Commencement Date, such possession shall be subject to all the terms and conditions of the Lease except that Tenant shall not be required to pay Base Rental or Additional Base Rental with respect to the period of time prior to the Commencement Date. Tenant shall, however, be liable for the cost of any services (e.g. electricity, HVAC, freight elevators) that are provided to Tenant or the Premises during the period of Tenant's possession prior to the Commencement Date. Nothing herein shall be construed as granting Tenant the right to take possession of the Premises prior to the Commencement Date, whether for construction, fixturing or any other purpose, without the prior consent of Landlord. IV. Rent. A. During each calendar year, or portion thereof, falling within the Lease Term, Tenant shall pay to Landlord as Additional Base Rental hereunder Tenant's Pro Rata Share of Basic Costs (as defined below) for the applicable calendar year. Prior to the Commencement Date and prior to January 1 of each calendar year during the Lease Term, or as soon thereafter as practical, Landlord shall make a good faith estimate of Basic Costs for the applicable calendar year and Tenant's Pro Rata Share thereof. On or before the first day of each month during such calendar year, Tenant shall pay to Landlord, as Additional Base Rental, a monthly installment equal to one-twelfth of Tenant's Pro Rata Share of Landlord's estimate of Basic Costs. Landlord shall have the right from time to time during any such calendar year to revise the estimate of Basic Costs for such year and provide Tenant with a revised statement therefor, and thereafter the amount Tenant shall pay each month shall be based upon such revised estimate. If Landlord does not provide Tenant with an estimate of the Basic Costs by January 1 of any calendar year, Tenant shall continue to pay a monthly installment based on the previous year's estimate until such time as Landlord provides Tenant with an estimate of Basic Costs for the current year. Upon receipt of such current year's estimate, an adjustment shall be made for any month during the current year with respect to which Tenant paid monthly installments of Additional Base Rental based on the previous year's estimate. Tenant shall pay to Landlord for any underpayment within ten (10) days after demand. Any overpayment shall, at Landlord's option, be refunded to Tenant or credited against the installment of Additional Base Rental due for the months immediately following the furnishing of such estimate. Any amounts paid by Tenant based on any estimate shall be subject to adjustment pursuant to the immediately following paragraph when actual Basic Costs are determined for such calendar year. As soon as is practical following the end of each calendar year during the Lease Term, Landlord shall furnish to Tenant a statement of Landlord's actual Basic Costs for the previous calendar year. If the amount of estimated Basic Costs actually paid by Tenant for the prior year is in excess of Tenant's actual Pro Rata Share of Basic Costs for such prior year, then Landlord shall apply such overpayment against Additional Base Rental due or to become due hereunder, provided if the Lease Term expires prior to the determination of such overpayment, Landlord shall refund such overpayment to Tenant after first deducting the amount of any Rent due hereunder. Likewise, Tenant shall pay to Landlord, within ten (10) days after demand, any underpayment with respect to the prior year, whether or not the Lease has terminated prior to receipt by Tenant of a statement for such underpayment, it being understood that this clause shall survive the expiration of the Lease. 4 7 B. Basic Costs shall mean all costs and expenses paid or incurred in each calendar year in connection with operating, maintaining, repairing, managing and owning the Building and the Property, including, but not limited to, the following: 1. All labor costs for all persons performing services required or utilized in connection with the operation, repair, replacement and maintenance of and control of access to the Building and the Property, including but not limited to amounts incurred for wages, salaries and other compensation for services, payroll, social security, unemployment and other similar taxes, workers' compensation insurance, uniforms, training, disability benefits, pensions, hospitalization, retirement plans, group insurance or any other similar or like expenses or benefits. 2. All management fees, the cost of equipping and maintaining a management office at the Building, accounting services, legal fees not attributable to leasing and collection activity, and all other administrative costs relating to the Building and the Property. If management services are not provided by a third party, Landlord shall be entitled to a management fee comparable to that due and payable to third parties provided Landlord or management companies owned by, or management divisions of, Landlord perform actual management services of a comparable nature and type as normally would be performed by third parties. 3. All rental and/or purchase costs of materials, supplies, tools and equipment used in the operation, repair, replacement and maintenance and the control of access to the Building and the Property. 4. All amounts charged to Landlord by contractors and/or suppliers for services, replacement parts, components, materials, equipment and supplies furnished in connection with the operation, repair, maintenance, replacement of and control of access to any part of the Building, or the Property generally, including the heating, air conditioning, ventilating, plumbing, electrical, elevator and other systems and equipment. At Landlord's option, major repair items may be amortized over a period of up to five (5) years. 5. All premiums and deductibles paid by Landlord for fire and extended coverage insurance, earthquake and extended coverage insurance, liability and extended coverage insurance, rental loss insurance, elevator insurance, boiler insurance and other insurance customarily carried from time to time by landlords of comparable office buildings or required to be carried by Landlord's Mortgagee. 6. Charges for water, gas, steam and sewer, but excluding those charges for which Landlord is otherwise reimbursed by tenants, and charges for Electrical Costs. For purposes hereof, the term "Electrical Costs" shall mean: (i) all charges paid by Landlord for electricity supplied to the Building, Property and Premises, regardless of whether such charges are characterized as distribution charges, transmission charges, generation charges, public good charges, disconnection charges, competitive transaction charges, stranded cost recoveries or otherwise; (ii) except to the extent otherwise included in Basic Costs, any costs incurred in connection with the energy management program for the Building, Property and Premises, including any costs incurred for the replacement of lights and ballasts and the purchase and installation of sensors and other energy saving equipment; and (iii) if and to the extent permitted by law, a reasonable fee for the services provided by Landlord in connection with the selection of utility companies and the negotiation and administration of contracts for the generation of electricity. Notwithstanding the foregoing, Electrical Costs shall be adjusted as follows: (a) any amounts received by Landlord as reimbursement for above standard electrical consumption shall be deducted from Electrical Costs, (b) the cost of electricity incurred in providing overtime HVAC to specific tenants shall be deducted from Electrical Costs, it being agreed that the electrical component of overtime HVAC Costs shall be calculated as a reasonable percentage of the total HVAC costs charged to such tenants, and (c) if Tenant is billed directly for the cost of electricity to the Premises as a separate charge in addition to Base Rental and Basic Costs, 5 8 the cost of electricity to individual tenant spaces in the Building shall be deducted from Electrical Costs. 7. "Taxes", which for purposes hereof, shall mean: (a) all real estate taxes and assessments on the Property, the Building or the Premises, and taxes and assessments levied in substitution or supplementation in whole or in part of such taxes, (b) all personal property taxes for the Building's personal property, including license expenses, (c) all taxes imposed on services of Landlord's agents and employees, (d) all other taxes, fees or assessments now or hereafter levied by any governmental authority on the Property, the Building or its contents or on the operation and use thereof (except as relate to specific tenants), and (e) all costs and fees incurred in connection with seeking reductions in or refunds in Taxes including, without limitation, any costs incurred by Landlord to challenge the tax valuation of the Building, but excluding income taxes. For the purpose of determining real estate taxes and assessments for any given calendar year, the amount to be included in Taxes for such year shall be as follows: (1) with respect to any special assessment that is payable in installments, Taxes for such year shall include the amount of the installment (and any interest) due and payable during such year; and (2) with respect to all other real estate taxes, Taxes for such year shall, at Landlord's election, include either the amount accrued, assessed or otherwise imposed for such year or the amount due and payable for such year, provided that Landlord's election shall be applied consistently throughout the Lease Term. If a reduction in Taxes is obtained for any year of the Lease Term during which Tenant paid its Pro Rata Share of Basic Costs, then Basic Costs for such year will be retroactively adjusted and Landlord shall provide Tenant with a credit, if any, based on such adjustment. Likewise, if a reduction is subsequently obtained for Taxes for the Base Year (if Tenant's Pro Rata Share is based upon increases in Basic Costs over a Base Year), Basic Costs for the Base Year shall be restated and the Excess for all subsequent years recomputed. Tenant shall pay to Landlord Tenant's Pro Rata Share of any such increase in the Excess within thirty (30) days after Tenant's receipt of a statement therefor from Landlord. 8. All landscape expenses and costs of maintaining, repairing, resurfacing and striping of the parking areas and garages of the Property, if any. 9. Cost of all maintenance service agreements, including those for equipment, alarm service, window cleaning, drapery or venetian blind cleaning, janitorial services, pest control, uniform supply, plant maintenance, landscaping, and any parking equipment. 10. Cost of all other repairs, replacements and general maintenance of the Property and Building neither specified above nor directly billed to tenants. 11. The amortized cost of capital improvements made to the Building or the Property which are: (a) primarily for the purpose of reducing operating expense costs or otherwise improving the operating efficiency of the Property or Building; or (b) required to comply with any laws, rules or regulations of any governmental authority or a requirement of Landlord's insurance carrier. The cost of such capital improvements shall be amortized over a period of five (5) years and shall, at Landlord's option, include interest at a rate that is reasonably equivalent to the interest rate that Landlord would be required to pay to finance the cost of the capital improvement in question as of the date such capital improvement is performed, provided if the payback period for any capital improvement is less than five (5) years, Landlord may amortize the cost of such capital improvement over the payback period. 12. Any other expense or charge of any nature whatsoever which, in accordance with general industry practice with respect to the operation of a first-class office building, would be construed as an operating expense. Basic Costs shall not include the cost of capital improvements (except as set forth above and as distinguished from replacement parts or components purchased and installed in the ordinary course), depreciation, interest (except as provided above with respect to the amortization of capital improvements), lease commissions, and principal payments on mortgage and other non-operating debts of Landlord. In 6 9 addition, if Landlord incurs any common Expenses in connection with the Building and one or more other buildings, the cost of such Expenses shall be equitably prorated between the Building and such other buildings. If the Building is not at least ninety-five percent (95%) occupied during any calendar year of the Lease Term or if Landlord is not supplying services to at least ninety-five percent (95%) of the total Rentable Area of the Building at any time during any calendar year of the Lease Term, actual Basic Costs for purposes hereof shall, at Landlord's option, be determined as if the Building had been ninety-five percent (95%) occupied and Landlord had been supplying services to ninety-five percent (95%) of the Rentable Area of the Building during such year. If Tenant pays for its Pro Rata Share of Basic Costs based on increases over a "Base Year and Basic Costs for any calendar year during the Lease Term are determined as provided in the foregoing sentence, Basic Costs for such Base Year shall also be determined as if the Building had been ninety-five percent (95%) occupied and Landlord had been supplying services to ninety-five percent (95%) of the Rentable Area of the Building. Any necessary extrapolation of Basic Costs under this Article shall be performed by adjusting the cost of those components of Basic Costs that are impacted by changes in the occupancy of the Building (including, at Landlord's option, Taxes) to the cost that would have been incurred if the Building had been ninety-five percent (95%) occupied and Landlord had been supplying services to ninety-five percent (95%) of the Rentable Area of the Building. In addition, if Tenant's Pro Rata Share of Basic Costs is determined based upon increases over a Base Year and Basic Costs for the Base Year include exit and disconnection fees, stranded cost charges and/or competitive transaction charges, such fees and charges may, at Landlord's option, be imputed as a Basic Cost for subsequent years in which such fees and charges are not incurred. In no event, however, shall the amount of such imputed fees and charges exceed the actual amount of exit and disconnection fees, stranded cost charges and/or competitive transaction charges that were actually included in Basic Costs for the Base Year. C. If Basic Costs for any calendar year increase by more than five percent (5%) over Basic Costs for the immediately preceding calendar year, Tenant, within ninety (90) days after receiving Landlord's statement of actual Basic Costs for a particular calendar year, shall have the right to provide Landlord with written notice (the "Review Notice") of its intent to review Landlord's books and records relating to the Basic Costs for such calendar year. Within a reasonable time after receipt of a timely Review Notice, Landlord shall make such books and records available to Tenant or Tenant's agent for its review at either Landlord's home office or at the office of the Building, provided that if Tenant retains an agent to review Landlord's books and records for any calendar year, such agent must be CPA firm licensed to do business in the state in which the Building is located. Tenant shall be solely responsible for any and all costs, expenses and fees incurred by Tenant or Tenant's agent in connection with such review. If Tenant elects to review Landlord's books and records, within thirty (30) days after such books and records are made available to Tenant, Tenant shall have the right to give Landlord written notice stating in reasonable detail any objection to Landlord's statement of actual Basic Costs for such calendar year. If Tenant fails to give Landlord written notice of objection within such thirty (30) day period or fails to provide Landlord with a Review Notice within the ninety (90) day period provided above, Tenant shall be deemed to have approved Landlord's statement of Basic Costs in all respects and shall thereafter be barred from raising any claims with respect thereto. Upon Landlord's receipt of a timely objection notice from Tenant, Landlord and Tenant shall work together in good faith to resolve the discrepancy between Landlord's statement and Tenant's review. If Landlord and Tenant determine that Basic Costs for the calendar year in question are less than reported, Landlord shall provide Tenant with a credit against future Additional Base Rental in the amount of any overpayment by Tenant. Likewise, if Landlord and Tenant determine that Basic Costs for the calendar year in question are greater than reported, Tenant shall forthwith pay to Landlord the amount of underpayment by Tenant. Any information obtained by Tenant pursuant to the provisions of this Section shall be treated as confidential. Notwithstanding anything herein to the contrary, Tenant shall not be permitted to examine Landlord's books and records or to dispute any statement of Basic Costs unless Tenant has paid to Landlord the amount due as shown on Landlord's statement of actual Basic Costs, said payment being a condition precedent to Tenant's right to examine Landlord's books and records. 7 10 D. Tenant covenants and agrees to pay to Landlord during the Lease Term, without any setoff or deduction whatsoever, the full amount of all Base Rental and Additional Base Rental due hereunder. In addition, Tenant shall pay and be liable for, as additional rent, all rental, sales and use taxes or other similar taxes, if any, levied or imposed by any city, state, county or other governmental body having authority, such payments to be in addition to all other payments required to be paid to Landlord by Tenant under the terms and conditions of this Lease. Any such payments shall be paid concurrently with the payments of the Rent on which the tax is based. The Base Rental, Tenant's Pro Rata Share of Basic Costs and any recurring monthly charges due hereunder shall be due and payable in advance on the first day of each calendar month during the Lease Term without demand, provided that the installment of Base Rental for the first full calendar month of the Lease Term shall be payable upon the execution of this Lease by Tenant. All other items of Rent shall be due and payable by Tenant on or before ten (10) days after billing by Landlord. If the Lease Term commences on a day other than the first day of a calendar month or terminates on a day other than the last day of a calendar month, then the monthly Base Rental and Tenant's Pro Rata Share of Basic Costs for such month shall be prorated for the number of days in such month occurring within the Lease Term based on a fraction, the numerator of which is the number of days of the Lease Term that fell within such calendar month and the denominator of which is thirty (30). All such payments shall be by a good and sufficient check. No payment by Tenant or receipt or acceptance by Landlord of a lesser amount than the correct amount of Rent due under this Lease shall be deemed to be other than a payment on account of the earliest Rent due hereunder, nor shall any endorsement or statement on any check or any letter accompanying any check or payment be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance or pursue any other available remedy. The acceptance by Landlord of any Rent on a date after the due date of such payment shall not be construed to be a waiver of Landlord's right to declare a default for any other late payment. Tenant's covenant to pay Rent shall be independent of every other covenant set forth in this Lease. E. All Rent not paid when due and payable shall bear interest from the date due until paid at the lesser of: (1) eighteen percent (18%) per annum; or (2) the Maximum Rate. In addition, if Tenant fails to pay any installment of Rent when due and payable hereunder, a service fee equal to five percent (5%) of such unpaid amount will be due and payable immediately by Tenant to Landlord. V. Use. The Premises shall be used for the Permitted Use and for no other purpose. Tenant agrees not to use or permit the use of the Premises for any purpose which is illegal, dangerous to life, limb or property or which, in Landlord's reasonable opinion, creates a nuisance or which would increase the cost of insurance coverage with respect to the Building. Tenant shall conduct its business and control its agents, servants, contractors, employees, customers, licensees, and invitees in such a manner as not to interfere with, annoy or disturb other tenants, or in any way interfere with Landlord in the management and operation of the Building. Tenant will maintain the Premises in a clean and healthful condition, and comply with all laws, ordinances, orders, rules and regulations of any governmental entity with reference to the operation of Tenant's business and to the use, condition, configuration or occupancy of the Premises, including without limitation, the Americans with Disabilities Act (collectively referred to as "Laws"). Tenant, within ten (10) days after receipt thereof, shall provide Landlord with copies of any notices it receives with respect to a violation or alleged violation of any Laws. Tenant shall reimburse and compensate Landlord for all expenditures made by, or damages or fines sustained or incurred by, Landlord due to any violations of Laws by Tenant or any Tenant Related Parties with respect to the Premises. Tenant will comply with the rules and regulations of the Building attached hereto as Exhibit B and such other rules and regulations adopted and altered by Landlord from time to time and will cause all of its agents, servants, contractors, employees, customers, licensees and invitees to do so. All changes to such rules and regulations will be reasonable and shall be sent by Landlord to Tenant in writing. VI. Security Deposit The Security Deposit shall be delivered to Landlord upon the execution of this Lease by Tenant and shall be held by Landlord without liability for interest (except as required by law) and as security for the performance of Tenant's obligations under this Lease. The Security Deposit shall not be considered an advance payment of Rent or a measure of Tenant's liability for damages. 8 11 Landlord may, from time to time, without prejudice to any other remedy, use all or a portion of the Security Deposit to make good any arrearage of Rent, to repair damages to the Premises, to clean the Premises upon termination of this Lease or otherwise to satisfy any other covenant or obligation of Tenant hereunder. Following any such application of the Security Deposit, Tenant shall pay to Landlord on demand the amount so applied in order to restore the Security Deposit to its original amount. If Tenant is not in default at the termination of this Lease, after Tenant surrenders the Premises to Landlord in accordance with this Lease and all amounts due Landlord from Tenant are finally determined and paid by Tenant or through application of the Security Deposit, the balance of the Security Deposit remaining after any such application shall be returned to Tenant. If Landlord transfers its interest in the Premises during the Lease Term, Landlord may assign the Security Deposit to the transferee and thereafter shall have no further liability for the return of such Security Deposit. Tenant agrees to look solely to such transferee or assignee for the return of the Security Deposit. Landlord and its successors and assigns shall not be bound by any actual or attempted assignment or encumbrance of the Security Deposit by Tenant, provided, however, if Tenant's interest in this Lease has been assigned, Landlord shall, provided that Landlord has been furnished with a fully executed copy of the agreement assigning such Security Deposit, return the Security Deposit to such assignee in accordance with the terms and conditions hereof. If Landlord returns the Security Deposit to Tenant's assignee as aforesaid, Landlord will have no further obligation to any party with respect thereto. Landlord shall not be required to keep the Security Deposit separate from its other accounts. VII. Services to be Furnished by Landlord. A. Landlord, as part of Basic Costs (except as otherwise provided), agrees to furnish Tenant the following services: 13. Water for use in the lavatories on the floor(s) on which the Premises is located. If Tenant desires water in the Premises for any approved reason, including a private lavatory or kitchen, cold water shall be supplied, at Tenant's sole cost and expense, from the Building water main through a line and fixtures installed at Tenant's sole cost and expense with the prior reasonable consent of Landlord. If Tenant desires hot water in the Premises, Tenant, at its sole cost and expense and subject to the prior reasonable consent of Landlord, may install a hot water heater in the Premises. Tenant shall be solely responsible for maintenance and repair of any such hot water heater. 14. Central heat and air conditioning in season during Normal Business Hours, at such temperatures and in such amounts as are considered by Landlord, in its reasonable judgment, to be standard for buildings of similar class, size, age and location, or as required by governmental authority. In the event that Tenant requires central heat, ventilation or air conditioning at hours other than Normal Business Hours, such central heat, ventilation or air conditioning shall be furnished only upon the written request of Tenant delivered to Landlord at the office of the Building prior to 3:00 P.M. at least one Business Day in advance of the date for which such usage is requested. Tenant shall pay Landlord, as Additional Base Rental, the entire cost of additional service as such costs are determined by Landlord from time to time. 15. Maintenance and repair of all Common Areas in the manner and to the extent reasonably deemed by Landlord to be standard for buildings of similar class, size, age and location. 16. Janitor service on Business Days; provided, however, if Tenant's use, floor covering or other improvements require special services, Tenant shall pay the additional cost reasonably attributable thereto as Additional Base Rental. 17. Passenger elevator service in common with other tenants of the Building. 18. Electricity to the Premises for general office use, in accordance with and subject to the terms and conditions set forth in Article XI of this Lease. B. The failure by Landlord to any extent to furnish, or the interruption or termination of any services in whole or in part, resulting from adherence to laws, regulations and administrative orders, wear, use, repairs, improvements, alterations or any causes beyond the reasonable control of Landlord shall not render Landlord liable in any 9 12 respect nor be construed as a constructive eviction of Tenant, nor give rise to an abatement of Rent, nor relieve Tenant from the obligation to fulfill any covenant or agreement hereof. Should any of the equipment or machinery used in the provision of such services for any cause cease to function properly, Landlord shall use reasonable diligence to repair such equipment or machinery. C. Tenant expressly acknowledges that if Landlord, from time to time, elects to provide security services, Landlord shall not be deemed to have warranted the efficiency of any security personnel, service, procedures or equipment and Landlord shall not be liable in any manner for the failure of any such security personnel, services, procedures or equipment to prevent or control, or apprehend anyone suspected of personal injury, property damage or any criminal conduct in, on or around the Property. VIII. Leasehold Improvements. Any trade fixtures, unattached and movable equipment or furniture, or other personalty brought into the Premises by Tenant ("Tenant's Property") shall be owned and insured by Tenant. Tenant shall remove all such Tenant's Property from the Premises in accordance with the terms of Article XXXV hereof. Any and all alterations, additions and improvements to the Premises, including any built-in furniture (collectively, "Leasehold Improvements") shall be owned and insured by Landlord and shall remain upon the Premises, all without compensation, allowance or credit to Tenant. Landlord may, nonetheless, at any time prior to, or within six (6) months after, the expiration or earlier termination of this Lease or Tenant's right to possession, require Tenant to remove any Leasehold Improvements performed by or for the benefit of Tenant and all electronic, phone and data cabling as are designated by Landlord (the "Required Removables") at Tenant's sole cost. In the event that Landlord so elects, Tenant shall remove such Required Removables within ten (10) days after notice from Landlord, provided that in no event shall Tenant be required to remove such Required Removables prior to the expiration or earlier termination of this Lease or Tenant's right to possession. In addition to Tenant's obligation to remove the Required Removables, Tenant shall repair any damage caused by such removal and perform such other work as is reasonably necessary to restore the Premises to a "move in" condition. If Tenant fails to remove any specified Required Removables or to perform any required repairs and restoration within the time period specified above, Landlord, at Tenant's sole cost and expense, may remove, store, sell and/or dispose of the Required Removables and perform such required repairs and restoration work. Tenant, within five (5) days after demand from Landlord, shall reimburse Landlord for any and all reasonable costs incurred by Landlord in connection with the Required Removables. IX.C Graphics. Landlord shall provide and install, at Tenant's cost, any suite numbers and Tenant identification on the exterior of the Premises using the standard graphics for the Building. Tenant shall not be permitted to install any signs or other identification without Landlord's prior written consent. X.C Repairs and Alterations. D. Except to the extent such obligations are imposed upon Landlord hereunder, Tenant, at its sole cost and expense, shall perform all maintenance and repairs to the Premises as are necessary to keep the same in good condition and repair throughout the entire Lease Term, reasonable wear and tear excepted. Tenant's repair and maintenance obligations with respect to the Premises shall include, without limitation, any necessary repairs with respect to: (1) any carpet or other floor covering, (2) any interior partitions, (3) any doors, (4) the interior side of any demising walls, (5) any telephone and computer cabling that serves Tenant's equipment exclusively, (6) any supplemental air conditioning units, private showers and kitchens, including any plumbing in connection therewith, and similar facilities serving Tenant exclusively, and (7) any alterations, additions or improvements performed by contractors retained by Tenant. All such work shall be performed in accordance with section X.B. below and the rules, policies and procedures reasonably enacted by Landlord from time to time for the performance of work in the Building. If Tenant fails to make any necessary repairs to the Premises, Landlord may, at its option, make such repairs, and Tenant shall pay the cost thereof to the Landlord on demand as Additional Base Rental, together with an administrative charge in an amount equal to ten percent (10%) of the cost of such repairs. Landlord shall, at its expense (except as included in Basic Costs), keep and maintain 10 13 in good repair and working order and make all repairs to and perform necessary maintenance upon: (a) all structural elements of the Building; and (b) all mechanical, electrical and plumbing systems that serve the Building in general; and (c) the Building facilities common to all tenants including, but not limited to, the ceilings, walls and floors in the Common Areas. In addition, Landlord may elect, at the expense of Tenant, to repair any damage or injury to the Building caused by moving property of Tenant in or out of the Building, or by installation or removal of furniture or other property, or by misuse by, or neglect, or improper conduct of, Tenant or any Tenant Related Parties (hereinafter defined). E. Tenant shall not make or allow to be made any alterations, additions or improvements to the Premises without first obtaining the written consent of Landlord in each such instance. Prior to commencing any such work and as a condition to obtaining Landlord's consent, Tenant must furnish Landlord with plans and specifications reasonably acceptable to Landlord; names and addresses of contractors reasonably acceptable to Landlord; copies of contracts; necessary permits and approvals; evidence of contractor's and subcontractors insurance in accordance with Article XVI section B. hereof; and payment bond or other security, all in form and amount satisfactory to Landlord. All such improvements, alterations or additions shall be constructed in a good and workmanlike manner using Building Standard materials or other new materials of equal or greater quality. Landlord, to the extent reasonably necessary to avoid any disruption to the tenants and occupants of the Building, shall have the right to designate the time when any such alterations, additions and improvements may be performed and to otherwise designate reasonable rules, regulations and procedures for the performance of work in the Building. Upon completion, Tenant shall furnish "as-built" plans, contractor's affidavits and full and final waivers of lien and receipted bills covering all labor and materials. All improvements, alterations and additions shall comply with all insurance requirements, codes, ordinances, laws and regulations, including without limitation, the Americans with Disabilities Act. Tenant shall reimburse Landlord upon demand as Additional Base Rental for all sums, if any, expended by Landlord for third party examination of the architectural, mechanical, electric and plumbing plans for any alterations, additions or improvements. In addition, if Landlord so requests, Landlord shall be entitled to oversee the construction of any alterations, additions or improvements that may affect the structure of the Building or any of the mechanical, electrical, plumbing or life safety systems of the Building. In the event Landlord elects to oversee such work, Landlord shall be entitled to receive a fee for such oversight in an amount equal to fifteen percent (15%) of the cost of such alterations, additions or improvements. Landlord's approval of Tenant's plans and specifications for any work performed for or on behalf of Tenant shall not be deemed to be a representation by Landlord that such plans and specifications comply with applicable insurance requirements, building codes, ordinances, laws or regulations or that the alterations, additions and improvements constructed in accordance with such plans and specifications will be adequate for Tenant's use. Tenant shall pay, as an additional charge, the entire increase in real estate taxes on the Building which shall, at any time prior to or after the Commencement Date, result from or be attributable to any alteration, addition or improvement to the Premises made by or for the account of Tenant in excess of the Building Standard improvements for the Building. XI. Use of Electrical Services by Tenant. F. All electricity used by Tenant in the Premises shall, at Landlord's option, be paid for by Tenant either: (1) through inclusion in Base Rental and Basic Costs (except as provided in Section XI.B. below with respect to excess usage); or (2) by a separate charge billed directly to Tenant by Landlord and payable by Tenant as Additional Base Rental within ten (10) days after billing; or (3) by a separate charge or charges billed by the utility company(ies) providing electrical service and payable by Tenant directly to such utility company(ies). It is understood that the Premises is presently directly metered by the utility company providing electrical service to the Building and that alternative (3) in the preceding sentence presently applies, although the foregoing shall not limit Landlord's options under this section at any time hereafter. It is further understood that electrical service to the Premises may be furnished by one or more companies providing electrical generation, transmission and/or distribution services and that the cost of electricity may be billed as a single charge or divided into and billed in a variety of categories such as distribution charges, transmission charges, generation charges, public good charges or other similar 11 14 categories. Landlord shall have the exclusive right to select the company(ies) providing electrical service to the Building, Premises and Property, to aggregate the electrical service for the Building, Premises and Property with other buildings, to purchase electricity for the Building, Premises and Property through a broker and/or buyers group and to change the providers and/or manner of purchasing electricity from time to time. Landlord shall be entitled to receive a reasonable fee (if permitted by law) for the services provided by Landlord in connection with the selection of utility companies and the negotiation and administration of contracts for the generation of electricity. In addition, if Landlord bills Tenant directly for the cost of electricity as Additional Base Rental, the cost of electricity may include (if permitted by law) an administrative fee to reimburse Landlord for the cost of reading meters, preparing invoices and related costs. G. Tenant's use of electrical service in the Premises shall not exceed, either in voltage, rated capacity, use beyond Normal Business Hours or overall load, that which Landlord deems to be standard for the Building. In the event Tenant shall consume (or request that it be allowed to consume) electrical service in excess of that deemed by Landlord to be standard for the Building, Landlord may refuse to consent to such excess usage or may condition its consent to such excess usage upon such conditions as Landlord reasonably elects (including the installation of utility service upgrades, submeters, air handlers or cooling units), and all such additional usage (to the extent permitted by law), installation and maintenance thereof shall be paid for by Tenant as Additional Base Rental. Landlord, at any time during the Lease Term, shall have the right to separately meter electrical usage for the Premises or to measure electrical usage by survey or any other method that Landlord, in its reasonable judgment, deems to be appropriate. H. Notwithstanding Section A. above to the contrary, if Landlord permits Tenant to purchase electrical power for the Premises from a provider other than Landlord's designated company(ies), such provider shall be considered to be a contractor of Tenant and Tenant shall indemnify and hold Landlord harmless from such provider's acts and omissions while in, or in connection with their services to, the Building or Premises in accordance with the terms and conditions of Article XV. In addition, at the request of Landlord, Tenant shall allow Landlord to purchase electricity from Tenant's provider at Tenant's rate or at such lower rate as can be negotiated by the aggregation of Landlord's and Tenant's requirements for electricity power. XII. Entry by Landlord. Landlord and its agents or representatives shall have the right to enter the Premises to inspect the same, or to show the Premises to prospective purchasers, mortgagees, tenants (during the last twelve months of the Lease Term or earlier in connection with a potential relocation) or insurers, or to clean or make repairs, alterations or additions thereto, including any work that Landlord deems necessary for the safety, protection or preservation of the Building or any occupants thereof, or to facilitate repairs, alterations or additions to the Building or any other tenants' premises. Except for any entry by Landlord in an emergency situation or to provide normal cleaning and janitorial service, Landlord shall provide Tenant with reasonable prior notice of any entry into the Premises, which notice may be given verbally. If reasonably necessary for the protection and safety of Tenant and its employees, Landlord shall have the right to temporarily close the Premises to perform repairs, alterations or additions in the Premises, provided that Landlord shall use reasonable efforts to perform all such work on weekends and after Normal Business Hours. Entry by Landlord hereunder shall not constitute a constructive eviction or entitle Tenant to any abatement or reduction of Rent by reason thereof. 12 15 XIII. Assignment and Subletting. A. Tenant shall not assign, sublease, transfer or encumber this Lease or any interest therein or grant any license, concession or other right of occupancy of the Premises or any portion thereof or otherwise permit the use of the Premises or any portion thereof by any party other than Tenant (any of which events is hereinafter called a "Transfer) without the prior written consent of Landlord, which consent shall not be unreasonably withheld with respect to any proposed assignment or subletting. Landlord's consent shall not be considered unreasonably withheld if: (1) the proposed transferee's financial responsibility does not meet the same criteria Landlord uses to select Building tenants; (2) the proposed transferee's business is not suitable for the Building considering the business of the other tenants and the Building's prestige or would result in a violation of an exclusive right granted to another tenant in the Building; (3) the proposed use is different than the Permitted Use; (4) the proposed transferee is a government agency or occupant of the Building; (5) Tenant is in default; or (6) any portion of the Building or Premises would become subject to additional or different governmental laws or regulations as a consequence of the proposed Transfer and/or the proposed transferee's use and occupancy of the Premises. Tenant acknowledges that the foregoing is not intended to be an exclusive list of the reasons for which Landlord may reasonably withhold its consent to a proposed Transfer. Any attempted Transfer in violation of the terms of this Article shall, at Landlord's option, be void. Consent by Landlord to one or more Transfers shall not operate as a waiver of Landlord's rights as to any subsequent Transfers. In addition, Tenant shall not, without Landlord's consent, publicly advertise the proposed rental rate for any Transfer. B. If Tenant requests Landlord's consent to a Transfer, Tenant, together with such request for consent, shall provide Landlord with the name of the proposed transferee and the nature of the business of the proposed transferee, the term, use, rental rate and all other material terms and conditions of the proposed Transfer, including, without limitation, a copy of the proposed assignment, sublease or other contractual documents and evidence satisfactory to Landlord that the proposed transferee is financially responsible. Notwithstanding Landlord's agreement to act reasonably under Section XIII.A. above, Landlord may, within forty-five (45) days after its receipt of all information and documentation required herein, either, (1) consent to or reasonably refuse to consent to such Transfer in writing; or (2) negotiate directly with the proposed transferee and in the event Landlord is able to reach an agreement with such proposed transferee, terminate this Lease (in part or in whole, as appropriate) upon thirty (30) days' notice; or (3) cancel and terminate this Lease, in whole or in part as appropriate, upon thirty (30) days' notice. In the event Landlord consents to any such Transfer, the Transfer and consent thereto shall be in a form approved by Landlord, and Tenant shall bear all costs and expenses incurred by Landlord in connection with the review and approval of such documentation, which costs and expenses shall be deemed to be at least Seven Hundred Fifty Dollars ($750.00). C. All cash or other proceeds (the "Transfer Consideration") of any Transfer of Tenant's interest in this Lease and/or the Premises, whether consented to by Landlord or not, shall be paid to Landlord and Tenant hereby assigns all rights it might have or ever acquire in any such proceeds to Landlord. In addition to the Rent hereunder, Tenant hereby covenants and agrees to pay to Landlord all rent and other consideration which it receives which is in excess of the Rent payable hereunder within ten (10) days following receipt thereof by Tenant. In addition to any other rights Landlord may have, Landlord shall have the right to contact any transferee and require that all payments made pursuant to the Transfer shall be made directly to Landlord. D. If Tenant is a corporation, limited liability company or similar entity, and if at any time during the Lease Term the entity or entities who own the voting shares at the time of the execution of this Lease cease for any reason (including but not limited to merger, consolidation or other reorganization involving another corporation) to own a majority of such shares, or if Tenant is a partnership and if at any time during the Lease Term the general partner or partners who own the general partnership interests in the partnership at the time of the execution of this Lease, cease for any reason to own a majority of such interests (except as the result of transfers by gift, bequest or inheritance to or for the benefit of members of the immediate family of such original shareholder[s] or partner[s]), such an event shall be deemed to be a 13 16 Transfer. The preceding sentence shall not apply whenever Tenant is a corporation, the outstanding stock of which is listed on a recognized security exchange, or if at least eighty percent (80%) of its voting stock is owned by another corporation, the voting stock of which is so listed. E. Any Transfer consented to by Landlord in accordance with this Article XIII shall be only for the Permitted Use and for no other purpose. In no event shall any Transfer release or relieve Tenant or any Guarantors from any obligations under this Lease. XIV. Liens. Tenant will not permit any mechanic's liens or other liens to be placed upon the Premises or Tenant's leasehold interest therein, the Building, or the Property. Landlord's title to the Building and Property is and always shall be paramount to the interest of Tenant, and nothing herein contained shall empower Tenant to do any act that can, shall or may encumber Landlord's title. In the event any such lien does attach, Tenant shall, within five (5) days of notice of the filing of said lien, either discharge or bond over such lien to the satisfaction of Landlord and Landlord's Mortgagee (as hereinafter defined), and in such a manner as to remove the lien as an encumbrance against the Building and Property. If Tenant shall fail to so discharge or bond over such lien, then, in addition to any other right or remedy of Landlord, Landlord may, but shall not be obligated to bond over or discharge the same. Any amount paid by Landlord for any of the aforesaid purposes, including reasonable attorneys' fees (if and to the extent permitted by law) shall be paid by Tenant to Landlord on demand as Additional Base Rental. Landlord shall have the right to post and keep posted on the Premises any notices that may be provided by law or which Landlord may deem to be proper for the protection of Landlord, the Premises and the Building from such liens. XV. Indemnity and Waiver of Claims. A. Tenant shall indemnify, defend and hold Landlord, its members, principals, beneficiaries, partners, officers, directors, employees, Mortgagee(s) and agents, and the respective principals and members of any such agents (collectively the "Landlord Related Parties") harmless against and from all liabilities, obligations, damages, penalties, claims, costs, charges and expenses, including, without limitation, reasonable attorneys' fees and other professional fees (if and to the extent permitted by law), which may be imposed upon, incurred by, or asserted against Landlord or any of the Landlord Related Parties and arising, directly or indirectly, out of or in connection with the use, occupancy or maintenance of the Premises by, through or under Tenant including, without limitation, any of the following: (1) any work or thing done in, on or about the Premises or any part thereof by Tenant or any of its transferees, agents, servants, contractors, employees, customers, licensees or invitees; (2) any use, non-use, possession, occupation, condition, operation or maintenance of the Premises or any part thereof; (3) any act or omission of Tenant or any of its transferees, agents, servants, contractors, employees, customers, licensees or invitees, regardless of whether such act or omission occurred within the Premises; (4) any injury or damage to any person or property occurring in, on or about the Premises or any part thereof; or (5) any failure on the part of Tenant to perform or comply with any of the covenants, agreements, terms or conditions contained in this Lease with which Tenant must comply or perform. In case any action or proceeding is brought against Landlord or any of the Landlord Related Parties by reason of any of the foregoing, Tenant shall, at Tenant's sole cost and expense, resist and defend such action or proceeding with counsel approved by Landlord or, at Landlord's option, reimburse Landlord for the cost of any counsel retained directly by Landlord to defend and resist such action or proceeding. Notwithstanding the foregoing provisions of this Section XV, nothing contained in this Lease shall be deemed to constitute a release of Landlord from, or an obligation to indemnify Landlord for, its own negligence. B. Landlord and the Landlord Related Parties shall not be liable for, and Tenant hereby waives, all claims for loss or damage to Tenant's business or damage to person or property sustained by Tenant or any person claiming by, through or under Tenant [including Tenant's principals, agents and employees (collectively, the "Tenant Related Parties")] resulting from any accident or occurrence in, on or about the Premises, the Building or the Property, including, without limitation, claims for loss, theft or damage resulting from: (1) the Premises, Building, or Property, or any equipment or appurtenances becoming out of repair; (2) wind or weather; (3) any defect in or failure to operate, for whatever reason, any sprinkler, heating or air- 14 17 conditioning equipment, electric wiring, gas, water or steam pipes; (4) broken glass; (5) the backing up of any sewer pipe or downspout; (6) the bursting, leaking or running of any tank, water closet, drain or other pipe; (7) the escape of steam or water; (8) water, snow or ice being upon or coming through the roof, skylight, stairs, doorways, windows, walks or any other place upon or near the Building; (9) the falling of any fixture, plaster, tile or other material; (10) any act, omission or negligence of other tenants, licensees or any other persons or occupants of the Building or of adjoining or contiguous buildings, or owners of adjacent or contiguous property or the public, or by construction of any private, public or quasi-public work; or (11) any other cause of any nature except, as to items 1-9, where such loss or damage is due to Landlord's willful failure to make repairs required to be made pursuant to other provisions of this Lease, after the expiration of a reasonable time after written notice to Landlord of the need for such repairs. To the maximum extent permitted by law, Tenant agrees to use and occupy the Premises, and to use such other portions of the Building as Tenant is herein given the right to use, at Tenant's own risk. XVI. Tenant's Insurance. A. At all times commencing on and after the earlier of the Commencement Date and the date Tenant or its agents, employees or contractors enters the Premises for any purpose, Tenant shall carry and maintain, at its sole cost and expense: 19. Commercial General Liability Insurance applicable to the Premises and its appurtenances providing, on an occurrence basis, a minimum combined single limit of Two Million Dollars ($2,000,000.00), with a contractual liability endorsement covering Tenant's indemnity obligations under this Lease. 20. All Risks of Physical Loss Insurance written at replacement cost value and with a replacement cost endorsement covering all of Tenant's Property in the Premises. 21. Workers' Compensation Insurance as required by the state in which the Premises is located and in amounts as may be required by applicable statute, and Employers' Liability Coverage of One Million Dollars ($1,000,000.00) per occurrence. 22. Whenever good business practice, in Landlord's reasonable judgment, indicates the need of additional insurance coverage or different types of insurance in connection with the Premises or Tenant's use and occupancy thereof Tenant shall, upon request, obtain such insurance at Tenant's expense and provide Landlord with evidence thereof. B. Except for items for which Landlord is responsible under the Work Letter Agreement, before any repairs, alterations, additions, improvements, or construction are undertaken by or on behalf of Tenant, Tenant shall carry and maintain, at its expense, or Tenant shall require any contractor performing work on the Premises to carry and maintain, at no expense to Landlord, in addition to Workers' Compensation Insurance as required by the jurisdiction in which the Building is located, All Risk Builder's Risk Insurance in the amount of the replacement cost of any alterations, additions or improvements (or such other amount reasonably required by Landlord) and Commercial General Liability Insurance (including, without limitation, Contractor's Liability coverage, Contractual Liability coverage and Completed Operations coverage,) written on an occurrence basis with a minimum combined single limit of Two Million Dollars ($2,000,000.00) and adding "the named Landlord hereunder (or any successor thereto), Equity Office Properties Trust, a Maryland real estate investment trust, EOP Operating Limited Partnership, a Delaware limited partnership, and their respective members, principals, beneficiaries, partners, officers, directors, employees, agents and any Mortgagee(s)", and other designees of Landlord as the interest of such designees shall appear, as additional insureds (collectively referred to as the "Additional Insureds"). C. Any company writing any insurance which Tenant is required to maintain or cause to be maintained pursuant to the terms of this Lease (all such insurance as well as any other insurance pertaining to the Premises or the operation of Tenant's business therein being referred to as "Tenant's Insurance"), as well as the form of such insurance, shall at all times be subject to Landlord's reasonable approval, and each 15 18 such insurance company shall have an A.M. Best rating of "A-" or better and shall be licensed and qualified to do business in the state in which the Premises is located. All policies evidencing Tenant's Insurance (except for Workers' Compensation Insurance) shall specify Tenant as named insured and the Additional Insureds as additional insureds. Provided that the coverage afforded Landlord and any designees of Landlord shall not be reduced or otherwise adversely affected, all of Tenant's Insurance may be carried under a blanket policy covering the Premises and any other of Tenant's locations. All policies of Tenant's Insurance shall contain endorsements that the insurer(s) will give to Landlord and its designees at least thirty (30) days' advance written notice of any change, cancellation, termination or lapse of said insurance. Tenant shall be solely responsible for payment of premiums for all of Tenant's Insurance. Tenant shall deliver to Landlord at least fifteen (15) days prior to the time Tenant's Insurance is first required to be carried by Tenant, and upon renewals at least fifteen (15) days prior to the expiration of any such insurance coverage, a certificate of insurance of all policies procured by Tenant in compliance with its obligations under this Lease. The limits of Tenant's Insurance shall in no event limit Tenant's liability under this Lease. D. Tenant shall not do or fail to do anything in, upon or about the Premises which will: (1) violate the terms of any of Landlord's insurance policies; (2) prevent Landlord from obtaining policies of insurance acceptable to Landlord or any Mortgagees; or (3) result in an increase in the rate of any insurance on the Premises, the Building, any other property of Landlord or of others within the Building. In the event of the occurrence of any of the events set forth in this Section, Tenant shall pay Landlord upon demand, as Additional Base Rental, the cost of the amount of any increase in any such insurance premium, provided that the acceptance by Landlord of such payment shall not be construed to be a waiver of any rights by Landlord in connection with a default by Tenant under the Lease. If Tenant fails to obtain the insurance coverage required by this Lease, Landlord may, at its option, obtain such insurance for Tenant, and Tenant shall pay, as Additional Base Rental, the cost of all premiums thereon and all of Landlord's costs associated therewith. XVII. Subrogation. Notwithstanding anything set forth in this Lease to the contrary, Landlord and Tenant do hereby waive any and all right of recovery, claim, action or cause of action against the other, their respective principals, beneficiaries, partners, officers, directors, agents, and employees, and, with respect to Landlord, its Mortgagee(s), for any loss or damage that may occur to Landlord or Tenant or any party claiming by, through or under Landlord or Tenant, as the case may be, with respect to their respective property, the Building, the Property or the Premises or any addition or improvements thereto, or any contents therein, by reason of fire, the elements or any other cause, regardless of cause or origin, including the negligence of Landlord or Tenant, or their respective principals, beneficiaries, partners, officers, directors, agents and employees and, with respect to Landlord, its Mortgagee(s), which loss or damage is (or would have been, had the insurance required by this Lease been carried) covered by insurance. Since this mutual waiver will preclude the assignment of any such claim by subrogation (or otherwise) to an insurance company (or any other person), Landlord and Tenant each agree to give each insurance company which has issued, or in the future may issue, policies of insurance, with respect to the items covered by this waiver, written notice of the terms of this mutual waiver, and to have such insurance policies properly endorsed, if necessary, to prevent the invalidation of any of the coverage provided by such insurance policies by reason of such mutual waiver. For the purpose of the foregoing waiver, the amount of any deductible applicable to any loss or damage shall be deemed covered by, and recoverable by the insured under the insurance policy to which such deductible relates. In the event that Tenant is permitted to and self-insures any risk which would have been covered by the insurance required to be carried by Tenant pursuant to Article XVI of the Lease, or if Tenant fails to carry any insurance required to be carried by Tenant pursuant to Article XVI of this Lease, then all loss or damage to Tenant, its leasehold interest, its business, its property, the Premises or any additions or improvements thereto or contents thereof shall be deemed covered by and recoverable by Tenant under valid and collectible policies of insurance. XVIII. Landlord's Insurance. Landlord shall maintain property insurance on the Building in such amounts as Landlord reasonably elects. The cost of such insurance shall be included as a part of the Basic Costs, and payments for losses and recoveries thereunder shall be made solely to Landlord or the Mortgagees of Landlord as their interests shall appear. 16 19 XIX. Casualty Damage. If the Premises or any part thereof shall be damaged by fire or other casualty, Tenant shall give prompt written notice thereof to Landlord. In case the Building shall be so damaged that in Landlord's reasonable judgment, substantial alteration or reconstruction of the Building shall be required (whether or not the Premises has been damaged by such casualty) or in the event Landlord will not be permitted by applicable law to rebuild the Building in substantially the same form as existed prior to the fire or casualty or in the event the Premises has been materially damaged and there is less than two (2) years of the Lease Term remaining on the date of such casualty or in the event any Mortgagee should require that the insurance proceeds payable as a result of a casualty be applied to the payment of the mortgage debt or in the event of any material uninsured loss to the Building, Landlord may, at its option, terminate this Lease by notifying Tenant in writing of such termination within ninety (90) days after the date of such casualty. Such termination shall be effective as of the date of fire or casualty, with respect to any portion of the Premises that was rendered untenantable, and the effective date of termination specified in Landlord's notice, with respect to any portion of the Premises that remained tenantable. If Landlord does not elect to terminate this Lease, Landlord shall commence and proceed with reasonable diligence to restore the Building (provided that Landlord shall not be required to restore any unleased premises in the Building) and the Leasehold Improvements (but excluding any improvements, alterations or additions made by Tenant in violation of this Lease) located within the Premises, if any, which Landlord has insured to substantially the same condition they were in immediately prior to the happening of the casualty. Notwithstanding the foregoing, Landlord's obligation to restore the Building, and the Leasehold Improvements, if any, shall not require Landlord to expend for such repair and restoration work more than the insurance proceeds actually received by the Landlord as a result of the casualty. When repairs to the Premises have been completed by Landlord, Tenant shall complete the restoration or replacement of all Tenant's Property necessary to permit Tenant's reoccupancy of the Premises, and Tenant shall present Landlord with evidence satisfactory to Landlord of Tenant's ability to pay such costs prior to Landlord's commencement of repair and restoration of the Premises. Landlord shall not be liable for any inconvenience or annoyance to Tenant or injury to the business of Tenant resulting in any way from such damage or the repair thereof, except that, subject to the provisions of the next sentence, Landlord shall allow Tenant a fair diminution of Rent on a per diem basis during the time and to the extent any damage to the Premises causes the Premises to be rendered untenantable and not used by Tenant. If the Premises or any other portion of the Building is damaged by fire or other casualty resulting from the negligence of Tenant or any Tenant Related Parties, the Rent hereunder shall not be diminished during any period during which the Premises, or any portion thereof, is untenantable (except to the extent Landlord is entitled to be reimbursed by the proceeds of any rental interruption insurance), and Tenant shall be liable to Landlord for the cost of the repair and restoration of the Building caused thereby to the extent such cost and expense is not covered by insurance proceeds. Landlord and Tenant hereby waive the provisions of any law from time to time in effect during the Lease Term relating to the effect upon leases of partial or total destruction of leased property. Landlord and Tenant agree that their respective rights in the event of any damage to or destruction of the Premises shall be those specifically set forth herein. XX. Demolition. Landlord shall have the right to terminate this Lease if Landlord proposes or is required, for any reason, to remodel, remove, or demolish the Building or any substantial portion thereof. Such cancellation shall be exercised by Landlord by the service of not less than ninety (90) days' written notice of such termination. Such notice shall set forth the date upon which the termination will be effective. No money or other consideration shall be payable by Landlord to Tenant for Landlord's exercise of this right, and the right is hereby reserved to Landlord and all purchasers, successors, assigns, transferees, and ground tenants of Landlord, as the case may be, and is in addition to all other rights of Landlord. Tenant has read the foregoing and understands that Landlord has a right to terminate this Lease as provided above. XXI. Condemnation. If (a) the whole or any substantial part of the Premises or (b) any portion of the Building or Property which would leave the remainder of the Building unsuitable for use as an office building comparable to its use on the Commencement Date, shall be taken or condemned for any public or quasi-public use under governmental law, ordinance or regulation, or by right of eminent domain, or by private purchase in lieu thereof then Landlord may, at its option, terminate this Lease effective as of the date the physical taking of said Premises or said portion of the Building or Property shall occur. In the event this Lease is not terminated, the Rentable Area of the Building, the Rentable 17 20 Area of the Premises and Tenant's Pro Rata Share shall be appropriately adjusted. In addition, Rent for any portion of the Premises so taken or condemned shall be abated during the unexpired term of this Lease effective when the physical taking of said portion of the Premises shall occur. All compensation awarded for any such taking or condemnation, or sale proceeds in lieu thereof, shall be the property of Landlord, and Tenant shall have no claim thereto, the same being hereby expressly waived by Tenant, except for any portions of such award or proceeds which are specifically allocated by the condemning or purchasing party for the taking of or damage to trade fixtures of Tenant, which Tenant specifically reserves to itself. XXII. Events of Default. The following events shall be deemed to be events of default under this Lease: A. Tenant shall fail to pay when due any Base Rental, Additional Base Rental or other Rent under this Lease and such failure shall continue for three (3) days after written notice from Landlord (hereinafter sometimes referred to as a "Monetary Default"). B. Any failure by Tenant (other than a Monetary Default) to comply with any term, provision or covenant of this Lease, including, without limitation, the rules and regulations, which failure is not cured within ten (10) days after delivery to Tenant of notice of the occurrence of such failure, provided that if any such failure creates a hazardous condition, such failure must be cured immediately. Notwithstanding the foregoing, if Tenant fails to comply with any particular provision or covenant of this Lease, including, without limitation, Tenant's obligation to pay Rent when due, on three (3) occasions during any twelve (12) month period, any subsequent violation of such provision or covenant shall be considered to be an incurable default by Tenant. C. Tenant or any Guarantor shall become insolvent, or shall make a transfer in fraud of creditors, or shall commit an act of bankruptcy or shall make an assignment for the benefit of creditors, or Tenant or any Guarantor shall admit in writing its inability to pay its debts as they become due. D. Tenant or any Guarantor shall file a petition under any section or chapter of the United States Bankruptcy Code, as amended, pertaining to bankruptcy, or under any similar law or statute of the United States or any State thereof, or Tenant or any Guarantor shall be adjudged bankrupt or insolvent in proceedings filed against Tenant or any Guarantor thereunder; or a petition or answer proposing the adjudication of Tenant or any Guarantor as a debtor or its reorganization under any present or future federal or state bankruptcy or similar law shall be filed in any court and such petition or answer shall not be discharged or denied within sixty (60) days after the filing thereof. E. A receiver or trustee shall be appointed for all or substantially all of the assets of Tenant or any Guarantor or of the Premises or of any of Tenant's Property located thereon in any proceeding brought by Tenant or any Guarantor, or any such receiver or trustee shall be appointed in any proceeding brought against Tenant or any Guarantor and shall not be discharged within sixty (60) days after such appointment or Tenant or such Guarantor shall consent to or acquiesce in such appointment. F. The leasehold estate hereunder shall be taken on execution or other process of law or equity in any action against Tenant. G. Tenant shall abandon or vacate any substantial portion of the Premises without the prior written permission of Landlord. H. Tenant shall fail to take possession of and occupy the Premises within thirty (30) days following the Commencement Date and thereafter continuously conduct its operations in the Premises for the Permitted Use. I. The liquidation, termination, dissolution, forfeiture of right to do business, or death of Tenant or any Guarantor. J. Tenant is in default beyond any notice and cure period under any other lease with Landlord. 18 21 XXIII. Remedies. A. Upon the occurrence of any event or events of default under this Lease, Landlord shall have the option to pursue any one or more of the following remedies without any notice (except as expressly prescribed in Article XXII above) or demand whatsoever (and without limiting the generality of the foregoing, Tenant hereby specifically waives notice and demand for payment of Rent or other obligations due [except as expressly prescribed in Article XXII above] and waives any and all other notices or demand requirements imposed by applicable law): 23. Terminate this Lease, in which event Tenant shall immediately surrender the Premises to Landlord. If Tenant fails to surrender the Premises upon termination of the Lease hereunder, Landlord may without prejudice to any other remedy which it may have, enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying said Premises, or any part thereof, and Tenant hereby agrees to pay to Landlord on demand the amount of all loss and damage, including consequential damage, which Landlord may suffer by reason of such termination, whether through inability to relet the Premises on satisfactory terms or otherwise, specifically including but not limited to all Costs of Reletting (hereinafter defined) and any deficiency that may arise by reason of any reletting or failure to relet. 24. Enter upon and take possession of the Premises and expel or remove Tenant or any other person who may be occupying said Premises, or any part thereof, without having any civil or criminal liability therefor and without terminating this Lease. Landlord may (but shall be under no obligation to) relet the Premises or any part thereof for the account of Tenant, in the name of Tenant or Landlord or otherwise, without notice to Tenant for such term or terms which may be greater or less than the period which would otherwise have constituted the balance of the Lease Term and on such conditions (which may include concessions, free rent and alterations of the Premises) and for such uses as Landlord in its absolute discretion may determine, and Landlord may collect and receive any rents payable by reason of such reletting. Tenant agrees to pay Landlord on demand all Costs of Reletting and any deficiency that may arise by reason of such reletting or failure to relet. Landlord shall not be responsible or liable for any failure to relet the Premises or any part thereof or for any failure to collect any Rent due upon any such reletting. No such re-entry or taking of possession of the Premises by Landlord shall be construed as an election on Landlord's part to terminate this Lease unless a written notice of such termination is given to Tenant. 25. Enter upon the Premises without having any civil or criminal liability therefor, and do whatever Tenant is obligated to do under the terms of this Lease, and Tenant agrees to reimburse Landlord on demand for any expense which Landlord may incur in thus affecting compliance with Tenant's obligations under this Lease together with interest at the lesser of a per annum rate equal to: (a) the Maximum Rate, or (b) the Prime Rate plus five percent (5%). 26. In order to regain possession of the Premises and to deny Tenant access thereto in any instance in which Landlord has terminated this Lease or Tenant's right to possession, or to limit access to the Premises in accordance with local law in the event of a default by Tenant, Landlord or its agent may, at the expense and liability of the Tenant, alter or change any or all locks or other security devices controlling access to the Premises without posting or giving notice of any kind to Tenant. Landlord shall have no obligation to provide Tenant a key or grant Tenant access to the Premises so long as Tenant is in default under this Lease. Tenant shall not be entitled to recover possession of the Premises, terminate this Lease, or recover any actual, incidental, consequential, punitive, statutory or other damages or award of attorneys' fees, by reason of Landlord's alteration or change of any lock or other security device. Landlord may, without notice, remove and either dispose of or store, at Tenant's expense, any property belonging to Tenant that remains in the Premises after Landlord has regained possession thereof. 19 22 27. Terminate this Lease, in which event, Tenant shall immediately surrender the Premises to Landlord and pay to Landlord the sum of: (a) all Rent accrued hereunder through the date of termination, and, upon Landlord's determination thereof, (b) an amount equal to: the total Rent that Tenant would have been required to pay for the remainder of the Lease Term discounted to present value at the Prime Rate then in effect, minus the then present fair rental value of the Premises for the remainder of the Lease Term, similarly discounted, after deducting all anticipated Costs of Reletting (as defined below). B. For purposes of this Lease, the term "Costs of Reletting" shall mean all costs and expenses incurred by Landlord in connection with the reletting of the Premises, including without limitation, the cost of cleaning, renovation, repairs, decoration and alteration of the Premises for a new tenant or tenants, advertisement, marketing, brokerage and legal fees (if and to the extent permitted by law), the cost of protecting or caring for the Premises while vacant, the cost of removing and storing any property located on the Premises, any increase in insurance premiums caused by the vacancy of the Premises and any other out-of-pocket expenses incurred by Landlord including tenant incentives, allowances and inducements. C. Except as otherwise herein provided, no repossession or re-entering of the Premises or any part thereof pursuant to Article XXIII hereof or otherwise shall relieve Tenant or any Guarantor of its liabilities and obligations hereunder, all of which shall survive such repossession or re-entering. Notwithstanding any such repossession or re-entering by reason of the occurrence of an event of default, Tenant will pay to Landlord the Rent required to be paid by Tenant pursuant to this Lease. D. No right or remedy herein conferred upon or reserved to Landlord is intended to be exclusive of any other right or remedy, and each and every right and remedy shall be cumulative and in addition to any other right or remedy given hereunder or now or hereafter existing by agreement, applicable law or in equity. In addition to other remedies provided in this Lease, Landlord shall be entitled, to the extent permitted by applicable law, to injunctive relief, or to a decree compelling performance of any of the covenants, agreements, conditions or provisions of this Lease, or to any other remedy allowed to Landlord at law or in equity. Forbearance by Landlord to enforce one or more of the remedies herein provided upon an event of default shall not be deemed or construed to constitute a waiver of such default. E. This Article XXIII shall be enforceable to the maximum extent such enforcement is not prohibited by applicable law, and the unenforceability of any portion thereof shall not thereby render unenforceable any other portion. XXIV. LIMITATION OF LIABILITY. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS LEASE, THE LIABILITY OF LANDLORD (AND OF ANY SUCCESSOR LANDLORD HEREUNDER) TO TENANT SHALL BE LIMITED TO THE INTEREST OF LANDLORD IN THE BUILDING, AND TENANT AGREES TO LOOK SOLELY TO LANDLORD'S INTEREST IN THE BUILDING FOR THE RECOVERY OF ANY JUDGMENT OR AWARD AGAINST THE LANDLORD, IT BEING INTENDED THAT NEITHER LANDLORD NOR ANY MEMBER, PRINCIPAL, PARTNER, SHAREHOLDER, OFFICER, DIRECTOR OR BENEFICIARY OF LANDLORD SHALL BE PERSONALLY LIABLE FOR ANY JUDGMENT OR DEFICIENCY. TENANT HEREBY COVENANTS THAT, PRIOR TO THE FILING OF ANY SUIT FOR AN ALLEGED DEFAULT BY LANDLORD HEREUNDER, IT SHALL GIVE LANDLORD AND ALL MORTGAGEES WHOM TENANT HAS BEEN NOTIFIED HOLD MORTGAGES OR DEED OF TRUST LIENS ON THE PROPERTY, BUILDING OR PREMISES NOTICE AND REASONABLE TIME TO CURE SUCH ALLEGED DEFAULT BY LANDLORD. WITHOUT LIMITING THE FOREGOING, IN NO EVENT SHALL LANDLORD OR ANY MORTGAGEES OR LANDLORD RELATED PARTIES EVER BE LIABLE FOR ANY CONSEQUENTIAL OR INCIDENTAL DAMAGES OR ANY LOST PROFITS OF TENANT. XXV. No Waiver. Failure of Landlord to declare any default immediately upon its occurrence, or delay in taking any action in connection with an event of default shall not constitute a waiver of such default, nor 20 23 shall it constitute an estoppel against Landlord, but Landlord shall have the right to declare the default at any time and take such action as is lawful or authorized under this Lease. Failure by Landlord to enforce its rights with respect to any one default shall not constitute a waiver of its rights with respect to any subsequent default. Receipt by Landlord of Tenant's keys to the Premises shall not constitute an acceptance or surrender of the Premises. XXVI. Event of Bankruptcy. In addition to, and in no way limiting the other remedies set forth herein, Landlord and Tenant agree that if Tenant ever becomes the subject of a voluntary or involuntary bankruptcy, reorganization, composition, or other similar type proceeding under the federal bankruptcy laws, as now enacted or hereinafter amended, then: A. "Adequate protection" of Landlord's interest in the Premises pursuant to the provisions of Section 361 and 363 (or their successor sections) of the Bankruptcy Code, 11 U.S.C. Section 101 et seq., (such Bankruptcy Code as amended from time to time being herein referred to as the "Bankruptcy Code"), prior to assumption and/or assignment of the Lease by Tenant shall include, but not be limited to all (or any part) of the following: 28. the continued payment by Tenant of the Base Rental and all other Rent due and owing hereunder and the performance of all other covenants and obligations hereunder by Tenant; 29. the furnishing of an additional/new security deposit by Tenant in the amount of three (3) times the then current monthly Base Rental. B. "Adequate assurance of future performance" by Tenant and/or any assignee of Tenant pursuant to Bankruptcy Code Section 365 will include (but not be limited to) payment of an additional/new Security Deposit in the amount of three (3) times the then current monthly Base Rental payable hereunder. C. Any person or entity to which this Lease is assigned pursuant to the provisions of the Bankruptcy Code, shall be deemed without further act or deed to have assumed all of the obligations of Tenant arising under this Lease on and after the effective date of such assignment. Any such assignee shall, upon demand by Landlord, execute and deliver to Landlord an instrument confirming such assumption of liability. D. Notwithstanding anything in this Lease to the contrary, all amounts payable by Tenant to or on behalf of the Landlord under this Lease, whether or not expressly denominated as "Rent," shall constitute "rent" for the purposes of Section 502(b) (6) of the Bankruptcy Code. E. If this Lease is assigned to any person or entity pursuant to the provisions of the Bankruptcy Code, any and all monies or other considerations payable or otherwise to be delivered to Landlord (including Base Rentals and other Rent hereunder), shall be and remain the exclusive property of Landlord and shall not constitute property of Tenant or of the bankruptcy estate of Tenant. Any and all monies or other considerations constituting Landlord's property under the preceding sentence not paid or delivered to Landlord shall be held in trust by Tenant or Tenant's bankruptcy estate for the benefit of Landlord and shall be promptly paid to or turned over to Landlord. F. If Tenant assumes this Lease and proposes to assign the same pursuant to the provisions of the Bankruptcy Code to any person or entity who shall have made a bona fide offer to accept an assignment of this Lease on terms acceptable to the Tenant, then notice of such proposed offer/assignment, setting forth: (1) the name and address of such person or entity, (2) all of the terms and conditions of such offer, and (3) the adequate assurance to be provided Landlord to assure such person's or entity's future performance under the Lease, shall be given to Landlord by Tenant no later than twenty (20) days after receipt by Tenant, but in any event no later than ten (10) days prior to the date that Tenant shall make application to a court of competent jurisdiction for authority and approval to enter into such assumption and assignment, and Landlord shall thereupon have the prior right and option, to be exercised by notice to Tenant given at any time prior to the effective date of such proposed assignment, to accept an assignment of this Lease upon the same terms 21 24 and conditions and for the same consideration, if any, as the bona fide offer made by such persons or entity, less any brokerage commission which may be payable out of the consideration to be paid by such person for the assignment of this Lease. G. To the extent permitted by law, Landlord and Tenant agree that this Lease is a contract under which applicable law excuses Landlord from accepting performance from (or rendering performance to) any person or entity other than Tenant within the meaning of Sections 365(c) and 365(e) (2) of the Bankruptcy Code. XXVII. Waiver of Jury Trial. Landlord and Tenant hereby waive any right to a trial by jury in any action or proceeding based upon, or related to, the subject matter of this Lease. This waiver is knowingly, intentionally, and voluntarily made by Tenant, and Tenant acknowledges that neither Landlord nor any person acting on behalf of Landlord has made any representations of fact to induce this waiver of trial by jury or in any way to modify or nullify its effect. Tenant further acknowledges that it has been represented (or has had the opportunity to be represented) in the signing of this Lease and in the making of this waiver by independent legal counsel, selected of its own free will, and that it has had the opportunity to discuss this waiver with counsel. XXVIII. Relocation. Landlord, at its expense at any time before or during the Lease Term, shall be entitled to cause Tenant to relocate from the Premises to space containing approximately the same Rentable Area as the Premises (the "Relocation Space") within the Building or adjacent buildings within the same project at any time upon sixty (60) days' prior written notice to Tenant. Such a relocation shall not affect this Lease except that from and after the date of such relocation, "Premises" shall refer to the Relocation Space into which Tenant has been moved, rather than the original Premises as herein defined, and the Base Rental shall be adjusted so that immediately following such relocation the Base Rental for the Relocation Space per annum on a per square foot of Rentable Area basis shall be the same as the Base Rental per annum immediately prior to such relocation for the original Premises on a per square foot of Rentable Area basis. Tenant's Pro Rata Share shall also be adjusted in accordance with the formula set forth in this Lease. XXIX. Holding Over. In the event of holding over by Tenant after expiration or other termination of this Lease or in the event Tenant continues to occupy the Premises after the termination of Tenant's right of possession pursuant to Articles XXII and XXIII hereof, occupancy of the Premises subsequent to such termination or expiration shall be that of a tenancy at sufferance and in no event for month-to-month or year-to-year. Tenant shall, throughout the entire holdover period, be subject to all the terms and provisions of this Lease and shall pay for its use and occupancy an amount (on a per month basis without reduction for any partial months during any such holdover) equal to twice the sum of the Base Rental and Additional Base Rental due for the period immediately preceding such holding over, provided that in no event shall Base Rental and Additional Base Rental during the holdover period be less than the fair market rental for the Premises. No holding over by Tenant or payments of money by Tenant to Landlord after the expiration of the term of this Lease shall be construed to extend the Lease Term or prevent Landlord from recovery of immediate possession of the Premises by summary proceedings or otherwise. In addition to the obligation to pay the amounts set forth above during any such holdover period, Tenant also shall be liable to Landlord for all damage, including any consequential damage, which Landlord may suffer by reason of any holding over by Tenant, and Tenant shall indemnify Landlord against any and all claims made by any other tenant or prospective tenant against Landlord for delay by Landlord in delivering possession of the Premises to such other tenant or prospective tenant. XXX. Subordination to Mortgages; Estoppel Certificate. Tenant accepts this Lease subject and subordinate to any mortgage, deed of trust, ground lease or other lien presently existing or hereafter arising upon the Premises, or upon the Building and/or the Property and to any renewals, modifications, refinancings and extensions thereof (any such mortgage, deed of trust, lease or other lien being hereinafter referred to as a "Mortgage", and the person or entity having the benefit of same being referred to hereinafter as a "Mortgagee"), but Tenant agrees that any such Mortgagee shall have the right at any time to subordinate such Mortgage to this Lease on such terms and subject to such conditions as such Mortgagee may deem appropriate in its discretion. This clause shall be self-operative and no further instrument of subordination shall be required. However, Landlord is hereby irrevocably vested with full power and 22 25 authority to subordinate this Lease to any Mortgage, and Tenant agrees upon demand to execute such further instruments subordinating this Lease, acknowledging the subordination of this Lease or attorning to the holder of any such Mortgage as Landlord may request. The terms of this Lease are subject to approval by the Landlord's existing lender(s) and any lender(s) who, at the time of the execution of this Lease, have committed or are considering committing to Landlord to make a loan secured by all or any portion of the Property, and such approval is a condition precedent to Landlord's obligations hereunder. In the event that Tenant should fail to execute any subordination or other agreement required by this Article promptly as requested, Tenant hereby irrevocably constitutes Landlord as its attorney-in-fact to execute such instrument in Tenant's name, place and stead, it being agreed that such power is one coupled with an interest in Landlord and is accordingly irrevocable. If any person shall succeed to all or part of Landlord's interests in the Premises whether by purchase, foreclosure, deed in lieu of foreclosure, power of sale, termination of lease or otherwise, and if and as so requested or required by such successor-in-interest, Tenant shall, without charge, attorn to such successor-in-interest. Tenant agrees that it will from time to time upon request by Landlord and, within five (5) days of the date of such request, execute and deliver to such persons as Landlord shall request an estoppel certificate or other similar statement in recordable form certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as so modified), stating the dates to which Rent and other charges payable under this Lease have been paid, stating that Landlord is not in default hereunder (or if Tenant alleges a default stating the nature of such alleged default) and further stating such other matters as Landlord shall reasonably require. XXXI. Attorneys' Fees. In the event that Landlord should retain counsel and/or institute any suit against Tenant for violation of or to enforce any of the covenants or conditions of this Lease, or should Tenant institute any suit against Landlord for violation of any of the covenants or conditions of this Lease, or should either party intervene in any suit in which the other is a party to enforce or protect its interest or rights hereunder, the prevailing party in any such suit shall be entitled to all of its costs, expenses and reasonable fees of its attorney(s) (if and to the extent permitted by law) in connection therewith. XXXII. Notice. Whenever any demand, request, approval, consent or notice ("Notice") shall or may be given to either of the parties by the other, each such Notice shall be in writing and shall be sent by registered or certified mail with return receipt requested, or sent by overnight courier service (such as Federal Express) at the respective addresses of the parties for notices as set forth in Section I.A.10. of this Lease, provided that if Tenant has vacated the Premises or is in default of this Lease Landlord may serve Notice by any manner permitted by law. Any Notice under this Lease delivered by registered or certified mail shall be deemed to have been given, delivered, received and effective on the earlier of (a) the third day following the day on which the same shall have been mailed with sufficient postage prepaid or (b) the delivery date indicated on the return receipt. Notice sent by overnight courier service shall be deemed given, delivered, received and effective upon the day after such notice is delivered to or picked up by the overnight courier service. Either party may, at any time, change its Notice Address by giving the other party Notice stating the change and setting forth the new address. XXXIII. Landlord's Lien. In addition to any statutory lien for rent in Landlord's favor, Landlord (the secured party for purposes hereof) shall have and Tenant (the debtor for purposes hereof) hereby grants to Landlord, an express contract lien and a continuing security interest to secure the payment of all Rent due hereunder from Tenant, upon all goods, wares, equipment, fixtures, furniture, inventory, accounts, contract rights, chattel paper and other personal property of Tenant (and any transferees or other occupants of the Premises) presently or hereafter situated on the Premises and upon all proceeds of any insurance which may accrue to Tenant by reason of damage or destruction of any such property. In the event of a default under this Lease, Landlord shall have, in addition to any other remedies provided herein or by law, all rights and remedies under the Uniform Commercial Code of the state in which the Premises is located, including without limitation the right to sell the property described in this paragraph at public or private sale upon ten (10) days' notice to Tenant, which notice Tenant hereby agrees is adequate and reasonable. Tenant hereby agrees to execute such other instruments necessary or desirable in Landlord's discretion to perfect the security interest hereby created. Any statutory lien for rent is not hereby waived, the express contractual lien herein granted being in addition and supplementary thereto. Landlord and Tenant agree that this Lease and the security interest granted herein serve as a financing statement, and a copy or photographic or other reproduction of this Paragraph of this Lease may be filed of record by Landlord and have 23 26 the same force and effect as the original. Tenant warrants and represents that the collateral subject to the security interest granted herein is not purchased or used by Tenant for personal, family or household purposes. Tenant further warrants and represents to Landlord that the lien granted herein constitutes a first and superior lien and that Tenant will not allow the placing of any other lien upon any of the property described in this Article without the prior written consent of Landlord. XXXIV. Excepted Rights. This Lease does not grant any rights to light or air over or about the Building. Landlord specifically excepts and reserves to itself the use of any roofs, the exterior portions of the Premises, all rights to the land and improvements below the improved floor level of the Premises, the improvements and air rights above the Premises and the improvements and air rights located outside the demising walls of the Premises, and such areas within the Premises as are required for installation of utility lines and other installations required to serve any occupants of the Building and the right to maintain and repair the same, and no rights with respect thereto are conferred upon Tenant unless otherwise specifically provided herein. Landlord further reserves to itself the right from time to time: (a) to change the Building's name or street address; (b) to install, fix and maintain signs on the exterior and interior of the Building; (c) to designate and approve window coverings; (d) to make any decorations, alterations, additions, improvements to the Building, or any part thereof (including the Premises) which Landlord shall desire, or deem necessary for the safety, protection, preservation or improvement of the Building, or as Landlord may be required to do by law; (e) to have access to the Premises to perform its duties and obligations and to exercise its rights under this Lease; (f) to retain at all times and to use pass-keys to all locks within and into the Premises; (g) to approve the weight, size, or location of heavy equipment, or articles in and about the Premises; (h) to close or restrict access to the Building at all times other than Normal Business Hours subject to Tenant's right to admittance at all times under such regulations as Landlord may prescribe from time to time, or to close (temporarily or permanently) any of the entrances to the Building; (j) to change the arrangement and/or location of entrances of passageways, doors and doorways, corridors, elevators, stairs, toilets and public parts of the Building; (i) if Tenant has vacated the Premises during the last six (6) months of the Lease Term, to perform additions, alterations and improvements to the Premises in connection with a reletting or anticipated reletting thereof without being responsible or liable for the value or preservation of any then existing improvements to the Premises; and (k) to grant to anyone the exclusive right to conduct any business or undertaking in the Building. Landlord, in accordance with Article XII hereof, shall have the right to enter the Premises in connection with the exercise of any of the rights set forth herein and such entry into the Premises and the performance of any work therein shall not constitute a constructive eviction or entitle Tenant to any abatement or reduction of Rent by reason thereof. XXXV. Surrender of Premises. At the expiration or earlier termination of this Lease or Tenant's right of possession hereunder, Tenant shall remove all Tenant's Property from the Premises, remove all Required Removables designated by Landlord and quit and surrender the Premises to Landlord, broom clean, and in good order, condition and repair, ordinary wear and tear excepted. If Tenant fails to remove any of Tenant's Property within one (1) day after the termination of this Lease or Tenant's right to possession hereunder, Landlord, at Tenant's sole cost and expense, shall be entitled to remove and/or store such Tenant's Property and Landlord shall in no event be responsible for the value, preservation or safekeeping thereof. Tenant shall pay Landlord, upon demand, any and all expenses caused by such removal and all storage charges against such property so long as the same shall be in the possession of Landlord or under the control of Landlord. In addition, if Tenant fails to remove any Tenant's Property from the Premises or storage, as the case may be, within ten (10) days after written notice from Landlord, Landlord, at its option, may deem all or any part of such Tenant's Property to have been abandoned by Tenant and title thereof shall immediately pass to Landlord. 24 27 XXXVI. Miscellaneous. A. If any term or provision of this Lease, or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Lease shall be valid and enforced to the fullest extent permitted by law. This Lease represents the result of negotiations between Landlord and Tenant, each of which has been (or has had opportunity to be) represented by counsel of its own selection, and neither of which has acted under duress or compulsion, whether legal, economic or otherwise. Consequently, Landlord and Tenant agree that the language in all parts of the Lease shall in all cases be construed as a whole according to its fair meaning and neither strictly for nor against Landlord or Tenant. B. Tenant agrees not to record this Lease or any memorandum hereof without Landlord's prior written consent. C. This Lease and the rights and obligations of the parties hereto shall be interpreted, construed, and enforced in accordance with the laws of the state in which the Building is located. D. Events of "Force Majeure" shall include strikes, riots, acts of God, shortages of labor or materials, war, governmental law, regulations or restrictions and any other cause whatsoever that is beyond the control of Landlord. Whenever a period of time is herein prescribed for the taking of any action by Landlord, Landlord shall not be liable or responsible for, and there shall be excluded from the computation of such period of time, any delays due to events of Force Majeure. E. Landlord shall have the right to transfer and assign, in whole or in part, all of its rights and obligations hereunder and in the Building and Property referred to herein, and in such event and upon such transfer Landlord shall be released from any further obligations hereunder, and Tenant agrees to look solely to such successor in interest of Landlord for the performance of such obligations. F. Tenant hereby represents to Landlord that it has dealt directly with and only with the Broker as a broker in connection with this Lease. Tenant agrees to indemnify and hold Landlord and the Landlord Related Parties harmless from all claims of any brokers claiming to have represented Tenant in connection with this Lease. Landlord agrees to indemnify and hold Tenant and the Tenant Related Parties harmless from all claims of any brokers claiming to have represented Landlord in connection with this Lease. G. If there is more than one Tenant, or if the Tenant is comprised of more than one person or entity, the obligations hereunder imposed upon Tenant shall be joint and several obligations of all such parties. If Tenant is a partnership, then each present and future partner shall be personally bound by and upon all of the covenants, agreements, terms, provisions and conditions set forth in this Lease on the part of Tenant to be performed. In confirmation of the foregoing, Landlord may (but without being required to do so) request (and Tenant shall duly comply) that Tenant, at the time that Tenant admits any new partner to its partnership, shall require each such new partner to execute an agreement in form and substance satisfactory to Landlord whereby such new partner shall agree to be personally bound by and upon all of the covenants, agreements, terms, provisions and conditions of this Lease on the part of Tenant to be performed, without regard to the time when such new partner is admitted to partnership or when any obligations under any such covenants, etc., accrue. All notices, payments, and agreements given or made by, with or to any one of such persons or entities shall be deemed to have been given or made by, with or to all of them. H. In the event Tenant is a corporation (including any form of professional association), partnership (general or limited), or other form of organization other than an individual (each such entity is individually referred to herein as an "Organizational Entity"), then Tenant hereby covenants, warrants and represents: (1) that such individual is duly authorized to execute or attest and deliver this Lease on behalf of Tenant in accordance with the organizational documents of Tenant; (2) that this Lease is 25 28 binding upon Tenant; (3) that Tenant is duly organized and legally existing in the state of its organization, and is qualified to do business in the state in which the Premises is located; and (4) that the execution and delivery of this Lease by Tenant will not result in any breach of, or constitute a default under any mortgage, deed of trust, lease, loan, credit agreement, partnership agreement or other contract or instrument to which Tenant is a party or by which Tenant may be bound. If Tenant is an Organizational Entity, upon request, Tenant will, prior to the Commencement Date, deliver to Landlord true and correct copies of all organizational documents of Tenant, including, without limitation, copies of an appropriate resolution or consent of Tenant's board of directors or other appropriate governing body of Tenant authorizing or ratifying the execution and delivery of this Lease, which resolution or consent will be duly certified to Landlord's satisfaction by an appropriate individual with authority to certify such documents, such as the secretary or assistant secretary or the managing general partner of Tenant. I. Tenant acknowledges that the financial capability of Tenant to perform its obligations hereunder is material to Landlord and that Landlord would not enter into this Lease but for its belief, based on its review of Tenant's financial statements, that Tenant is capable of performing such financial obligations. Tenant hereby represents, warrants and certifies to Landlord that its financial statements for the year ended 12/31/98 as filed with the SEC and furnished to Landlord were at the time given true and correct in all material respects and that there have been no material subsequent changes thereto as of the date of this Lease. At any time during the Lease Term, Tenant shall provide Landlord, upon thirty (30) days' prior written notice from Landlord, with the most current financial statement that has been filed with the SEC or otherwise been published in the public domain and financial statements of the two (2) years prior to the current financial statement year and such other information as Landlord or its Mortgagee may reasonably request in order to create a "business profile" of Tenant and determine Tenant's ability to fulfill its obligations under this Lease. The annual financial statement shall be prepared in accordance with generally accepted accounting principles and, if such is the normal practice of Tenant, shall be audited by an independent certified public accountant. Notwithstanding the foregoing, Landlord shall not request financial statements more than once in each consecutive two (2) year period during the Lease Term unless Tenant is in default or Landlord reasonably believes that there has been an adverse change in Tenant's financial position since the last financial statement provided to Landlord. J. Except as expressly otherwise herein provided, with respect to all required acts of Tenant, time is of the essence of this Lease. This Lease shall create the relationship of Landlord and Tenant between the parties hereto. K. This Lease and the covenants and conditions herein contained shall inure to the benefit of and be binding upon Landlord and Tenant and their respective permitted successors and assigns. L. Notwithstanding anything to the contrary contained in this Lease, the expiration of the Lease Term, whether by lapse of time or otherwise, shall not relieve Tenant from Tenant's obligations accruing prior to the expiration of the Lease Term, and such obligations shall survive any such expiration or other termination of the Lease Term. M. The headings and titles to the paragraphs of this Lease are for convenience only and shall have no affect upon the construction or interpretation of any part hereof. N. Landlord has delivered a copy of this Lease to Tenant for Tenant's review only, and the delivery hereof does not constitute an offer to Tenant or option. This Lease shall not be effective until an original of this Lease executed by both Landlord and Tenant and an original Guaranty, if any, executed by each Guarantor is delivered to and accepted by Landlord, and this Lease has been approved by Landlord's Mortgagees, if required. O. Quiet Enjoyment. Tenant shall, and may peacefully have, hold, and enjoy the Premises, subject to the other terms of this Lease (including, without limitation, Article XXX hereof), provided that Tenant pays the Rent herein recited to be paid by Tenant and performs all of Tenant's covenants and agreements herein contained. This covenant and any and all other covenants of Landlord shall be binding upon Landlord and its successors only during its or their respective periods of ownership of the Landlord's interest hereunder. 26 29 XXXVII.Entire Agreement. This Lease Agreement, including the following Exhibits: Exhibit A - Outline and Location of Premises Exhibit B - Rules and Regulations Exhibit C - Commencement Letter Exhibit D - Work Letter Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter of this Lease and supersedes all prior agreements and understandings between the parties related to the Premises, including all lease proposals, letters of intent and similar documents. TENANT EXPRESSLY ACKNOWLEDGES AND AGREES THAT LANDLORD HAS NOT MADE AND IS NOT MAKING, AND TENANT, IN EXECUTING AND DELIVERING THIS LEASE, IS NOT RELYING UPON, ANY WARRANTIES, REPRESENTATIONS, PROMISES OR STATEMENTS, EXCEPT TO THE EXTENT THAT THE SAME ARE EXPRESSLY SET FORTH IN THIS LEASE. ALL UNDERSTANDINGS AND AGREEMENTS HERETOFORE MADE BETWEEN THE PARTIES ARE MERGED IN THIS LEASE WHICH ALONE FULLY AND COMPLETELY EXPRESSES THE AGREEMENT OF THE PARTIES, NEITHER PARTY RELYING UPON ANY STATEMENT OR REPRESENTATION NOT EMBODIED IN THIS LEASE. THIS LEASE MAY BE MODIFIED ONLY BY A WRITTEN AGREEMENT SIGNED BY LANDLORD AND TENANT. LANDLORD AND TENANT EXPRESSLY AGREE THAT THERE ARE AND SHALL BE NO IMPLIED WARRANTIES OF MERCHANTABILITY, HABITABILITY, SUITABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OF ANY OTHER KIND ARISING OUT OF THIS LEASE, ALL OF WHICH ARE HEREBY WAIVED BY TENANT, AND THAT THERE ARE NO WARRANTIES WHICH EXTEND BEYOND THOSE EXPRESSLY SET FORTH IN THIS LEASE. IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the day and year first above written. WITNESS/ATTEST: LANDLORD: EOP OPERATING LIMITED PARTNERSHIP, a Delaware limited partnership Name (print): /s/ Cheryl [ILLEGIBLE] By: Equity Office Properties ------------------------ Trust, a Maryland real estate investment trust, its managing general partner By: /s/ George J. Kohl ----------------------- Name (print): Name: George Kohl ------------------------ ----------------------- Title: Vice President Leasing ----------------------- WITNESS/ATTEST: TENANT: ADVANCED HEALTH CORPORATION, a Delaware corporation Name (print): /s/ Aida Rodriguez By: /s/ Jeffrey M. Sauerhoff ------------------------- ----------------------------- Name: Jeffrey M. Sauerhoff ----------------------------- Title: Chief Financial Officer ----------------------------- Name (print): Aida Rodriguez ------------------------- 27 30 EXHIBIT A PREMISES This Exhibit is attached to and made a part of the Lease dated April 16, 1999, by and between EOP OPERATING LIMITED PARTNERSHIP, a Delaware limited partnership ("Landlord") and ADVANCED HEALTH CORPORATION, a Delaware corporation ("Tenant") for space in the Building located at 200 West Adams, Chicago, Illinois 60606. [Description of premises] A-1 31 EXHIBIT B BUILDING RULES AND REGULATIONS The following rules and regulations shall apply, where applicable, to the Premises, the Building, the parking garage associated therewith (if any), the Property and the appurtenances thereto: 1. Sidewalks, doorways, vestibules, halls, stairways and other similar areas shall not be obstructed by Tenant or used by Tenant for any purpose other than ingress and egress to and from the Premises. No rubbish, litter, trash, or material of any nature shall be placed, emptied, or thrown in those areas. At no time shall Tenant permit Tenant's employees to loiter in common areas or elsewhere in or about the Building or Property. 2. Plumbing fixtures and appliances shall be used only for the purposes for which designed, and no sweepings, rubbish, rags or other unsuitable material shall be thrown or placed therein. Damage resulting to any such fixtures or appliances from misuse by Tenant or its agents, employees or invitees, shall be paid for by Tenant, and Landlord shall not in any case be responsible therefor. 3. No signs, advertisements or notices shall be painted or affixed on or to any windows, doors or other parts of the Building, except those of such color, size, style and in such places as shall be first approved in writing by Landlord. No nails, hooks or screws shall be driven or inserted into any part of the Premises or Building except by the Building maintenance personnel, nor shall any part of the Building be defaced by Tenant. 4. Landlord may provide and maintain in the first floor (main lobby) of the Building an alphabetical directory board listing all Tenants, and no other directory shall be permitted unless previously consented to by Landlord in writing. 5. Tenant shall not place any additional lock or locks on any door in the Premises or Building without Landlord's prior written consent. A reasonable number of keys to the locks on the doors in the Premises shall be furnished by Landlord to Tenant at the cost of Tenant, and Tenant shall not have any duplicate keys made. All keys shall be returned to Landlord at the expiration or earlier termination of this Lease. 6. All contractors, contractor's representatives, and installation technicians performing work in the Building shall be subject to Landlord's prior approval and shall be required to comply with Landlord's standard rules, regulations, policies and procedures, as the same may be revised from time to time. Tenant shall be solely responsible for complying with all applicable laws, codes and ordinances pursuant to which said work shall be performed. Notwithstanding anything to the contrary herein or in the Lease contained, Landlord has no obligation to allow any particular telecommunication service provider to have access to the Building or to Tenant's premises. If Landlord permits such access, Landlord may condition such access upon the payment to Landlord by the service provider of fees assessed by Landlord in its sole discretion. 7. Movement in or out of the Building of furniture or office equipment, or dispatch or receipt by Tenant of any merchandise or materials which require the use of elevators, stairways, lobby areas, or loading dock areas, shall be restricted to hours designated by Landlord. Tenant must seek Landlord's prior approval by providing in writing a detailed listing of any such activity. If approved by Landlord, such activity shall be under the supervision of Landlord and performed in the manner stated by Landlord. Landlord may prohibit any article, equipment or any other item from being brought into the Building. Tenant is to assume all risk for damage to articles moved and injury to any persons resulting from such activity. If any equipment, property, and/or personnel of Landlord or of any other tenant is damaged or injured as a result of or in connection with such activity, Tenant shall be solely liable for any and all damage or loss resulting therefrom. 8. Landlord shall have the power to prescribe the weight and position of safes and other heavy equipment or items, which in all cases shall not in the opinion of Landlord exceed acceptable floor loading and weight distribution requirements. All damage done to the Building by the installation, maintenance, operation, existence or removal of any property of Tenant shall be repaired at the expense of Tenant. B-1 32 9. Corridor doors, when not in use, shall be kept closed. 10. Tenant shall not: (1) make or permit any improper, objectionable or unpleasant noises or odors in the Building, or otherwise interfere in any way with other tenants or persons having business with them; (2) solicit business or distribute, or cause to be distributed, in any portion of the Building any handbills, promotional materials or other advertising; or (3) conduct or permit any other activities in the Building that might constitute a nuisance. 11. No animals, except seeing eye dogs, shall be brought into or kept in, on or about the Premises. 12. No inflammable, explosive or dangerous fluid or substance shall be used or kept by Tenant in the Premises or Building. Tenant shall not, without Landlord's prior written consent, use, store, install, spill, remove, release or dispose of within or about the Premises or any other portion of the Property, any asbestos-containing materials or any solid, liquid or gaseous material now or hereafter considered toxic or hazardous under the provisions of 42 U.S.C. Section 9601 et seq. or any other applicable environmental law which may now or hereafter be in effect. If Landlord does give written consent to Tenant pursuant to the foregoing sentence, Tenant shall comply with all applicable laws, rules and regulations pertaining to and governing such use by Tenant, and shall remain liable for all costs of cleanup or removal in connection therewith. 13. Tenant shall not use or occupy the Premises in any manner or for any purpose which would injure the reputation or impair the present or future value of the Premises or the Building; without limiting the foregoing, Tenant shall not use or permit the Premises or any portion thereof to be used for lodging, sleeping or for any illegal purpose. 14. Tenant shall not take any action which would violate Landlord's labor contracts affecting the Building or which would cause any work stoppage, picketing, labor disruption or dispute, or any interference with the business of Landlord or any other tenant or occupant of the Building or with the rights and privileges of any person lawfully in the Building. Tenant shall take any actions necessary to resolve any such work stoppage, picketing, labor disruption, dispute or interference and shall have pickets removed and, at the request of Landlord, immediately terminate at any time any construction work being performed in the Premises giving rise to such labor problems, until such time as Landlord shall have given its written consent for such work to resume. Tenant shall have no claim for damages of any nature against Landlord or any of the Landlord Related Parties in connection therewith, nor shall the date of the commencement of the Term be extended as a result thereof. 15. Tenant shall utilize the termite and pest extermination service designated by Landlord to control termites and pests in the Premises. Except as included in Basic Costs, Tenant shall bear the cost and expense of such extermination services. 16. Tenant shall not install, operate or maintain in the Premises or in any other area of the Building, any electrical equipment which does not bear the U/L (Underwriters Laboratories) seal of approval, or which would overload the electrical system or any part thereof beyond its capacity for proper, efficient and safe operation as determined by Landlord, taking into consideration the overall electrical system and the present and future requirements therefor in the Building. Tenant shall not furnish any cooling or heating to the Premises, including, without limitation, the use of any electronic or gas heating devices, without Landlord's prior written consent. Tenant shall not use more than its proportionate share of telephone lines available to service the Building. 17. Tenant shall not operate or permit to be operated on the Premises any coin or token operated vending machine or similar device (including, without limitation, telephones, lockers, toilets, scales, amusement devices and machines for sale of beverages, foods, candy, cigarettes or other goods), except for those vending machines or similar devices which are for the sole and exclusive use of Tenant's employees, and then only if such operation does not violate the lease of any other tenant of the Building. 18. Bicycles and other vehicles are not permitted inside or on the walkways outside the Building, except in those areas specifically designated by Landlord for such purposes. 19. Landlord may from time to time adopt appropriate systems and procedures for the security or safety of the Building, its occupants, entry and use, or its contents. Tenant, Tenant's B-2 33 agents, employees, contractors, guests and invitees shall comply with Landlord's reasonable requirements relative thereto. 20. Landlord shall have the right to prohibit the use of the name of the Building or any other publicity by Tenant that in Landlord's opinion may tend to impair the reputation of the Building or its desirability for Landlord or other tenants. Upon written notice from Landlord, Tenant will refrain from and/or discontinue such publicity immediately. 21. Tenant shall carry out Tenant's permitted repair, maintenance, alterations, and improvements in the Premises only during times agreed to in advance by Landlord and in a manner which will not interfere with the rights of other tenants in the Building. 22. Canvassing, soliciting, and peddling in or about the Building is prohibited. Tenant shall cooperate and use its best efforts to prevent the same. 23. At no time shall Tenant permit or shall Tenant's agents, employees, contractors, guests, or invitees smoke in any common area of the Building, unless such common area has been declared a designated smoking area by Landlord, or to allow any smoke from the Premises to emanate into the common areas or any other tenant's premises. Landlord shall have the right at any time to designate the Building as a non-smoking building. 24. Tenant shall observe Landlord's rules with respect to maintaining standard window coverings at all windows in the Premises so that the Building presents a uniform exterior appearance. Tenant shall ensure that to the extent reasonably practicable, window coverings are closed on all windows in the Premises while they are exposed to the direct rays of the sun. 25. All deliveries to or from the Premises shall be made only at such times, in the areas and through the entrances and exits designated for such purposes by Landlord. Tenant shall not permit the process of receiving deliveries to or from the Premises outside of said areas or in a manner which may interfere with the use by any other tenant of its premises or of any common areas, any pedestrian use of such area, or any use which is inconsistent with good business practice. 26. The work of cleaning personnel shall not be hindered by Tenant after 5:30 P.M., and such cleaning work may be done at any time when the offices are vacant. Windows, doors and fixtures may be cleaned at any time. Tenant shall provide adequate waste and rubbish receptacles necessary to prevent unreasonable hardship to Landlord regarding cleaning service. B-3 34 EXHIBIT C COMMENCEMENT LETTER Date ____________________________ Advanced Health Corporation 200 West Adams Suite 1700 Chicago, Illinois 60606 Re: Commencement Letter with respect to that certain Lease dated March ____, 1999 by and between EOP OPERATING LIMITED PARTNERSHIP, a Delaware limited partnership, as Landlord and ADVANCED HEALTH CORPORATION, a Delaware corporation, as Tenant, for 4,184 square feet of Rentable Area on the 17th floor of the Building located at 200 West Adams, Chicago, Illinois 60606. Dear __________________: In accordance with the terms and conditions of the above referenced Lease, Tenant hereby accepts possession of the Premises and agrees as follows: 1. The Commencement Date of the Lease is May 1,1999; 2. The Termination Date of the Lease is April 30, 2002. Please acknowledge your acceptance of possession and agreement to the terms set forth above by signing all three (3) copies of this Commencement Letter in the space provided and returning two (2) fully executed copies of the same to my attention. Sincerely, Property Manager Agreed and Accepted: Tenant: _____________________________ By:__________________________________ Name:________________________________ Title:_______________________________ Date:________________________________ C-1 35 EXHIBIT D WORK LETTER This Exhibit is attached to and made a part of the Lease dated April 16, 1999, by and between EOP OPERATING LIMITED PARTNERSHIP, a Delaware limited partnership ("Landlord") and ADVANCED HEALTH CORPORATION, a Delaware corporation ("Tenant") for space in the Building located at 200 West Adams, Chicago, Illinois 60606. 1. This Work Letter shall set forth the obligations of Landlord and Tenant with respect to the preparation of the Premises for Tenant's occupancy. All improvements described in this Work Letter to be constructed in and upon the Premises by Landlord are hereinafter referred to as the "Landlord Work." Landlord shall cause the Landlord Work to be constructed substantially in accordance with the plans identified as Attachment A hereto (the "Plans") prepared on behalf of Tenant and approved by Landlord. Tenant shall be responsible for all elements of the design of the Plans (including, without limitation, compliance with law, functionality of design, the structural integrity of the design, the configuration of the premises and the placement of Tenant's furniture, appliances and equipment), and Landlord's approval of the Plans shall in no event relieve Tenant of the responsibility for such design. It is agreed that construction of the Landlord Work is intended to be "turn-key" and will be completed at Landlord's sole cost and expense, using Building Standard methods, materials, and finishes. Landlord shall enter into a direct contract for the Landlord Work with a general contractor selected by Landlord. In addition, Landlord shall have the right to select and/or approve of any subcontractors used in connection with the Landlord Work. 2. If Tenant shall request any change, addition or alteration in any of the Plans after approval by Landlord, Landlord shall have such revisions to the drawings prepared, and Tenant shall reimburse Landlord for the cost thereof, plus any applicable state sales or use tax thereon, upon demand. Promptly upon completion of the revisions, Landlord shall notify Tenant in writing of the cost, if any, which will be chargeable to Tenant by reason of such change, addition or deletion. Tenant, within one (1) Business Day, shall notify Landlord in writing whether it desires to proceed with such change, addition or deletion. In the absence of such written authorization, Landlord shall have the option to continue work on the Premises disregarding the requested change, addition or alteration, or Landlord may elect to discontinue work on the Premises until it receives notice of Tenant's decision, in which event Tenant shall be responsible for any Delay in completion of the Premises resulting therefrom. Tenant shall pay all costs and expenses of any such change, plus any applicable state sales or use tax thereon, upon demand. 3. This Exhibit D shall not be deemed applicable to any additional space added to the original Premises at any time or from time to time, whether by any options under the Lease or otherwise, or to any portion of the original Premises or any additions to the Premises in the event of a renewal or extension of the original Term of this Lease, whether by any options under the Lease or otherwise, unless expressly so provided in the Lease or any amendment or supplement to the Lease. D-1 36 ATTACHMENT A TO WORKLETTER FINAL PLANS [Description of picture] D-2 37 IN WITNESS WHEREOF, Landlord and Tenant have executed this exhibit as of the day and year first above written. WITNESS/ATTEST: LANDLORD: EOP OPERATING LIMITED PARTNERSHIP, a Delaware limited partnership Name (print): /s/ Cheryl [ILLEGIBLE] By: Equity Office Properties ------------------------ Trust, a Maryland real estate investment trust, its managing general partner By: /s/ George J. Kohl ----------------------- Name (print): Name: George Kohl ------------------------ ----------------------- Title: Vice President Leasing ----------------------- WITNESS/ATTEST: TENANT: ADVANCED HEALTH CORPORATION, a Delaware corporation Name (print): /s/ Aida Rodriguez By: /s/ Jeffrey M. Sauerhoff ------------------------- ----------------------------- Name: Jeffrey M. Sauerhoff ----------------------------- Title: Chief Financial Officer ----------------------------- Name (print): Aida Rodriguez ------------------------- D-3 EX-10.21 3 ASSET PURCHASE AGREEMENT 1 Exhibit 10.21 TABLE OF CONTENTS
PAGE ARTICLE I PURCHASE AND SALE OF ASSETS ................................................ 1 1.1 Purchased Assets......................................................... 1 1.2 Excluded Assets.......................................................... 3 ARTICLE II PURCHASE PRICE; LIABILITIES; OTHER MATTERS ................................ 3 2.1 Payment of Purchase Price................................................ 3 2.2 Excluded Liabilities..................................................... 4 2.3 Allocation of the Purchase Price Among the Purchased Assets.............. 4 ARTICLE III CLOSING .................................................................. 4 3.1 Time and Place of the Closing............................................ 4 3.2 The Sellers' Deliveries at the Closing................................... 4 3.3 The Buyer's Deliveries at the Closing.................................... 5 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLERS ................................. 6 4.1 Organization, Power and Authority........................................ 6 4.2 Capital Structure........................................................ 7 4.3 Authorization, Binding Obligation........................................ 7 4.4 No Violations or Defaults................................................ 7 4.5 Contracts, Leases and Other Agreements................................... 7 4.6 Litigation............................................................... 8 4.7 Sellers' Employees....................................................... 8 4.8 Labor Relations of Sellers............................................... 8 4.9 No Untrue or Inaccurate Representations or Warranties.................... 9 4.10 Good Title to and Condition of the Purchased Assets..................... 9 4.11 Licenses................................................................ 9 4.12 Proprietary Rights...................................................... 10 4.13 Relationships with Customers and Others................................. 10 4.14 Employee Benefits....................................................... 11 4.15 Legal Compliance........................................................ 12 4.16 No Unrecorded Fund, No False Entries.................................... 12 4.17 Compliance with Fictitious Name Statutes................................ 12 4.18 Brokers' Fees........................................................... 12
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PAGE 4.19 Year 2000 Compliance.................................................... 13 4.20 Software................................................................ 13 4.21 Billing Practices....................................................... 13 ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE BUYER ................................ 13 5.1 Organization, Power and Authority........................................ 13 5.2 Authorization, Binding Obligation........................................ 13 5.3 No Violations or Defaults................................................ 14 5.4 Brokers' Fees............................................................ 14 ARTICLE VI ADDITIONAL COVENANTS OF THE PARTIES ....................................... 14 6.1 Conduct of the Business Pending the Closing.............................. 14 6.2 Access to Each Seller's Premises, Records, Vendors and Suppliers......... 15 6.3 No Other Discussions..................................................... 16 6.4 Noncompetition Agreement................................................. 16 6.5 Prorations and Adjustments............................................... 18 6.6 Holdback Funds........................................................... 18 6.7 Further Assurances....................................................... 19 6.8 Disclosure of Breach or Futility......................................... 19 6.9 Post-Closing Retention of Records........................................ 19 6.10 Termination of Sellers' Employees....................................... 20 6.11 Accounts Receivable..................................................... 20 6.12 Taxes................................................................... 20 6.13 Net Working Capital..................................................... 21 6.14 Timely Compliance With Employment Related Laws.......................... 21 6.15 401(k) Plan Distribution and Rollover................................... 22 ARTICLE VII CONDITIONS TO THE OBLIGATION OF THE BUYER ................................ 22 7.1 Accuracy of Representations and Warranties............................... 22 7.2 Performance of Obligations............................................... 22 7.3 Philadelphia Health and Education Corporation............................ 22 7.4 No Pending or Threatened Litigation...................................... 22 7.5 No Change to the Business................................................ 23
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PAGE 7.6 Closing Deliveries....................................................... 23 ARTICLE VIII CONDITIONS TO OBLIGATION OF SELLERS ..................................... 23 8.1 Accuracy of the Buyer's Representations and Warranties................... 23 8.2 Performance of Obligations............................................... 23 8.3 Closing Deliveries....................................................... 23 8.4 No Pending or Threatened Litigation...................................... 24 ARTICLE IX CERTAIN ACTIONS AFTER THE CLOSING ......................................... 24 9.1 Power of Attorney........................................................ 24 9.2 Post-Closing Matters..................................................... 24 9.3 Legal Support Services. ................................................. 25 9.4 Nonassignability of Assets .............................................. 25 9.5 Third Party Consents and Termination Statements ......................... 26 ARTICLE X INDEMNIFICATION ............................................................ 27 10.1 Survival of Representations and Warranties.............................. 27 10.2 The Buyer's Right to Indemnification.................................... 27 10.3 Sellers' Right to Indemnification....................................... 27 10.4 Terms and Conditions of Indemnification................................. 27 10.5 Payment of Indemnity Obligations; Certain Limitations on Parent's/Sellers' Indemnity Obligations................................. 29 ARTICLE XI MISCELLANEOUS ............................................................. 29 11.1 Failure of Conditions; Breach........................................... 29 11.2 Termination of Obligations by Mutual Agreement.......................... 30 11.3 Risk of Loss of Purchased Assets Prior to Closing....................... 30 11.4 Disclosure Schedules.................................................... 30 11.5 Binding Effect.......................................................... 30 11.6 Entire Agreement........................................................ 31 11.7 Execution in Counterpart................................................ 31 11.8 Notices................................................................. 31 11.9 Governing Law........................................................... 32 11.10 Representation by Counsel.............................................. 32
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PAGE 11.11 Assignment, Successors and Assigns..................................... 32 11.12 Specific Performance................................................... 32 11.13 Severability........................................................... 32
-iv- 5 ASSET PURCHASE AGREEMENT This Asset Purchase Agreement (the "Agreement") is made and entered into this 14th day of May, 1999 by and among ADVANCED HEALTH MANAGEMENT CORPORATION, a Delaware corporation, INTEGRATED MEDICAL MANAGEMENT, INC., a Delaware corporation, ADVANCED HEALTH CORPORATION d/b/a AHT CORPORATION, a Delaware corporation (the "Parent") (each a "Seller" and collectively, the "Sellers") and PRACTICARE, INC., a Delaware corporation (the "Buyer") (each, a "Party" and collectively, the "Parties"). This Agreement and each of the documents, instruments and certificates contemplated or required hereunder or delivered in connection herewith or therewith or pursuant hereto or thereto, collectively, are hereinafter referred to as the "Operative Documents". WITNESSETH: WHEREAS, subject to the terms and conditions hereof, the Sellers desire to sell, transfer and assign to the Buyer, and the Buyer desires to purchase and assume from the Sellers, as set forth herein: (i) substantially all of the assets of the Sellers which are used in conducting the Sellers' business of providing physician practice management, billing and consulting services to independent and hospital-affiliated physician practices and managed care administrative services as conducted in Sellers' Atlanta, Georgia and Malvern, Pennsylvania facilities, as well as with respect to Sellers' Mid Atlantic Cardiology, United Physicians of Brooklyn, Prime Health Network and Mount Kisco consulting agreements, except as explicitly excluded in Section 1.2 hereof (the "Business"); and (ii) certain trade and equipment-related payables incurred by the Sellers in the ordinary course of the Business for the purchase price specified herein. NOW, THEREFORE, in order to consummate said purchase and sale, and in consideration of the mutual representations, warranties, agreements, covenants and conditions set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I PURCHASE AND SALE OF ASSETS 1.1 PURCHASED ASSETS. Each Seller agrees to sell, transfer, assign and deliver to the Buyer at the Closing (defined in Section 3.1 below), free and clear of all liens, pledges, options, security interests, charges, mortgages and encumbrances of every kind (hereinafter, "Encumbrances"), subject: (i) to the obtaining of all required consents or UCC-3 termination statements (other than from Progress Bank which shall be obtained pursuant to Section 9.5(b) hereto); (ii) only to those Encumbrances which exist on the Closing Date and are specifically described in SCHEDULE 1.1(c) hereto; and (iii) to statutory liens for current Taxes (defined in Section 4.10(c) below) or assessments not yet due or delinquent and mechanics', carriers', workers', repairers' and other similar liens arising or incurred in the ordinary course of business relating to obligations as to which there is no default on the part of the Sellers (each, a "Permitted Encumbrance"), for the Cash Purchase Price (defined in Section 2.1(a) below) and on the terms and subject to the conditions set forth in this 6 Agreement, all of such Seller's right, title and interest in and to all of the properties and assets used in the conduct of the Business as conducted by the Sellers on the date hereof, as set forth below (collectively, the "Purchased Assets"). For purposes of clarity, the Sellers and the Buyer agree that those assets of the Sellers which are set forth in Section 1.2 hereof are specifically excluded from the purchase and sale described herein and such assets will remain the property of and continue to be owned by the respective Sellers from and after the Closing Date. The Purchased Assets shall be: (a) each Seller's equipment, supplies, leasehold improvements, furniture, fixtures and other fixed assets set forth in SCHEDULE 1.1(a) attached hereto and made a part hereof (collectively, the "Fixed Assets"); (b) each Seller's receivables set forth in SCHEDULE 1.1(b) relating to the Business (the "Purchased Receivables"); (c) each Seller's rights and benefits accruing to such Seller under all orders, contracts, leases and agreements made by such Seller, and each Seller's vendor and supplier relationships as the same relate to the Business, as set forth in SCHEDULE 1.1(c) (collectively, the "Purchased Contract and Other Rights"); (d) each Seller's: (i) accounting records and such other records in whatever form needed as are reasonably necessary to collect the Purchased Receivables and pay the Assumed Liabilities; (ii) each Seller's operating data and operating records in whatever form and media which pertain to the Business, including supplier lists, manuals, correspondence, mailing lists, account lists, Works (as defined in various contracts included in the Purchased Contract and Other Rights, except as specifically excluded on SCHEDULE 1.1(d)) and other similar documents and records as specified in SCHEDULE 1.1(d); and (iii) advertising and sales materials as specified in SCHEDULE 1.1(d); (e) the proprietary rights owned or licensed by each Seller and used in the conduct of the Business, including, without limitation, all trademarks, service marks and designs, trade names, trade secrets, technology, software, operating systems, know-how, slogans, copyrights, processes, operating rights, interfaces and other similar intangible property and rights relating to the Business, as set forth in SCHEDULE 1.1(e) (collectively, the "Purchased Proprietary Rights"); (f) each Seller's prepaid expenses relating to the Business and as set forth in SCHEDULE 1.1(f), subject to adjustment as provided in Section 6.5 below; (g) each Seller's right and interest in and to the telephone and facsimile numbers set forth in the attached SCHEDULE 1.1(g); (h) each Seller's licenses and permits which pertain to the Purchased Assets, the Business and/or the operation and conduct thereof, to the extent transferable, as set forth in SCHEDULE 1.1(h); and -2- 7 (i) each Seller's right, title and interest in and to all of the goodwill associated with the Purchased Assets, the Business and/or the conduct and operation thereof (the "Purchased Goodwill"). 1.2 EXCLUDED ASSETS. (a) Notwithstanding anything to the contrary in Section 1.1 above, the Purchased Assets shall exclude the following assets of each Seller (each an "Excluded Asset"): (i) the Purchase Price (as hereinafter defined) and each Seller's other rights under this Agreement; (ii) any shares of the capital stock of each Seller which are owned and held by such Seller as treasury shares; (iii) each Seller's corporate minute books and stock records; (iv) cash on hand (subject to proration obligations under Section 6.5 hereof) and all marketable securities of each Seller (other than security deposits); (v) Advanced Health Management Corporation's investment, and ownership interest, in Southern State Eyecare, LLC; and (vi) all other assets which are not defined herein as Purchased Assets. ARTICLE II PURCHASE PRICE; LIABILITIES; OTHER MATTERS 2.1 PAYMENT OF PURCHASE PRICE. (a) In full consideration for performance of this Agreement by each Seller, and delivery to the Buyer of the Purchased Assets, the Buyer agrees, subject to the terms, conditions and limitations set forth in this Agreement, to: (i) pay THREE MILLION ONE HUNDRED THIRTY-NINE THOUSAND DOLLARS ($3,139,000) (the "Cash Purchase Price") to the Sellers; and (ii) assume: (x) the trade payables (the "Trade Payables") of the Sellers described in SCHEDULE 2.1(a)(ii)(x) attached hereto; (y) the equipment-related payables (the "Cap Lease Obligations") of the Sellers described in SCHEDULE 2.1(a)(ii)(y) attached hereto, and (z) the obligations of the Sellers arising and to be performed after the Closing Date pursuant to the Purchased Contract and Other Rights ((x) through (z), collectively, the "Assumed Liabilities"). (b) The Buyer will pay the Cash Purchase Price at the Closing by: (i) delivering to or on behalf of the Sellers an amount equal to TWO MILLION SIX HUNDRED EIGHTY-NINE THOUSAND DOLLARS ($2,689,000) (the "Closing Payment") by wire transfer of immediately available funds in such amounts and to such account(s) as are set forth in SCHEDULE 2.1(b); and (ii) delivering FOUR HUNDRED FIFTY THOUSAND DOLLARS ($450,000) (the "Holdback Funds") to State Street Bank and Trust Company, as escrow agent (the "Holdback Escrow Agent"), for the benefit of the Sellers, and to secure the Sellers' obligations hereunder, pursuant to the terms and conditions of an escrow agreement (the "Holdback Escrow Agreement") in the form attached hereto as Exhibit A, subject to offset as hereinafter provided (to be delivered to the Sellers in accordance with SCHEDULE 2.3 upon the Holdback Termination Date (as defined in Section 6.6). -3- 8 2.2 EXCLUDED LIABILITIES. Except for the Assumed Liabilities, the Buyer does not assume and shall not be liable for any of the debts, obligations or liabilities of any nature whatsoever of any Seller, the Business or any other business of any Seller. 2.3 ALLOCATION OF THE PURCHASE PRICE AMONG THE PURCHASED ASSETS. The Sellers and the Buyer agree that the Purchase Price shall be allocated among the Purchased Assets and the noncompetition and nonsolicitation agreement set forth in Section 6.4 hereof (the "Noncompetition Agreement") in the manner set forth on the attached SCHEDULE 2.3. Each Seller acknowledges and agrees that: (i) the Buyer is expressly relying on such Seller entering into the Noncompetition Agreement; (ii) the Buyer's obligations hereunder are expressly conditioned on such Seller entering into the Noncompetition Agreement; and (iii) a portion of the Purchase Price paid hereunder is in consideration of such Seller entering into the Noncompetition Agreement. Each Seller and the Buyer agree that they will prepare and file their respective Tax Returns in accordance with the allocation set forth on Schedule 2.3 hereto. Each Seller and the Buyer further agree that they will prepare and file asset acquisition statements on Form 8594 (and any equivalent statements) with their respective federal income tax returns (and other Tax Returns (defined herein)) for the taxable year that includes the Closing Date. ARTICLE III CLOSING 3.1 TIME AND PLACE OF THE CLOSING. Subject to the satisfaction or waiver of all conditions to the obligations of each Seller and the Buyer to consummate the transactions contemplated hereby (other than conditions with respect to actions the respective parties will take at the Closing itself), the closing of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of McDermott, Will & Emery, 50 Rockefeller Plaza, New York, New York, or such other place as mutually agreed to by the Parent and the Buyer, commencing at 10:00 a.m. local time on the later of: (a) May 14, 1999; or (b) such other date as the Parent and the Buyer may mutually agree (the "Closing Date"). 3.2 THE SELLERS' DELIVERIES AT THE CLOSING. At the Closing, each Seller shall execute and deliver or cause to be delivered to the Buyer, properly executed and acknowledged by the Sellers where applicable: (a) General Assignment and Assumption Agreement and Bill of Sale (the "Bill of Sale") in the form attached hereto as Exhibit B, executed by the Sellers, and such other instruments, certificates, powers of attorney, leases, assignments and other transfer documents and agreements, in each case in such form as is satisfactory to the Buyer and its counsel, and as are necessary to transfer the Purchased Assets to the Buyer as provided herein; -4- 9 (b) Pay off letter evidencing discharge of indebtedness under the Loan Agreement dated June 26, 1997 between Integrated Medical Management, Inc. and Progress Bank, in the form attached hereto as Exhibit C; (c) Corporate resolutions of each Seller, certified as of the Closing Date by such Seller's Secretary, authorizing such Seller to undertake the transactions contemplated hereunder and authorizing such Seller's signatories to execute this Agreement and the other Operative Documents to which such Seller is a party, such resolutions having been duly adopted and being in full force and effect on the Closing Date; (d) Certified copies of each Seller's Certificate of Incorporation and By-laws, each as amended to date; (e) A Certificate of each Seller's Secretary, certifying as to the incumbency and genuine signature of each officer of such Seller executing any of the Operative Documents; (f) A Good-Standing Certificate with respect to each Seller issued by the Secretary of State of: (i) such Seller's state of incorporation; and (ii) any other state in which any Seller is authorized to do business as a foreign corporation, each such certificate to be dated within ten (10) days of the Closing Date; (g) A certificate of the Chief Executive Officer and the Treasurer in such capacity and on behalf of each Seller, dated the Closing Date and in form reasonably satisfactory to the Buyer, certifying that the conditions precedent set forth in Article VII have been satisfied; (h) The Holdback Escrow Agreement executed by the Sellers; (i) An opinion of O'Sullivan, Graev & Karabell, LLP, special counsel to the Sellers, in the form attached hereto as Exhibit D, dated as of the Closing Date and addressed to the Buyer; and (j) Certification from each Seller under Section 1445(b)(2) of the Internal Revenue Code of 1986, as amended, and the rules and regulations thereunder, stating such Seller's taxpayer identification number and that such Seller is not a foreign Person, substantially in the form of Exhibit E attached hereto. 3.3 THE BUYER'S DELIVERIES AT THE CLOSING. At the Closing, the Buyer shall execute and deliver or cause to be delivered to the Sellers, properly executed and acknowledged where applicable: (a) Corporate resolutions, certified as of the Closing Date by the Buyer's Secretary, authorizing the Buyer to undertake the transactions contemplated hereunder and authorizing the Buyer's signatories to execute this Agreement and the -5- 10 other Operative Documents to which the Buyer is a party, such resolutions having been duly adopted and being in full force and effect on the Closing Date; (b) The Closing Payment; (c) The following Certificates, each to be dated the Closing Date and in form reasonably satisfactory to the Sellers: (i) a Certificate of the Buyer's Secretary certifying as to the incumbency and genuine signature of each of the officers of the Buyer executing the Operative Documents; and (ii) a Certificate of the Buyer's President, in such capacity and on behalf of the Buyer, certifying that the conditions precedent set forth in Article VIII have been satisfied; (d) A Good-Standing Certificate issued by the Secretary of State of the State of Delaware, such certificate to be dated within ten (10) days of the Closing Date; (e) The Holdback Escrow Agreement executed by the Buyer; (f) Certified copies of the Buyer's Certificate of Incorporation and By-laws, each as amended to date; (g) An opinion of McDermott, Will & Emery, counsel to the Buyer, in the form attached hereto as Exhibit F, dated as of the Closing Date and addressed to the Sellers; and (h) The Bill of Sale. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLERS As a material inducement to the Buyer to enter into this Agreement and to consummate the transactions contemplated hereunder, each Seller hereby, jointly and severally, represents and warrants to the Buyer, as of the date of execution of this Agreement and as of the Closing Date, as follows: 4.1 ORGANIZATION, POWER AND AUTHORITY. Each Seller is a corporation duly organized, validly existing and in good standing under the laws of such Seller's respective state of incorporation, and is qualified as a foreign corporation in such states where qualification is necessary for the conduct of the Business, except where failure to be so qualified would not have a Material Adverse Effect (as defined below), and has full corporate power and authority to: (i) own, lease and operate its properties and to carry on the Business as it is now being conducted; (ii) enter into this Agreement and to sell, convey, assign, transfer and deliver the Purchased Assets for which it has an ownership interest in to the Buyer as provided herein; and (iii) carry out the other transactions and agreements contemplated hereby. -6- 11 4.2 CAPITAL STRUCTURE. Except as set forth in SCHEDULE 4.2, each Seller, except for Parent, is a wholly-owned subsidiary of Parent. 4.3 AUTHORIZATION, BINDING OBLIGATION. The execution and delivery of the Operative Documents to which any Seller is a party, and the consummation of the transactions contemplated thereby, have been duly authorized by all requisite corporate action of such Seller. Each such Operative Document constitutes the legally valid and binding obligation of such Seller and is enforceable against such Seller in accordance with its respective terms, except to the extent that such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors' rights generally and to general principles of equity. 4.4 NO VIOLATIONS OR DEFAULTS. The execution, delivery and compliance with and performance by each Seller of the Operative Documents to which it is a party do not and will not: (i) violate the Certificate of Incorporation or By-laws, or other similar organizational documents, of any Seller, or any law, statute, rule, regulation, order, judgment or decree to which any Seller is subject, except where such violation would not reasonably be expected to have a material adverse effect on the Purchased Assets, the Business, or the financial condition or results of operations thereof (a "Material Adverse Effect"); (ii) conflict with, or result in or constitute a default under, or breach or violation of, or grounds for termination of, or an event which, with notice or the lapse of time, or both, would constitute a default under, or breach or violation of, or grounds for termination of, any agreement or instrument to which any Seller is a party, or by which any Seller or any of the Purchased Assets which it is assigning and selling hereunder may be bound, except for such conflicts, breaches, defaults, violations or grounds for termination, which individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect; (iii) result in the creation or imposition of any encumbrance (other than a Permitted Encumbrance) upon any of the Purchased Assets which it is assigning or selling hereunder; (iv) require any approval or consent which has not been obtained prior to the Closing of any Person under the organizational documents of any Seller, or under any contract, agreement or other instrument to which any Seller is a party or by which any Seller or the Purchased Assets which it is assigning and selling hereunder are bound or to which any Seller or the Purchased Assets are subject, except for failures to obtain approvals and consents, which individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect; or (v) result in the termination, modification or cancellation of any license, permit, franchise, governmental authorization or approval which is necessary for the conduct of the Business (provided the Sellers make no representations or warranty herein as to the transferability of the license identified on SCHEDULE 4.11). 4.5 CONTRACTS, LEASES AND OTHER AGREEMENTS. SCHEDULE 1.1(c) sets forth a complete list of all Purchased Contract and Other Rights used in the Business, including a description of the significant terms and conditions of all -7- 12 Purchased Contract and Other Rights that arose under any oral agreement. Copies of all written Purchased Contract and Other Rights have been delivered to the Buyer and are true, complete and correct in all material respects. With respect to each such lease, contract, commitment and agreement listed on SCHEDULE 1.1(c): (a) with the exception of any oral agreement, as to which no representation and warranty is made in this Section 4.5(a), each is the legal, valid, binding and enforceable obligation of, and is in full force and effect with respect to: (i) the Seller which is a party thereto; and (ii) to the Knowledge of the Sellers, all other parties thereto except in each instance as such enforcement shall be limited by bankruptcy and creditors rights laws, and general principles of equity; (b) except as set forth on SCHEDULE 4.20, no Seller, and to the Knowledge of the Sellers, no other party, to any such Purchased Contract and Other Right is in breach or default, and, to the Knowledge of the Sellers, no event has occurred which, with notice or the lapse of time, would constitute a breach or default, or permit termination, modification or acceleration thereunder. For purposes of this Agreement, "Knowledge" shall mean the knowledge of each Seller after due and reasonable inquiry. 4.6 LITIGATION. SCHEDULE 4.6 sets forth each instance in which any Seller: (a) is subject to any outstanding injunction, judgment, order, decree, ruling or charge which relates to or is binding upon the Purchased Assets and/or the Business; or (b) is a party or is threatened in writing to be made a party to any action, suit, proceeding, hearing or investigation of, in or before any court or quasi-judicial or administrative agency of any federal, state, local or foreign jurisdiction or before any arbitrator the subject of which relates to the Purchased Assets and/or the Business. None of the actions, suits, proceedings, hearings and investigations set forth in SCHEDULE 4.6, if decided adversely to such Seller, could result in any Material Adverse Effect after the Closing. 4.7 SELLERS' EMPLOYEES. (a) SCHEDULE 4.7(a) sets forth a true and complete list of all employees of the Sellers who are principally involved in the Business at the Malvern and Atlanta facilities and certain specified employees at the New York facility showing date of hire, hourly rate or salary, bonus or other basis of compensation and job title (the "Affected Employees"). There are no employment or consulting contracts or arrangements (other than those terminable at will) with any employees or consultants of or associated with the Business and the Purchased Assets, except as described in SCHEDULE 4.7(b). 4.8 LABOR RELATIONS OF SELLERS. No Seller is a party to or bound by any collective bargaining agreement or any other agreement with a labor union, and there has been no effort by any labor union during the twenty-four (24) months prior to the date hereof to organize any employees of any Seller into one or more collective bargaining units. There is not pending nor threatened any labor dispute, strike or work stoppage by the Affected Employees which affects or which may affect the Business or which may interfere with the continued operation of the Business by employees of the Business. -8- 13 There is no unfair labor practice complaint pending, or to the Knowledge of the Sellers, threatened against any Seller before the National Labor Relations Board. 4.9 NO UNTRUE OR INACCURATE REPRESENTATIONS OR WARRANTIES. The representations and warranties of the Sellers contained in this Agreement and the schedules hereto do not contain any untrue statement of a material fact nor do they omit to state a material fact necessary in order to make the statements and information contained therein, taken as a whole, not misleading. There is no fact that materially adversely affects the ability of any Seller to perform its obligations under this Agreement and to consummate the transactions contemplated hereby, that has not been set forth and described in this Agreement or a schedule hereto. 4.10 GOOD TITLE TO AND CONDITION OF THE PURCHASED ASSETS. (a) Each Seller has good title to, or a valid leasehold interest in or license to, all of the Purchased Assets which it shall sell and assign hereunder and has full legal right, power, and authority to sell, assign, transfer and deliver such Purchased Assets, free and clear of all Encumbrances, except for the Encumbrances listed and described in SCHEDULE 1.1(c) and the Permitted Encumbrances, and subject to the obtaining of all required consents. (b) The Fixed Assets currently in use are in good operating order, repair and condition, reasonable wear and tear excepted. (c) The Purchased Assets are free and clear of all Encumbrances that arose in connection with any failure (or alleged failure) to pay any Tax. For purposes of this Agreement: (i) "Tax" shall mean any federal, state, local, or foreign income, gross receipts, business, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Section 59A of the Code), customs duties, capital stock franchise, profits, withholding, social security (or similar) unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not. (ii) "Tax Return" shall mean all returns, reports, statements, forms, or other documents or information required to be filed with a taxing authority by a Seller with respect to the Taxes of such Seller. 4.11 LICENSES. (a) SCHEDULE 4.11 attached hereto contains a complete list of all governmental licenses, approvals, permits and authorizations held by each Seller which are currently used by the Sellers, including without limitation, all licenses -9- 14 associated with the Purchased Proprietary Rights (each a "License" and collectively, "Licenses"). (b) To the Knowledge of the Sellers, each License is valid and in full force and effect as of the date hereof. There is not pending or, to any Seller's Knowledge, threatened any investigation or proceeding which could result in the termination, revocation, limitation, suspension, restriction or impairment of any License or the imposition of any fine, penalty or other sanction for violation of any requirements of any License. 4.12 PROPRIETARY RIGHTS. (a) Except as set forth in SCHEDULE 4.12(a), the Purchased Proprietary Rights include all proprietary rights used in the operation of the Purchased Assets and the conduct of the Business as presently operated and conducted by the Sellers. (b) Each Seller owns or has the right to use pursuant to license, sublicense, agreement or permission all Purchased Proprietary Rights applicable to it and used in the operation of the Business as presently conducted. Each item of Purchased Proprietary Rights owned or used by any Seller immediately prior to the Closing hereunder will be owned or available for use by the Buyer on identical terms and conditions immediately subsequent to the Closing hereunder. Each Seller has taken all necessary action to maintain and protect each item of Purchased Proprietary Rights that such Seller owns or uses. (c) No Seller has interfered with, infringed upon or misappropriated, while operating the Purchased Assets or conducting the Business, any trademarks, trade names, service marks, trade secrets, technology, software, operating systems, know-how, slogans, copyrights, processes, operating rights and other similar intangible property and rights (collectively, "Intellectual Property") of third parties, and no Seller has ever received in writing any charge, complaint, claim, demand or notice alleging any such interference, infringement, misappropriation or violation (including any claim that any Seller must license or refrain from using any Intellectual Property rights of any third party). No Seller has any Knowledge that any third party has interfered with, infringed upon, misappropriated or otherwise come into conflict with any Intellectual Property rights of any Seller being transferred to the Buyer hereunder. (d) With respect to the conduct of the Business, no Seller: (i) owns any patents or patent registration, issued or pending; (ii) holds any rights under patent licenses or patent agreements; or (iii) except as set forth in SCHEDULE 4.12(d), has granted any license, agreement, right or other permission to any third party with respect to its Intellectual Property. 4.13 RELATIONSHIPS WITH CUSTOMERS AND OTHERS. -10- 15 (a) Except as set forth on SCHEDULE 4.13, no Seller has received, within ninety (90) days prior to the date of this Agreement, from any current customer, representing more than 1% of the revenue of the Business any written communication providing notice of any changes in its practices that would have a Material Adverse Effect. (b) No Seller has had any direct or indirect ownership interest in any customer, supplier or competitor of any Seller associated with the Business, any Person from or to whom any Seller leases real or personal property, or any Person with whom any Seller is doing business. 4.14 EMPLOYEE BENEFITS. (a) SCHEDULE 4.14(a) identifies each "employee benefit plan", as defined in Section 3(3) of ERISA, that: (i) is subject to any provision of ERISA; (ii) is maintained, administered, or contributed to by any Seller or any of its Affiliates (for purposes of this Agreement, an "Affiliate" shall mean any person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified); and (iii) covers any employee or former employee of any Seller (each, an "Employee Plan"). (b) Determination letters have been received by each Seller confirming that each Employee Plan of such Seller which is intended to be qualified under Section 401(a) of the Code is so qualified in form and no Seller knows of any fact or conditions giving rise to a material likelihood that any such plan would not be treated as so qualified by the Internal Revenue Service. (c) SCHEDULE 4.14(c) identifies each employment, severance or similar contract or arrangement (whether or not written) or any plan, policy, fund, program or contract or arrangement (whether or not written) providing for compensation, bonus, profit sharing, stock option, or other stock related rights or other forms of incentive or deferred compensation, vacation benefits, insurance coverage (including any self insured arrangements), health or medical benefits, disability benefits, workers' compensation, supplemental unemployment benefits, severance benefits and post employment or retirement benefits (including compensation, pension, health, medical or life insurance or other benefits) that: (i) is not an Employee Plan; (ii) is entered into, maintained, administered or contributed to, as the case may be, by any Seller or any Sellers Affiliates; and (iii) covers any Affected Employee (each a "Benefit Arrangement" and collectively, "Benefit Arrangements"). (d) No Seller contributes to, has ever contributed to, or has ever been required to contribute to any multiemployer plan or pension plan subject to Title IV of ERISA and has no Liability (including withdrawal liability under any multiemployer plan or pension plan subject to Title IV of ERISA. (e) No Seller maintains, has ever maintained or contributed to, and has ever been required to contribute to, any Employee Plan or Benefit Arrangement -11- 16 providing medical, health or life insurance or other welfare type benefits for Affected Employees, their spouses or their dependents (other than in accordance with Code Section 4980B). 4.15 LEGAL COMPLIANCE. (a) Each Seller and its predecessor and Affiliates, if any, have complied in all material respects with all laws (including, without limitation, environmental protection laws and regulations, civil rights laws, fire codes, confidentiality laws, record and document maintenance laws, zoning ordinances, building, occupancy and use restrictions, and public and occupational health and safety codes) applicable to the Purchased Assets and the Business (including rules, regulations, codes, plans, injunctions, judgments, orders, ordinances, decrees, rulings and charges thereunder) of any court or federal, state, county, municipal, local or foreign governments (and all agencies, commissions, boards, bureaus, or instrumentalities thereof). (b) All financial records, patient records and other documentation which each Seller is required to maintain under all federal, state and local laws, rules, ordinances, regulations and orders applicable to the Purchased Assets and the Business have been continuously maintained, in a timely manner, for the requisite periods under applicable law. (c) Except as set forth in SCHEDULE 4.15(c) attached hereto, each Seller, and the Business, is in full compliance in all material respects with all applicable health care laws, rules and regulations, including those relating to the payment or receipt of illegal remuneration, including 42 U.S.C. Section 1320a-7b(b) (the Medicare/Medicaid anti-kickback statute), 42 U.S.C. 1395nn (the Stark Statute), 42 U.S.C. Section 1320a-7a, 42 U.S.C. Section 1320a-7b(a), 42 U.S.C. Section 1320a-7b(c) and any applicable state law governing kickbacks and matters similar to such federal statutes (collectively, the "Fraud and Abuse Laws"). 4.16 NO UNRECORDED FUND, NO FALSE ENTRIES. No officer, partner, employee or agent of any Seller has: (i) knowingly established or maintained any unrecorded fund (whether cash or assets) for any purpose related to the Business; or (ii) intentionally made any false entries on any books or records furnished in connection herewith to the Buyer. 4.17 COMPLIANCE WITH FICTITIOUS NAME STATUTES. Except as set forth in SCHEDULE 4.17, no Seller conducts the Business or any portion thereof under any fictitious name. 4.18 BROKERS' FEES. Except as set forth in SCHEDULE 4.18, no Seller has any liability or obligation to pay any fees or commissions to any broker, finder or agent with respect to the transactions contemplated -12- 17 by the Operative Documents, and there are no such fees or commissions incurred by or on behalf of any Seller for which the Buyer could become liable or obligated. 4.19 YEAR 2000 COMPLIANCE. Med-E-Net(TM) is Year 2000 Compliant when used in accordance with all applicable documentation. For the purposes of this Agreement, "Year 2000 Compliant" means being capable of accurately processing, providing and/or receiving date data from, into and between the twentieth and twenty-first centuries, and leap year calculations. Notwithstanding anything in this Agreement to the contrary, this warranty is offered only to the extent that any and all interfacing equipment, hardware or software made, distributed or provided by third parties is also Year 2000 Compliant and properly exchanges date data with Med-E-Net(TM). 4.20 SOFTWARE. Except as set forth in SCHEDULE 4.20, all software used in connection with the Purchased Assets and the Business is properly licensed. All software necessary to conduct the Business, as the Business is currently being conducted, is listed in SCHEDULE 1.1(e) attached hereto. 4.21 BILLING PRACTICES. All billing practices of each Seller to all third party payors, including Medicare, Medicaid and any other governmental payment programs (the "Government Programs") and private insurance companies, have been in material compliance with all applicable laws, regulations and policies of such third party payors and Government Programs. ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE BUYER As a material inducement to each Seller to enter into this Agreement and to consummate the transactions contemplated hereunder, the Buyer hereby represents and warrants to each Seller as of the date of execution of this Agreement and as of the Closing Date as follows: 5.1 ORGANIZATION, POWER AND AUTHORITY. The Buyer is a corporation duly organized, validly existing and in good standing under the laws of the state of Delaware, and has full corporate power and authority to: (i) own, lease and operate its properties and to carry on its business as it is now being conducted; (ii) enter into this Agreement; and (iii) carry out the other transactions and agreements contemplated hereby. 5.2 AUTHORIZATION, BINDING OBLIGATION. The execution and delivery of the Operative Documents to which the Buyer is a party, and the consummation of the transactions contemplated thereby, have been duly authorized by all requisite corporate action of the Buyer. Each such Operative Document constitutes the legally valid and binding obligation of the Buyer and is enforceable against the Buyer in accordance with its respective terms, except to the extent the same may be subject to and -13- 18 affected by applicable bankruptcy, receivership, insolvency, reorganization, moratorium, fraudulent conveyance or other laws affecting the enforcement of the rights and remedies of creditors generally. 5.3 NO VIOLATIONS OR DEFAULTS. The execution, delivery and compliance with and performance by the Buyer of the Operative Documents to which it is a party do not and will not: (i) violate the Certificate of Incorporation or By-laws of the Buyer, or any law, statute, rule, regulation, order, judgment or decree to which the Buyer is subject, except where such violation would not reasonably be expected to have a Material Adverse Effect; (ii) conflict with, or result in or constitute a default under, or breach or violation of, or grounds for termination of, or an event which, with notice or the lapse of time, or both, would constitute a default under, or breach or violation of, or grounds for termination of, any agreement or instrument to which the Buyer is a party, or by which the Buyer or any of its assets or properties is bound, except for such conflicts, breaches, defaults, violations or grounds for termination, which individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect; (iii) require any approval or consent which has not been obtained prior to the Closing of any Person under the organizational documents of the Buyer, or under any contract, agreement or other instrument (other than the Operative Documents) to which the Buyer is a party or by which the Buyer is bound or to which the Buyer is subject, except for failures to obtain approvals and consents, which individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect; or (iv) result in the termination, modification or cancellation of any license, permit, franchise, governmental authorization or approval which is necessary for the conduct of the Business. 5.4 BROKERS' FEES. Except as set forth in SCHEDULE 5.4, the Buyer has no liability or obligation to pay any fees or commissions to any broker, finder or agent with respect to the transactions contemplated by the Operative Documents, and there are no such fees or commissions incurred by or on behalf of the Buyer for which the Sellers could become liable or obligated. ARTICLE VI ADDITIONAL COVENANTS OF THE PARTIES 6.1 CONDUCT OF THE BUSINESS PENDING THE CLOSING. From the date hereof until the Closing Date, each Seller shall conduct its respective portion of the Business in the ordinary course consistent with past practice and shall use its commercially reasonable efforts to preserve intact its business organizations and relationships with third parties and to keep available the services of its present officers and employees. Without limiting the generality of the foregoing, from the date hereof until the Closing Date, no Seller will: (a) adopt or propose any change in its certificate of incorporation or bylaws; -14- 19 (b) merge or consolidate with any entity or acquire a material amount of assets from any entity; (c) sell, lease, license or otherwise dispose of any of the Purchased Assets; (d) (i) take any action that would make any representation or warranty of any Seller hereunder inaccurate in any material respect at, or as of any time prior to, the Closing Date; or (ii) omit to take any action necessary to prevent any such representation or warranty from being inaccurate in any material respect at any such time; (e) absent approval of the Buyer, amend, terminate, or otherwise waive its rights under any Purchased Contract and Other Rights or any Purchased Proprietary Rights applicable to such Seller; or (f) agree or commit to do any of the foregoing. 6.2 ACCESS TO EACH SELLER'S PREMISES, RECORDS, VENDORS AND SUPPLIERS. (a) Pending the Closing, each Seller will: (i) give the Buyer, its counsel, financial advisors, auditors and other authorized representatives reasonable access during normal business hours to the offices, properties, books and records of such Seller pertaining to the Business, the Purchased Assets, any Employee Plan or any Benefit Arrangement; (ii) furnish to the Buyer, its counsel, financial advisors, auditors and other authorized representatives such financial and operating data and other information relating to that Seller's portion of the Business and the Purchased Assets as such Persons may reasonably request; and (iii) instruct the employees, counsel and financial advisors of such Seller to cooperate reasonably with the Buyer in its review of the Business and the Purchased Assets. The foregoing shall be conducted in such manner as not to interfere unreasonably with the conduct of the Business. Notwithstanding the foregoing, the Buyer shall not have access to personnel records of any Seller relating to individual performance or evaluation records, medical histories or other information which in such Seller's good faith opinion is sensitive or the disclosure of which could subject such Seller to risk of material liability. No investigation by the Buyer or other information received by the Buyer shall operate as a waiver or otherwise affect any representation, warranty or agreement given or made by any Seller hereunder. (b) Pending the Closing, each Seller will allow and consent, which consent shall not be unreasonably withheld, to the contact by the Buyer and its representatives of each such Seller's vendors, suppliers or clients who are parties to the agreements which form a part of the Purchased Contract and Other Rights and the Purchased Proprietary Rights, which the Buyer reasonably deems necessary to be contacted in order to consummate the transactions contemplated hereby; provided, however, that any contact and any information obtained by the Buyer as a result of any such contact shall not affect the right of the Buyer to rely on the representations and warranties made by each Seller in or pursuant to any of the Operative Documents; and provided, further, that the Buyer and its representatives will hold in strict confidence all -15- 20 documents and information concerning each Seller so obtained through such contact, and, if the sale of the Purchased Assets pursuant hereto shall not be consummated, such confidence shall be maintained. (c) On and after the Closing Date, each Party shall afford the other and its representatives reasonable access during normal business hours to, and the right to make copies of, all such books and records of such Party pertaining to the Business and the Purchased Assets in connection with the preparation, documentation and/or handling of any financial statements, tax returns, tax audits, reports to governmental or regulatory agencies, and any third-party litigations, disputes, claims or controversies, except to the extent that such access would, in the good faith opinion of the Party so requested, waive any privilege otherwise available and necessary to such Party with respect to any pending litigation, claim, dispute or controversy to which such Party is or could reasonably be expected to become a party to at the time of such access; provided, that any such access by any Party shall not unreasonably interfere with the conduct of the business of the other. Each Party will hold, and will use its best efforts to cause its officers, directors, employees, accountants, counsel, consultants, advisors and agents to hold, in confidence, unless compelled to disclose by judicial or administrative process or by other requirements of law, all confidential documents and information concerning the other Party provided to it pursuant to this Section 6.2(c). Any Party shall bear all out-of-pocket costs and expenses (including, without limitation, attorneys' fees, but excluding reimbursement for general overhead, salaries and employee benefits), reasonably incurred in connection with the foregoing. (d) After the Closing, each Party and each of its Affiliates will hold, and will use their best efforts to cause their respective officers, directors, employees, accountants, counsel, consultants, advisors and agents to hold, in confidence, unless compelled to disclose by judicial or administrative process or by other requirements of law, all confidential documents and information concerning the Business and the Purchased Assets, including any derivative documents containing confidential information furnished to such Party by the other, except to the extent that such information can be shown to have been: (i) previously known on a nonconfidential basis by such Party, (ii) in the public domain through no fault of such Party or its Affiliates or (iii) later lawfully acquired by such Party from sources other than those related to its prior ownership of its portion of the Business and the Purchased Assets. The obligation of each Party and its Affiliates to hold any such information in confidence shall be satisfied if they exercise the same care with respect to such information as they would take to preserve the confidentiality of their own similar information. 6.3 NO OTHER DISCUSSIONS. Prior to the Closing Date, no Seller will enter into any discussion or negotiate with or entertain or accept the unsolicited offer of any other party concerning the potential sale of all or any part of the Purchased Assets or stock of such Seller to, or the merger or consolidation of such Seller with, any Person other than the Buyer. 6.4 NONCOMPETITION AGREEMENT. -16- 21 (a) As an inducement to the Buyer to enter into this Agreement and to consummate the transactions contemplated hereby, no Seller, nor any of its respective subsidiaries, for a period of three (3) years following the Closing Date, without the prior written consent of the Buyer, shall: (i) directly or indirectly engage, whether or not such engagement shall be as a partner, stockholder, member, or other owner or manager, in any Competitive Business (as defined below) engaged in business within the following states: Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut, New York, New Jersey, Pennsylvania, Delaware, Maryland, Virginia, West Virginia, North Carolina, South Carolina, Georgia, Alabama and Florida; (ii) affirmatively assist or induce any other Person (including, without limitation, any officer or director of any Competitive Business) to engage in any Competitive Business in any manner described in the foregoing clause (i); provided, however, the Buyer is then engaged, whether directly or indirectly, as a partner, stockholder, member, or other owner or manager in any aspect of the Competitive Business. For purposes of this Section 6.4 "Competitive Business" shall mean any business engaged in physician practice management, billing or consulting services to independent or hospital-affiliated or other healthcare facility-affiliated physician practices or managed care administrative services. Anything contained in this Section 6.4 to the contrary notwithstanding, the following shall not constitute a breach of this Section 6.4: (i) Providing consulting services in connection with the purchase, sale, use, training, maintenance, installation, and/or implementation of software, information technology, and/or information services to independent or hospital-affiliated or other healthcare facility-affiliated physician practices or any other Person; (ii) Developing, manufacturing, selling and/or providing software, information technology, and/or information services to the Competitive Business or otherwise; (iii) Entering into any agreement with any Person to develop, sell, market, and/or provide any software, information technology, and/or information services; (iv) Providing any services, including, but not limited to billing services, in connection with laboratory and/or pharmacy functions; or (v) Having any ownership interest in Southern State Eye Care, L.L.C., Patient Care Dynamics, LLC, and ACRM, Inc. In the event that the provisions contained in this Section 6.4 shall ever be deemed to exceed the time or geographic limits or any other limitations permitted by applicable law in any jurisdiction, then such provisions shall be deemed reformed in such jurisdiction to preserve the effect thereof to the maximum extent permitted by applicable law. Notwithstanding the provisions of Section 10.1 hereof, the provisions of this Section 6.4 shall survive the Closing for a period of three (3) years. -17- 22 (b) No Seller nor any of the Seller's respective Subsidiaries shall, directly or indirectly, recruit or otherwise seek to induce by any means (other than by general advertisement for such position or in response to an initiative by an employee responding to such general advertisement) any Affected Employee at any time during the one (1) year period following the Closing Date, to terminate his or her employment, to violate any agreement with or duty to the Buyer or any Affiliate of the Buyer, or to hire any such Affected Employee. (c) No Seller nor any of its respective Subsidiaries shall directly or indirectly, solicit or encourage any Person who is or will be (as a result of the transactions contemplated hereby) a customer or supplier of the Buyer or any of its Affiliates to terminate its relationship with the Buyer or any of its Affiliates. (d) Each Seller acknowledges and agrees that, because legal remedies may be inadequate in the event of a breach of, or other failure to perform, any of the covenants and obligations set forth in this Section 6.4, the Buyer may, in addition to obtaining any damages available to it, enforce this Section 6.4 by injunction and other equitable remedies. Each Seller also acknowledges and agrees that no breach by the Buyer or any of its respective Affiliates of, or other failure by such Person to perform, any of its covenants and obligations under any of the Operative Documents or otherwise shall relieve the Sellers or any of their respective Affiliates of any of the obligations under this Section 6.4. 6.5 PRORATIONS AND ADJUSTMENTS. Each Seller and the Buyer agree that the following items shall be prorated as of the Closing Date with respect to the conduct of the Business during the month in which the Closing occurs in accordance with the provisions of this Section 6.5: (i) fees generated; (ii) expenses; and (iii) interest on the Capitalized Leases. All adjustments with respect to the foregoing relating to any period of time on or prior to the Closing Date shall be credited or charged, as applicable, to the Sellers, and all adjustments relating to any period of time after the Closing Date shall be credited or charged, as applicable, to the Buyer. The Parties further agree to complete such proration as soon as practicable following the Closing Date, but in no event later than the six month anniversary of the Closing Date. 6.6 HOLDBACK FUNDS. The Holdback Funds shall be deposited in escrow by the Buyer and held by the Holdback Escrow Agent, pursuant to the terms of the Holdback Escrow Agreement, in an interest bearing account to be invested in such a manner as is agreed upon by the Parent and the Buyer until the six (6) month anniversary of the Closing Date, unless a claim for indemnification is made by the Buyer within such six-month period (the "Holdback Termination Date"). If a claim for indemnification is made by the Buyer against any Seller prior to the Holdback Termination Date, only such amounts which are: (i) subject to offset pursuant to Section 6.13; or (ii) subject to such claim may be held beyond the Holdback Termination Date until resolution of such claim pursuant to Article X hereof. All income earned on the Holdback Funds shall be the property of -18- 23 the Sellers to the same extent as the Holdback Funds, but shall be available to pay any Seller's indemnification obligations hereunder. Thereafter, any remaining interest not used to pay any Seller's indemnification obligations shall be distributed in accordance with the disposition of the Holdback Funds. Such interest income shall be reported for Tax purposes as income of the Parent. 6.7 FURTHER ASSURANCES. Each of the Parties hereto, upon the request from time to time of the other Parties hereto and without further consideration, will do each and every act and thing as may be necessary or reasonably requested to consummate the transactions contemplated hereby (including, without limitation, the orderly transfer to the Buyer of the Purchased Assets and assumption by the Buyer of the Assumed Liabilities), including without limitation: (i) by executing, acknowledging and delivering assurances, assignments and other documents and instruments, furnishing information and copies of documents, books and records (including without limitation tax records); (ii) filing reports, returns, applications, filings and other documents and instruments with governmental authorities; and (iii) cooperating with each other Party hereto in exercising any right or pursuing any claim, whether by litigation or otherwise, other than rights and claims running against the Party from whom or which such cooperation is requested. This Section 6.7 shall survive the Closing for an unlimited period of time. 6.8 DISCLOSURE OF BREACH OR FUTILITY. If, prior to Closing, any Party acquires Knowledge of: (a) a material misrepresentation or material breach by any other Party; or (b) an event, occurrence or circumstance making satisfaction of a condition in Article VII hereof unlikely, the Party acquiring such Knowledge shall give prompt written notice thereof to each other Party in sufficient detail to permit a reasonable analysis thereof. 6.9 POST-CLOSING RETENTION OF RECORDS. For the requisite periods under applicable law after the Closing Date, each Party shall preserve and retain such corporate, accounting, legal, auditing and other books and records pertaining to the Purchased Assets and the Business in accordance with Section 1.1(d) thereof; provided, however, such period shall be extended in the event that any action, suit, proceeding or investigation has been commenced or is pending or threatened at the expiration of such period and such extension shall continue until any such action, suit, proceeding or investigation has been settled or resolved with finality or is no longer pending or threatened. Notwithstanding the foregoing, a Party may discard or destroy any of such books and records prior to the end of such period or period of extension if such Party has given the other Party at least sixty (60) days prior written notice of such Party's intent to discard or destroy such books and records and has given the other Party the opportunity to take possession of any or all of such books and records within said (60) day period. Such Party shall afford the other Party and their representatives reasonable access during normal business hours to, and the right to make copies of, all such books and records applicable to it, for any legitimate purpose (including, without limitation, in connection with the preparation, documentation and/or handling of any financial statements, Tax Returns, Tax audits, reports to governmental or regulatory agencies, litigations, disputes, claims or -19- 24 controversies); provided, that any such access by such Party shall not unreasonably interfere with the conduct of the business of the other. Each Party will hold, and will use its best efforts to cause its officers, directors, employees, accountants, counsel, consultants, advisors and agents to hold, in confidence, unless compelled to disclose by judicial or administrative process or by other requirements of law, all confidential documents and information concerning the other Party provided to it pursuant to this Section 6.9. Each Party shall bear all out-of-pocket costs and expenses (including, without limitation, attorneys' fees, but excluding reimbursement for general overhead, salaries and employee benefits), reasonably incurred in connection with the foregoing. The obligation of each Party and its Affiliates to hold any such information in confidence shall be satisfied if they exercise the same care with respect to such information as they would take to preserve the confidentiality of their own similar information. 6.10 TERMINATION OF SELLERS' EMPLOYEES. Each Seller shall terminate, by notice in the form attached hereto as Exhibit G and effective as of the Closing Date, all Affected Employees of such Seller, which termination shall include termination of the active participation of the Affected Employees in all of the Employee Plans and Benefit Arrangements covering such Affected Employees. Each Seller shall pay all salaries, wages, and benefits, including severance benefits and all accrued paid time off, including, without limitation, accrued vacation and sick time off and all other like benefits, if any, earned with respect to employment or services rendered to or on behalf of the Sellers on or before the Closing Date or pursuant to any retention bonus to which the Affected Employees become entitled. From and after the Closing Date, each Seller shall remain exclusively liable for the payment to the Affected Employees of all severance benefits and all benefits specifically not assumed by the Buyer as an Assumed Liability, including, without limitation, accrued vacation, sick or other like paid time off, if any. Each Seller shall remain responsible for and shall retain any and all statutory or contractual liabilities and obligations relating in any manner to its employees, including the Affected Employees, former employees, their dependents and beneficiaries, arising in connection with events or circumstances incurred or existing on or prior to the Closing Date. Each Seller acknowledges and agrees that Buyer is under no obligation to hire any of the Affected Employees or any former employees of any Seller (excepting those whose names the Buyer has initialed on SCHEDULE 4.7(A) for such term and on such conditions as the Buyer, in its sole discretion, may determine). 6.11 ACCOUNTS RECEIVABLE. After the Closing, the Sellers shall permit the Buyer to collect, in the name of the appropriate Seller, all Purchased Receivables and other items which shall be transferred hereunder, and to endorse with the name of such Seller, all checks, receivables or other items received in payment for services or items provided by the Business. Each Seller shall transfer and deliver to the Buyer all cash and other property that each Seller may receive after the Closing in respect of such Purchased Receivables or other items within ten (10) business days of such receipt. To effectuate the terms and provisions of this Section 6.11, the Sellers shall designate and appoint the Buyer as their attorney-in-fact as provided in Section 9.1 hereof. 6.12 TAXES. -20- 25 Each Party shall be liable for, and shall timely pay, any and all gains, transfer, sales, use, recording, registration, documentary, stamp, and other Taxes that may result from, or be incurred in connection with, consummation of the transactions contemplated by this Agreement which such Party is required to pay under applicable law. 6.13 NET WORKING CAPITAL. The Cash Purchase Price shall be increased or decreased, as applicable, to the extent the Net Working Capital at Closing is greater than or less than $400,000. As used herein, "Net Working Capital" shall equal an amount equal to: (i) the AR Balance (as defined herein); minus (ii) the amount of the Trade Payables at Closing; minus (iii) the amount of the Cap Lease Obligations at Closing. A final adjustment based on the actual Net Working Capital at Closing shall be made within six months of Closing. As used herein: (i) "AR Balance" shall mean the accounts receivable of the Business at the Closing, with any balance for services performed during the month in which the Closing occurs, to be prorated for the number of days elapsed in such month, as the Buyer, using commercially reasonable efforts, collects within six months of the Closing. The Parties agree that any amounts collected after the Closing from a third party in respect of the Purchased Contract and Other Rights, shall be credited to such third party's then most aged payable, unless such third party specifies otherwise in writing, providing a description of the dispute in such case ; (ii) "Trade Payables" shall mean the Trade Payables assumed by the Buyer hereunder; and (iii) "Cap Lease Obligations" shall mean the amount of the Cap Lease Obligations assumed by the Buyer hereunder at the Closing determined in accordance with generally accepted accounting principles. In the event that the Net Working Capital exceeds $400,000, the amount of such excess shall be paid promptly by the Buyer to one or more account(s) to be designated by the Sellers in writing. In the event that the Net Working Capital is less than $400,000, the amount of such deficit shall be paid promptly by the Sellers to an account to be designated by the Buyer. The Sellers agree that the amount of such deficit shall first be paid to the Buyer out of amounts held in the Holdback Escrow. To the extent that the Holdback Escrow is insufficient to cover such deficit, the Sellers shall pay to the Buyer such additional amount as is necessary to complete reimbursement to the Buyer of the deficit amount. The Buyer and Sellers agree that the Net Working Capital shall be calculated, and any payments owing to any Party in respect thereof shall be paid promptly upon acceptance of such calculation in accordance with the provisions of this Section 6.13, on or before the six month anniversary of the Closing Date. In the event that the Parties are unable to agree on the Net Working Capital, the Parties will work together in good faith for a period of ten days in order to reach agreement as to the Net Working Capital. If, after such ten-day period, the Parties remain unable to agree as to the Net Working Capital, each Party shall submit its respective supporting documentation to KPMG Peat Marwick, LLP (the "Independent Accountant"). The Independent Account shall review such supporting documentation and determine the Net Working Capital, which determination shall be final and binding upon the Parties. The cost of the Independent Accountant shall be borne equally among the Parties. 6.14 TIMELY COMPLIANCE WITH EMPLOYMENT RELATED LAWS. -21- 26 Each Seller shall be responsible for timely compliance with all federal, state and local laws respecting the effect to any of the Affected Employees of the transactions contemplated by this Agreement, including without limitation, the Worker Adjustment and Retraining Notification Act, 29 U.S.C. Section 2101, et. Seq. ("WARN"). The Buyer acknowledges and agrees that it shall bear any such responsibility with respect to the actions it takes after the Closing Date. Each Seller agrees that it will not take any action which causes the notice provisions of WARN to be applicable to the transactions contemplated by this Agreement. 6.15 401(k) PLAN DISTRIBUTION AND ROLLOVER. Each Seller represents and warrants that benefits shall not be distributed from such Seller's existing Section 401(k) plans to the Affected Employees after the Closing unless such Seller either terminates such plan on or before the Closing or subsequently receives a favorable determination letter from the IRS providing that such distribution is provided for under the terms of such plan and does not violate the distribution requirements under Section 401(k)(2)(B)(i)(II) and 401(k)(10) of the Internal Revenue Code of 1986, as amended. Any determination letter request by any Seller shall include a disclosure of this asset sale and a description of the tax-qualified plan covering such Affected Employee established by the Buyer following the Closing. ARTICLE VII CONDITIONS TO THE OBLIGATION OF THE BUYER The obligation of the Buyer to purchase the Purchased Assets shall be subject to the fulfillment at or prior to the Closing Date of each of the following conditions: 7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and warranties set forth in Article IV hereof shall be true, complete and correct in all material respects at and as of the date hereof, and as of the Closing Date with the same force and effect as though made at and as of that time. 7.2 PERFORMANCE OF OBLIGATIONS. Each Seller shall have performed in all material respects all of the covenants and agreements to be performed and completed by it under the Operative Documents prior to the Closing. 7.3 PHILADELPHIA HEALTH AND EDUCATION CORPORATION. The Buyer shall have entered into (or Advanced Health Management Corporation shall have entered into and shall have assigned to the Buyer as of the Closing all of its rights and obligations under) the management services agreement with Philadelphia Health and Education Corporation, substantially in the form attached hereto as Exhibit H. 7.4 NO PENDING OR THREATENED LITIGATION. -22- 27 No action, suit, or proceeding shall be pending or threatened before any court or quasi-judicial or administrative agency of any Federal, state, local or foreign jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling or charge would: (i) prevent consummation of any of the transactions contemplated by this Agreement; (ii) cause any of the transactions contemplated by this Agreement to be rescinded following consummation; or (iii) affect adversely the right of the Buyer to own the Purchased Assets to be acquired hereunder and to operate the Business in or substantially in the same manner as previously operated (and no such injunction, judgment, order, decree, ruling or charge shall be in effect). 7.5 NO CHANGE TO THE BUSINESS. (a) Financial Condition. No material adverse change in the operations, financial condition or otherwise of the Business shall have occurred since December 31, 1998 and no fact shall have arisen which has or reasonably could be expected to have a Material Adverse Effect; and (b) Loss, Damage, Destruction. No loss, damage or destruction (whether or not covered by insurance) to any of the Purchased Assets shall have occurred, from the date hereof up and through the Closing Date, which has or reasonably could be expected to have a Material Adverse Effect. 7.6 CLOSING DELIVERIES. Each Seller shall have delivered to the Buyer in form reasonably satisfactory to the Buyer and its counsel all of the documents, agreements, certificates, instruments, information and other materials required to be delivered by it in accordance with the provisions of Section 3.2 hereof. ARTICLE VIII CONDITIONS TO OBLIGATION OF SELLERS The obligation of the Sellers to sell the Purchased Assets shall be subject to the fulfillment at or prior to the Closing Date of each of the following conditions: 8.1 ACCURACY OF THE BUYER'S REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Buyer set forth in Article V hereof shall be true, complete and correct in all material respects at and as of the date hereof, and as of the Closing Date with the same force and effect as though made at and as of that time. 8.2 PERFORMANCE OF OBLIGATIONS. The Buyer shall have performed in all material respects all of the covenants and agreements to be performed and complied with by it under the Operative Documents prior to the Closing. 8.3 CLOSING DELIVERIES. -23- 28 The Buyer shall have delivered to the Sellers, in form reasonably satisfactory to the Sellers and its counsel, all of the documents, agreements, certificates, instruments, information and other materials required to be delivered by it in accordance with the provisions of Section 3.3 hereof. 8.4 NO PENDING OR THREATENED LITIGATION. No action, suit, or proceeding shall be pending or threatened before any court or quasi-judicial or administrative agency of any Federal, state, local or foreign jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling or charge would: (i) prevent consummation of any of the transactions contemplated by this Agreement; (ii) cause any of the transactions contemplated by this Agreement to be rescinded following consummation of the same. ARTICLE IX CERTAIN ACTIONS AFTER THE CLOSING 9.1 POWER OF ATTORNEY. Effective as of and after the Closing Date, each Seller hereby irrevocably appoints the Buyer as such Seller's agent and attorney-in-fact, with full power and authority in the place of such Seller and in the name of such Seller, from time to time in the Buyer's discretion, to collect the Purchased Receivables. Such right shall include the right to endorse the name of the appropriate Seller on any checks received on account of such Purchased Receivable, to deposit all amounts received by the Buyer on account of the Purchased Receivables and otherwise to treat the Purchased Receivables as the Buyer's property. Each Seller agrees that it will promptly tender to the Buyer any payments received by it with respect to the Purchased Receivables. 9.2 POST-CLOSING MATTERS. Any asset that is determined by the Parties' agreement, or, absent such agreement, determined by arbitration or litigation, to be or otherwise relate to an Excluded Asset and that is or comes into the possession, custody or control of the Buyer (or its successors in interest or assigns, or its respective Affiliates) shall forthwith be transferred, assigned or conveyed by the Buyer (or its respective successors in interest or assigns and its respective Affiliates) to the appropriate Seller, and until such transfer, assignment and conveyance, the Buyer (and its respective successors in interest and assigns and its respective Affiliates) shall not have any right, title or interest in such asset but instead shall hold such asset in trust for the benefit of such Seller. Any asset (including all remittances and mail and other communications) that is determined by the Parties' agreement or, absent such agreement, determined by arbitration or litigation, to be or otherwise relate to a Purchased Asset and that is or comes into the possession, custody or control of any Seller or any Affiliate of any Seller (or its respective successors in interest or assigns) shall forthwith be transferred, assigned and conveyed by such Seller or the applicable Affiliate of such Seller (or its respective successors in interest or assigns) to the Buyer and until such transfer, assignment and conveyance, such Seller or the applicable Affiliate of such Seller (and its respective successors in interest and assigns) shall not have any right, title or -24- 29 interest in such Purchased Asset, but instead shall hold such asset in trust for the benefit of the Buyer. The terms of this Section 9.2 shall survive the Closing for an unlimited period of time. 9.3 LEGAL SUPPORT SERVICES. The Buyer agrees to make available to any Seller such Affected Employees as may be requested by such Seller, in accordance with the provisions set forth in this Section 9.3, in order to assist such Seller in the defense, prosecution or investigation of claims made by or against any Seller and for the enforcement of rights held by any Seller (collectively, "Legal Support Services"). The Buyer shall have no obligation to render Legal Support Services in those instances in which interests of any Seller directly conflict with the interests of the Buyer. The Legal Support Services shall be rendered in accordance with any Seller's reasonable request therefor, after giving due regard to the operations and needs of the Buyer. The Sellers shall be solely responsible for the reasonable out-of-pocket cost of such Legal Support Services. 9.4 NONASSIGNABILITY OF ASSETS. (a) Notwithstanding any provision of this Agreement to the contrary, to the extent that any Purchased Asset described in this Agreement as being sold, assigned, transferred or conveyed ("Transferred") to the Buyer (a "Commitment") or any claim, right or benefit arising thereunder or resulting therefrom (collectively with all Commitments, the "Interests"), is not capable of being Transferred without the approval, consent or waiver of the issuer thereof or the other party thereto, or if such Transfer or attempted Transfer would be invalid, would destroy or eliminate the Interests related thereto, or would constitute a breach of a Commitment or a violation of any applicable law, this Agreement shall not constitute a Transfer thereof, or an attempted Transfer thereof in the absence of such approval, consent or waiver. The obligations of the Buyer and the Sellers with respect to such Interests will be governed by clause (b) hereof. (b) The Parties shall co-operate in good faith to take all actions that may be reasonably necessary to complete the Transfer of the Purchased Assets. At all times after the Closing Date, the Parties shall take all actions that may be reasonably required for the purpose of giving to the Parties the full benefit of all the provisions of this Agreement in respect of the Interests, including using their reasonable commercial efforts to cause any third party to execute such documents and take such other actions as may be reasonably required for such purpose. The Sellers and the Buyer will use their reasonable commercial efforts to obtain any consent, substitution, approval or amendment required to novate, reissue or assign all Interests. If the Sellers or the Buyer are unable to obtain any such required consent, approval, substitution or amendment, the Sellers (or their Affiliates) shall continue to be bound by such Commitments and, unless not permitted by applicable law or the terms thereof, the Buyer shall, as agent for the Seller (or its Affiliates) or as subcontractor, pay, perform and discharge fully all the obligations (except for any obligations that are Excluded Liabilities) of the Sellers (or their Affiliates) thereunder arising or to be performed after the Closing Date. The Seller (or its Affiliates) shall promptly, without further consideration, pay and remit to the Buyer all money, rights and other consideration received in respect of such performance by the Buyer after payment of any Taxes and reasonable out of pocket costs due from the -25- 30 Seller (or its Affiliates) with respect to such receipt. The Sellers (or their Affiliates) shall exercise their rights and options under all such Commitments promptly and in such manner as may be reasonably directed by the Buyer, and the Sellers and their Affiliates shall not terminate any commitment without the Buyer's prior consent. Furthermore, to the extent that a Commitment expires without having been Transferred to the Buyer, the Sellers shall use their commercially reasonable efforts to cause such Commitments to be renewed or issued at the Buyer's request. If and when any such approval, consent or waiver shall be obtained or such Commitment shall otherwise become assignable or able to be novated, the assignment by the Sellers of the Interests and the assumption by the Buyer of the Assumed Liabilities related to such Interests shall become effective automatically as of such time, without further action on the part of the Sellers, the Buyer or any of their respective Affiliates, and without payment of further consideration. To the extent that the assignment of any Interest or the proceeds thereof pursuant to this Section 1.3 is prohibited by any applicable law, the assignment provisions of this paragraph shall operate to create a subcontract or agency with the Buyer to perform each relevant, unassignable Commitment, subject to its terms, and the subcontract price shall be equal to the money, rights and other consideration received by the Sellers (net of any Taxes imposed on the Sellers or any of its Affiliates with respect to such money, rights or other consideration) in respect of the performance by the Buyer under such subcontract. (c) The provisions of this Section 1.3 shall not apply to the licenses and permits listed on SCHEDULE 1.1(h) hereof. (d) Notwithstanding the provisions of Section 10.1 hereof, the provisions of this Section 9.4 shall survive the Closing until the expiration of all Interests, after giving effect to the provisions of 9.4(b) above. 9.5 THIRD PARTY CONSENTS AND TERMINATION STATEMENTS (a) Notwithstanding anything else herein, the Buyer hereby acknowledges that the Sellers have not obtained and shall not deliver at Closing: (i) any third party consents required for the valid transfer and assignment of any of the Purchased Assets; or (ii) any UCC-3 termination statements (the "Termination Statements") and that such non-deliveries do not constitute a breach of any representation, warranty or covenant of the Seller, give rise to any indemnification right of the Buyer or constitute a failure or non-fulfillment of any condition precedent to the Buyer's obligations hereunder. (b) The Sellers shall deliver executed UCC-3 termination statements from Progress Bank to the Buyer, in form and substance suitable for filing with the appropriate filing office and reasonably satisfactory to the Buyer within five business days of the Closing and shall deliver to the Buyer a copy of the promissory note evidencing Integrated Medical Management, Inc.'s indebtedness to Progress Bank marked "Paid in Full" as soon as is practicable following the Closing. (c) Nothing set forth in this Section 9.5 shall limit the Seller's obligations set forth in Section 9.4. -26- 31 ARTICLE X INDEMNIFICATION 10.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All the representations and warranties contained in Articles iv and v and all covenants contained herein, unless otherwise indicated, shall survive the Closing for a period of twenty-four (24) months from the Closing; provided, however, that as to any representation or warranty related to any tax, such representation or warranty shall survive until the later of: (a) twenty-four (24) months following the Closing; or (b) the thirtieth day following the expiration of any applicable statute of limitations. 10.2 THE BUYER'S RIGHT TO INDEMNIFICATION. Subject to Section 10.5, the Parent, on behalf of itself and each of its successors and assigns, hereby agrees to indemnify and hold harmless the Buyer and its Affiliates (the "Buyer Indemnitees") from and against: (i) any and all losses, obligations, liabilities, damages, claims, deficiencies, costs and expenses (including, but not limited to, the amount of any settlement and all reasonable legal and other expenses incurred in connection with the investigation, prosecution or defense of the matter) (collectively, "Liabilities"), which may be asserted against or sustained or incurred by the Buyer Indemnitees in connection with, arising out of, or relating to (a) the Excluded Liabilities, (b) any inaccuracy in, misrepresentation or breach of any of the representations, warranties, agreements and covenants made by any Seller in the Operative Documents; and (ii) any and all costs and expenses (including, but not limited to, reasonable legal expenses) incurred by the Buyer Indemnitees in connection with the enforcement of their respective rights under the Operative Documents. 10.3 SELLERS' RIGHT TO INDEMNIFICATION. The Buyer hereby agrees to indemnify and hold harmless each Seller and its Affiliates (the "Seller Indemnitees") from and against: (i) any and all Liabilities which may be asserted against or sustained or incurred by the Seller Indemnitees in connection with, arising out of, or relating to any inaccuracy in, misrepresentation or breach of any of the representations, warranties, agreements and covenants made by the Buyer in the Operative Documents including, without limitation, the payment and/or performance by the Buyer of the Assumed Liabilities as provided herein; and (ii) any and all costs and expenses (including, but not limited to, reasonable legal expenses) incurred by the Seller Indemnitees in connection with the enforcement of their respective rights under the Operative Documents. 10.4 TERMS AND CONDITIONS OF INDEMNIFICATION. The obligations and liabilities of the indemnifying parties hereunder shall be subject to the following terms and conditions: -27- 32 (a) Notice of Claims; Dispute of Liability. Any Party claiming any right of indemnification under the indemnity agreements contained in Section 10.2 or Section 10.3 above (an "Indemnified Party") shall promptly notify the Party or Parties from whom indemnification is sought (the "Indemnifying Parties") pursuant to the provisions hereof, specifying the nature of the claim and the amount or the estimated amount thereof and giving notice of any fact upon which such Indemnified Party intends to base a claim for indemnification hereunder (a "Claim Notice"). In the case of a third party's claim or threatened claim against an Indemnified Party hereunder (a "Third Party Claim"), the Indemnifying Parties shall have thirty (30) days (the "Notice Period") to notify the Indemnified Party whether or not they dispute their liability for indemnification of such claim; provided, however, that the Notice Period for a Third Party Claim shall be reduced if the date on which a responsive pleading or other document is required to be filed giving effect to any available extension occurs sooner than thirty (30) days following receipt of a Claim Notice therefor. In the event the Indemnifying Parties shall have disputed their liability for any Third Party Claim in accordance with the provisions of this Section 10.4(a), the Indemnified Party shall have the right to control the defense or settlement of such claim, in its sole discretion and at its expense; provided, however, that the Indemnified Party shall be reimbursed by the Indemnifying Parties for the costs and expenses of such defense if it shall thereafter be found that such Third Party Claim was subject to indemnification by the Indemnifying Parties hereunder. If an Indemnifying Party does not notify the Indemnified Party within the Notice Period that it disputes liability for a claim for which it has received a Claim Notice, such Indemnifying Party shall be liable to pay the indemnity amount to the Indemnified Party. (b) Claims Against an Indemnitee. In the event any Third Party Claim is brought against an Indemnified Party with respect to which the Indemnifying Parties may have liability under the indemnity agreement contained in Section 10.2 or 10.3 above, the Indemnifying Parties shall elect to either: (i) defend against such Third Party Claim; or (ii) fund the fees and expenses of the defense thereof, which election shall be made within the Notice Period. The counsel selected by the Indemnifying Parties to defend an Indemnified Party in any such Third Party Claim shall be subject to the consent of such Indemnified Party, which consent shall not be unreasonably withheld or delayed. The Indemnified Party shall have the right to employ its own counsel in any case defended by the Indemnifying Parties, but the fees and expenses of such counsel shall be at such Indemnified Party's expense unless (a) both the employment of such counsel and the payment of such fees and expenses shall have been specifically authorized by the Indemnifying Parties in connection with the defense of such Third Party Claim, or (b) such Indemnified Party shall have reasonably concluded and specifically notified the Indemnifying Parties that there may be specific defenses available to it which are different from or additional to those available to the Indemnifying Parties or that such Third Party Claim involves or could have an effect upon matters beyond the scope of the indemnity agreement contained in Section 10.3 above, in any of which events the Indemnifying Parties, to the extent made necessary by such defenses, shall not have the right to direct the defense of such Third Party Claim on behalf of such Indemnified Party. In such case, only that portion of such fees and -28- 33 expenses reasonably related to matters covered by the indemnity agreement contained in said Section 10.3 shall be borne by the Indemnifying Parties. (c) Access to Information. The Indemnified Party shall be kept fully informed of any Third Party Claim for which it has sought indemnification under this Article X at all stages thereof. The Indemnifying Parties shall make available to the Indemnified Party and its attorneys and accountants all books and records of the Indemnifying Parties relating to such Third Party Claim and the Parties hereto agree to render to each other such assistance as they may reasonably require of each other in order to ensure the proper and adequate defense of any such Third Party Claim. (d) Settlement of Claims. If the Indemnifying Parties are defending a Third Party Claim on behalf of an Indemnified Party hereunder, they shall not settle such claim without first obtaining the written consent of the Indemnified Party or Parties, which consent shall not be unreasonably withheld or delayed. 10.5 PAYMENT OF INDEMNITY OBLIGATIONS; CERTAIN LIMITATIONS ON PARENT'S/SELLERS' INDEMNITY OBLIGATIONS. Any and all amounts due for indemnity hereunder shall be paid promptly as indemnifiable damages or losses are incurred, as follows: (i) in the case of a Buyer Indemnitee, pursuant to the Holdback Escrow Agreement, to the extent Holdback Funds are available therefor; (ii) in the event Holdback Funds are not available therefor or in the case of a Seller Indemnitee, within thirty (30) days after written demand therefor; provided, however, that no Party shall have the obligation, nor, in the case of a Buyer Indemnitee, shall any Holdback Funds be used, to indemnify any Indemnitee for any Liabilities under Section 10.2 or 10.3 above, as applicable, which may be asserted against or sustained or incurred by such Indemnitee in connection with, arising out of, or relating to any inaccuracy in, misrepresentation, breach or alleged breach of any of the representations, warranties, agreements and covenants made by any Party in the Operative Documents which do not relate to: (i) the Purchased Assets; or (ii) the Parties' agreement with respect to Excluded Liabilities set forth in Section 2.3 above, unless and until the aggregate indemnifiable amount of such Liabilities for the Buyer or one or more of the Sellers as a group, as the case may be, equals or exceeds $50,000; and provided, further, however, that in the event the Buyer, any Seller, or the Sellers as a group indemnify and pay, pursuant to Section 10.2 or 10.3 above to any Indemnitee, or the Indemnitees as a group, indemnifiable amounts in the aggregate equal to the Purchase Price, irrespective of whether such indemnifiable amounts were paid solely out of funds of the Buyer, or one or more of the Sellers, (or in the case of any Seller, in combination with payments from the Holdback Funds, no Party shall have any further obligation to indemnify any Indemnitee for any indemnifiable amounts pursuant to Section 10.2 or 10.3. Payments shall be made in accordance with the Indemnified Party's reasonable instruction at the time. ARTICLE XI MISCELLANEOUS 11.1 FAILURE OF CONDITIONS; BREACH. -29- 34 (a) Failure of Conditions to Sellers' Performance. In the event that any of the conditions set forth in Article VIII of this Agreement have not been satisfied on or before the Closing Date, time being of the essence, and each Seller has satisfied its material obligations hereunder, then, unless each Seller has given the Buyer prior written notice of such Seller's decision to waive such conditions, any Seller may terminate this Agreement without prejudice to any rights and remedies available to any Seller. (b) Failure of Conditions to the Buyer's Performance. In the event that any of the conditions set forth in Article VII of this Agreement have not been satisfied on or before the Closing Date, time being of the essence, and the Buyer has satisfied its material obligations hereunder, then, unless the Buyer has given each Seller prior written notice of the Buyer's decision to waive such conditions, the Buyer may terminate this Agreement without prejudice to any rights and remedies available to the Buyer. (c) The Buyer may terminate this Agreement by giving written notice to each Seller at any time prior to the Closing in the event any Seller has breached any representation, warranty or covenant contained in this Agreement in any material respect. (d) Any Seller may terminate this Agreement by giving written notice to the Buyer at any time prior to the Closing in the event the Buyer has breached any representation, warranty or covenant contained in this Agreement in any material respect. 11.2 TERMINATION OF OBLIGATIONS BY MUTUAL AGREEMENT. Anything to the contrary herein notwithstanding, this Agreement may be terminated and the transactions contemplated hereby may be abandoned by the mutual written consent of all of the Parties hereto at any time prior to the Closing Date, and no Party shall have any liability for any costs, expenses, losses of anticipated profits or any further obligation for breach of warranty or otherwise to any other party to the Operative Documents. 11.3 RISK OF LOSS OF PURCHASED ASSETS PRIOR TO CLOSING. The risk of any loss to the properties to be sold by each Seller hereunder and all liability with respect to injury and damage occurring in connection therewith shall be the sole responsibility of such Seller until the completion of the Closing. 11.4 DISCLOSURE SCHEDULES. Any item listed on any schedule attached hereto and made a part hereof by either Party shall be deemed to have been disclosed to the other Party on all such schedules for purposes hereof. 11.5 BINDING EFFECT. -30- 35 This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 11.6 ENTIRE AGREEMENT. This Agreement together with the other Operative Documents contains the entire agreement of the Parties with respect to the purchase of the Purchased Assets and the other transactions contemplated herein, and supersede all prior understandings and agreements of the Parties with respect to the subject matter hereof. Any reference herein to this Agreement shall be deemed to include the exhibits and schedules attached hereto and any reference herein to the Operative Documents shall be deemed to include the exhibits and schedules attached thereto. 11.7 EXECUTION IN COUNTERPART. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same agreement. 11.8 NOTICES. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been given if delivered personally, sent by Federal Express or other similar overnight delivery service providing evidence of receipt, or mailed via certified mail, return receipt requested, postage prepaid as follows: If to the Sellers: Advanced Health Corporation 560 White Plains Road, 2nd Floor White Plains, New York 10591 Attn: Chief Executive Officer and General Counsel with a copy to: O'Sullivan, Graev & Karabell, LLP 30 Rockefeller Plaza New York, New York 10112 Attn: Jonathan Rosenberg, Esq. If to the Buyer: PractiCare, Inc. 4 Griffin Road North Windsor, Connecticut 06095 Attn: President with a copy to: McDermott, Will & Emery 28 State Street Boston, Massachusetts 02109 Attn: Michael L. Blau, Esq. Any Party may change the address to which notices hereunder are to be sent to it by giving written notice of such change of address in the manner herein provided for giving notice. Any notice delivered personally shall be deemed to have been given on the date it is so delivered, -31- 36 and any notice delivered by registered or certified mail shall be deemed to have been given on the date it is received. 11.9 GOVERNING LAW. 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 therein. 11.10 REPRESENTATION BY COUNSEL. Each Party hereto represents and agrees that it has been represented by legal counsel in connection with the negotiation, formation and execution of this Agreement. 11.11 ASSIGNMENT, SUCCESSORS AND ASSIGNS. This Agreement and the rights and obligations of each Seller hereunder shall not be assignable or transferable by any Seller without the prior written consent of the Buyer. The Buyer, on or after the Closing Date, may assign or transfer this Agreement and its rights and obligations hereunder, including, without limitation, the Noncompetition Agreement, without the prior written consent of any Seller. All of the terms and provisions of this Agreement shall be binding on and inure to the benefit of the Parties' respective successors and permitted assignees. 11.12 SPECIFIC PERFORMANCE. The Sellers acknowledge that the Business and the Purchased Assets are unique, that a failure by the Sellers to complete the transactions contemplated by this Agreement will cause irreparable injury to the Buyer, and that actual damages for any such failure may be difficult to ascertain and may be inadequate. Accordingly, the Buyer shall be entitled to specific performance of any of the provisions of this Agreement in addition to any other legal or equitable remedies to which the Buyer may otherwise be entitled for a failure by the Seller to complete the transactions contemplated by this Agreement. 11.13 SEVERABILITY. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] -32- 37 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on the day and year first above written. SELLERS: ADVANCED HEALTH MANAGEMENT CORPORATION By: /s/ Jeffrey M. Sauerhoff ---------------------------------- Name: Jeffrey M. Sauerhoff Title: Chief Financial Officer INTEGRATED MEDICAL MANAGEMENT, INC. By: /s/ Jeffrey M. Sauerhoff ---------------------------------- Name: Jeffrey M. Sauerhoff Title: Chief Financial Officer ADVANCED HEALTH CORPORATION d/b/a AHT CORPORATION By: /s/ Jeffrey M. Sauerhoff ---------------------------------- Name: Jeffrey M. Sauerhoff Title: Chief Financial Officer BUYER: PRACTICARE, INC. By: /s/ C. Douglas Collins ---------------------------------- Name: C. Douglas Collins, MD Title: President 38 SCHEDULES Schedule 1.1(a) Fixed Assets Schedule 1.1(b) Purchased Receivables Schedule 1.1(c) Purchased Contract and Other Rights; Assumed Encumbrances Schedule 1.1(d) Purchased Operating Data and Records Schedule 1.1(e) Purchased Proprietary Rights Schedule 1.1(f) Prepaid Expenses Schedule 1.1(g) Telephone and Facsimile Numbers Schedule 1.1(h) Licenses and Permits Schedule 2.1(a)(ii)(x) Assumed Ordinary Trade Payables Schedule 2.1(a)(ii)(y) Assumed Equipment-Related Payables Schedule 2.1(b) Fed Funds Wire Transfer Instructions Schedule 2.3 Purchase Price Allocation Schedule 4.2 Capital Structure Schedule 4.6 Litigation Schedule 4.7(a) Affected Employees Schedule 4.7(b) Employees; Employment Terms Schedule 4.11 Licenses Schedule 4.12(a) Corporate Services Schedule 4.12(d) Proprietary Rights Schedule 4.13 Relationships with Customers Schedule 4.14(a) Employee Plans Schedule 4.14(c) Benefit Arrangements Schedule 4.15(c) Non-Compliance with Health Care Laws, Rules or Regulations Schedule 4.17 Compliance with Fictitious Name Statutes Schedule 4.18 Brokers' Fees of Sellers Schedule 4.20 Software Schedule 5.4 Brokers' Fees of Buyer Schedule 11.7 Finders' Fees EXHIBITS Exhibit A Form of Holdback Escrow Agreement Exhibit B Form of General Assignment and Assumption Agreement and Bill of Sale Exhibit C Progress Bank Payoff Letter Exhibit D Form of Opinion of Special Counsel to the Sellers Exhibit E Form of Section 1445(b)(2) Certification Exhibit F Form of Opinion of Counsel to the Buyer Exhibit G Form of Termination Notice Exhibit H PHEC Management Services Agreement 39 ASSET PURCHASE AGREEMENT by and among ADVANCED HEALTH MANAGEMENT CORPORATION, a Delaware corporation, INTEGRATED MEDICAL MANAGEMENT, INC., a Delaware corporation, ADVANCED HEALTH CORPORATION, d/b/a AHT CORPORATION, a Delaware corporation as the Sellers, and PRACTICARE, INC., a Delaware corporation as the Buyer Dated May 14, 1999 40 EXHIBIT A HOLDBACK ESCROW AGREEMENT THIS ESCROW AGREEMENT (this "Agreement") is made and entered into as of the __ day of May, 1999, by and between ADVANCED HEALTH MANAGEMENT CORPORATION, a Delaware corporation, INTEGRATED MEDICAL MANAGEMENT, INC., a Delaware corporation and ADVANCED HEALTH CORPORATION d/b/a AHT CORPORATION, a Delaware corporation ("Parent") (collectively, "Sellers"), PRACTICARE, INC., a Delaware corporation ("Buyer") and State Street Bank and Trust Company ("Escrow Agent"). R E C I T A L S: WHEREAS, Sellers and Buyer have entered into that certain Asset Purchase Agreement, dated May , 1999 (the "Asset Purchase Agreement") for the sale by Sellers, and the purchase by Buyer, of certain of Sellers' assets; and WHEREAS, a condition to the obligation of Buyer and Sellers to consummate the transactions contemplated by the Asset Purchase Agreement is that this Agreement shall have been executed and delivered; and WHEREAS, unless otherwise defined herein, the capitalized terms used in this Agreement shall have those meanings set forth in the Asset Purchase Agreement, a copy of which is attached hereto; and WHEREAS, this Agreement is the Escrow Agreement regarding those certain holdback funds contemplated by Section 2.1(b) of the Asset Purchase Agreement. NOW, THEREFORE, for the reasons set forth hereinabove, and in consideration of the mutual promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Recitals. The foregoing recitals are true and correct and form a part of this Agreement. 2. Escrowed Proceeds. At the time of the execution of this Agreement, Buyer shall deliver to Escrow Agent $450,000, in accordance with the terms and conditions of the Asset Purchase Agreement (the "Holdback Funds"). All parties acknowledge that the Holdback Funds will be held by Escrow Agent in a segregated account and that such interest as is earned thereon will be reported on Parent's EIN number. 3. Operation of Holdback Escrow. The Buyer and the Sellers agree and acknowledge that the Holdback Funds shall be governed in accordance with Section 6.6 of the Asset Purchase Agreement. 41 4. Investment of the Holdback Funds. The Escrow Agent shall invest the Holdback Funds in either treasury obligations of the United States government or in a money market fund which maintains deposit insurance which is adequate to cover such Holdback Funds. The Escrow Agent shall not be liable or responsible in any manner for any loss or depreciation resulting from any such investment or for any costs in connection therewith. All earnings received from the investment of the Holdback Funds shall be credited to, and shall become a part of, the Holdback Fund (and any losses on such investments shall be debited from the Holdback Funds). The Escrow Agent shall have no liability for any investment losses, including any losses on any investment required to be liquidated prior to maturity in order to make a payment required hereunder. 5. Escrow Agent's Duties. (a) The Escrow Agent shall be obligated only for the performance of such duties as are specifically set forth herein, and as set forth in any additional written escrow instructions which Escrow Agent may receive after the date of this Agreement which are signed by an officer of Buyer, Parent and Escrow Agent, each of which are ministerial (and shall not be construed to be fiduciary) in nature, and no implied duties or obligations of any kind shall be read into this Agreement against or on the part of the Escrow Agent. (b) If Escrow Agent receives notice from either Buyer or Parent to release any or all Holdback Funds (a "Release Notice") to such party (the "Requesting Party"), Escrow Agent shall deliver a copy of such Release Notice to the other party not requesting such release (the "Non-Requesting Party") by certified mail, return receipt requested. If Escrow Agent does not receive a written objection (an "Objection Notice") to such release from the Non-Requesting Party within ten (10) business days of the date upon which the copy of such Release Notice was received by the Non-Requesting Party, as indicated on the certified mail receipt, Escrow Agent shall release to the Requesting Party the exact amount of Holdback Funds requested by the Requesting Party. If Escrow Agent does receive a written objection to such release from the Non-Requesting Party within such ten (10) business day period, Escrow Agent shall continue to hold, and shall not release, such disputed portion of the Holdback Funds requested by the Requesting Party until otherwise directed by written notice from both Buyer and Parent. The Escrow Agent shall release or distribute the Holdback Funds promptly (i) to the Requesting Party in accordance with either the Release Notice or joint instructions as set forth above; (ii) to the Sellers, in the absence of any Release Notice or Objection Notice from either the Buyer or the Parent, received by the Escrow Agent at 5:00 p.m. Eastern Time upon the six month anniversary of this Agreement; or (iii) to the Sellers, such portion of the Holdback Funds which is not the subject of any Release Notice between the Buyer and the Sellers upon the six month anniversary of this Agreement. (c) The Escrow Agent is hereby expressly authorized to respond to orders or process of courts of law, and is hereby expressly authorized to comply with any final order, decree or judgement of a court in the United States of America, the time for perfection of an appeal of such order, decree and judgment having expired; provided, however, the Escrow Agent shall not be -2- 42 obligated to take any legal or other action hereunder which might in its judgment involve or cause it to incur any expense or liability unless it shall have been furnished with acceptable indemnification. In case Escrow Agent obeys or complies with any such order, judgment or decree of any court, Escrow Agent shall not be liable to any of the parties hereto or to any other person by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction. (d) The Escrow Agent shall not be liable in any respect on account of the identity, authority or rights of the parties hereto executing or delivering or purporting to execute or deliver this Agreement, unless the Escrow Agent has actual knowledge to the contrary. (e) The Escrow Agent shall not be liable for the expiration of any rights under any statute of limitations with respect to this Agreement. (f) In performing any duties under this Agreement, Escrow Agent shall not be liable to any party for damages, losses, or expenses, except for gross negligence or willful misconduct on the part of Escrow Agent. In no event shall the Escrow Agent be liable for indirect, punitive, special or consequential damage or loss (including but not limited to lost profits) whatsoever, even if the Escrow Agent has been informed of the likelihood of such loss or damage and regardless of the form of action. Further, Escrow Agent shall not incur any such liability for: (i) any act or failure to act made or omitted in good faith; or (ii) any action taken or omitted in reliance upon any instrument, properly given and consistent with the provisions contained in this Agreement, including any written statement of affidavit provided for in this Agreement that Escrow Agent shall in good faith believe to be genuine, nor will Escrow Agent be liable or responsible for forgeries, fraud, impersonations, or determining the scope of any representative authority. In addition, Escrow Agent may consult with legal counsel, including in-house counsel, in connection with Escrow Agent's duties under this Agreement and shall be fully protected in any act taken, suffered, or permitted by him/her in good faith in accordance with the written advice of counsel. The Escrow Agent is not responsible for determining and verifying the authority of any person acting or purporting to act on behalf of any party to this Agreement, unless the Escrow Agent has actual knowledge to the contrary. (g) The Escrow Agent may resign at any time upon giving at least thirty (30) days written notice to the parties; provided, however, that no such resignation shall become effective until the appointment of a successor escrow agent which shall be accomplished as follows: the parties shall use their best efforts mutually to agree on a successor escrow agent within thirty (30) days after receiving such notice. If the parties fail to agree upon a successor escrow agent within such time, Escrow Agent shall have the right to appoint a successor escrow agent. The successor escrow agent shall execute and deliver an instrument accepting such appointment and it shall, without further acts be vested with all the estates, properties, rights, powers and duties of the predecessor escrow agent as if originally named as escrow agent. Upon appointment of a successor escrow agent and transfer of the Holdback Funds (together with all interest and dividends earned thereon) to the successor escrow agent, Escrow Agent shall be -3- 43 discharged from any further duties and liability under this Agreement. Notwithstanding anything else herein, any company into which Escrow Agent may be merged or with which it may be consolidated, or any company to whom Escrow Agent may transfer a substantial amount of its escrow business, shall be the successor to Escrow Agent without the execution or filing of any paper or any further act on the part of any of the parties anything herein to the contrary notwithstanding. 6. Fees and Costs. The Buyer agrees to pay and reimburse the Escrow Agent for its attorney's fees and expenses incurred in connection with the preparation of this Agreement and to pay all fees of Escrow Agent for performance of its duties hereunder in accordance with the standard fee schedule of Escrow Agent. The Buyer shall also reimburse Escrow Agent for all reasonable expenses incurred by it in performance of its duties under this Agreement. It is understood that the fees and usual charges agreed upon for services of Escrow Agent shall be considered compensation for ordinary services as contemplated by this Agreement. In the event that the conditions of this Agreement are not promptly fulfilled, or if Escrow Agent renders any service not provided for in this Agreement, or if the parties hereto request a substantial modification of its terms, or if any controversy arises, or if Escrow Agent is made a party to, or intervenes in, any litigation pertaining to the Holdback Funds or its subject matter, the Buyer and Sellers agree, jointly and severally, to pay or reimburse the Escrow Agent for such extraordinary services and for all costs, attorney's fees, including allocated costs of in-house counsel, and expenses occasioned by such default, delay, controversy or litigation. 7. Further Provisions Relating to Holdback Funds. It is understood and agreed that Escrow Agent shall: (a) Not be charged with any knowledge of or be bound by or be under any duty to enforce any of the terms or conditions of the Asset Purchase Agreement; (b) Be protected in acting upon any notice, written request, certificate approval, consent or other paper believed by it to be genuine and to be signed by the proper party or parties; (c) Be conclusively deemed to have given and delivered any notice required to be given or delivered hereunder if the same is in writing, signed by it and mailed, by registered or certified mail, in a sealed, postage prepaid wrapper, addressed to the appropriate party at its address herein set out; (d) Be entitled to consult with its counsel, including in-house counsel, and shall not be liable for any action taken or admitted by it in accordance with the opinion and advice of such counsel whether such counsel be a member of its staff or independent counsel; (e) Be indemnified and held harmless by Buyer and Sellers, and their respective successors and assigns, jointly and severally, against any and all claims made against Escrow Agent by reason of its acting or failing to act in connection with -4- 44 any of the transactions contemplated hereby and against any and all losses, claims, damages, liabilities, actions, suits or proceedings at law or in equity or any other expenses, including reasonable attorneys' fees, it may sustain or with which it may be threatened by reason of it acting as Escrow Agent under this Agreement, except such claims which are occasioned by its gross negligence or willful misconduct; and (f) Not be liable to Buyer or Sellers, or to any other person or entity, with respect to any action taken or omitted to be taken by Escrow Agent in good faith (except where such action amounts to gross negligence on the part of the Escrow Agent). (g) The Escrow Agent shall have no more or less responsibility or liability on account of any action or omission of any book-entry depository, securities intermediary or other subescrow agent employed by the Escrow Agent than any such book-entry depository, securities intermediary or other subescrow agent has to the Escrow Agent, except to the extent that such action or omission or any book-entry depository, securities intermediary or other subescrow agent was caused by the Escrow Agent's own gross negligence, bad faith or willful misconduct in breach of this Agreement. The foregoing indemnification and agreement to hold harmless of this Section 7 shall survive the termination of this Agreement. 8. Controversies; Escrow Agent's Right to Interplead. If any controversy arises between the parties, or with any other party, concerning the subject matter of this Agreement, its terms or conditions, Escrow Agent will not be required to determine the controversy or to take any action regarding it. The Escrow Agent may (at its sole option and election) hold all documents and cash balances until such dispute shall have been settled either by the mutual written agreement of the parties involved or by a final order, decree or judgment of a court in the United States of America, the time for perfection of an appeal of such order, decree and judgment having expired. The Escrow Agent may, but shall be under no duty whatsoever to, institute or defend any legal proceedings which relate to the Holdback Funds. In such event, Escrow Agent will not be liable for any damage, costs or liabilities. Furthermore, in the event that any controversy should arise between Buyer and Sellers during the term of this Agreement concerning the right to any of the Holdback Funds, Escrow Agent shall have the right to interplead any or all of the Holdback Funds into a court of competent jurisdiction located in the Commonwealth of Massachusetts, for the purpose of determining the party or parties entitled thereto. All costs, expenses, charges and reasonable attorneys' fees incurred by Escrow Agent due to the interpleader action shall be borne jointly and severally by the Buyer and the Sellers. 9. Termination of Escrow Agent's Liability. The Escrow Agent's responsibilities and liabilities hereunder shall terminate upon payment by Escrow Agent of the Holdback Funds in accordance with the provisions of this Agreement. In addition, Escrow Agent's liability hereunder shall terminate upon its interpleading such Holdback Funds. -5- 45 10. Notices. Any notice or other communication required or which may be given hereunder shall be in writing and either be delivered personally or be mailed, certified or registered mail, postage prepaid, and shall be deemed given when so delivered personally, or if mailed, five (5) days after the date of mailing, as follows: If to Buyer to: PractiCare, Inc. 4 Griffin Road North Windsor, CT 06095 Attn: President Tel: (860) 688-5370 Fax: (860) 688-5990 with a copy to: McDermott, Will & Emery 28 State Street Boston, MA 02109 Attn: Michael L. Blau, Esq. Tel: (617) 535-4010 Fax: (617) 535-3800 If to Sellers: c/o Advanced Health Corporation 555 White Plains Road, 5th Floor Tarrytown, NY 10591 Attn: President and General Counsel Tel: (914) 524-4200 Fax: (914) 332-1741 If to Escrow Agent to: State Street Bank & Trust Company Corporate Trust Department, Fourth Floor 2 International Place Boston, MA 02110 Attn: PractiCare/Advanced Health Escrow Tel: (617) 664-5311 Fax: (617) 664-5374 The parties may change the persons and addresses to which the notices or other communications are to be sent by giving written notice of any such change in the manner provided herein for giving notice. (a) Wiring Instructions. Any funds to be paid to or by the Escrow Agent hereunder shall be sent by wire transfer pursuant to the following instructions (or by such method or payment and pursuant to such instruction as may have been given in advance and in writing to or by the Escrow Agent, as the case may be, in accordance with Section 10(a) above); -6- 46 If to Buyer to: Bank: ________________ ABA #: _______________ A/C#: _______________ Attn: _______________ Ref: ________________ If to Sellers: Bank: Bank of New York ABA #: 021000018 A/C#: 670-1262466 Attn: _______________ Ref: ________________ If to Escrow Agent to: State Street Bank & Trust Company ABA#: 0110 0002 8 A/C#: 9903-990-1 Attn: Corporate Trust Department Ref: 122240-010 Fax: 617-664-5374 11. Waiver. No waiver by a party of any default or nonperformance hereunder shall be deemed a waiver of any subsequent default or nonperformance. No waiver shall be effective unless in writing, and signed by the party or parties to which the performance of duty is owed. No delay in the serving of any right or remedy shall constitute a waiver of any right or remedy. 12. Independent Covenants. The parties agree that each of the covenants and provisions contained in this Agreement shall be deemed severable and construed as independent of any other covenant or provision. 13. Severability. If all or any portion of a covenant or provision in this Agreement is held invalid, unreasonable or unenforceable by a court or agency having valid jurisdiction in an unappealed final decision, the remaining covenants and provisions shall remain valid and enforceable. The parties hereto agree to be bound by any lesser covenant or provision contained within the terms of such covenant or provision that imposes the maximum duty permitted by law, as if the resulting covenant or provision were separately stated in, and made a part of this Agreement. 14. Modifications and Amendments. This Agreement may not be, and shall not be construed to have been modified, amended, rescinded, canceled, or waived, in whole or in part, except if done so in writing and executed by the parties hereto. 15. Governing Law. The validity, interpretation and enforcement of this Agreement shall be governed by, and construed and enforced in accordance with the laws of the Commonwealth of Massachusetts without giving effect to its conflicts of laws provisions, and to the exclusion of the law of any other forum. -7- 47 16. Exclusive Jurisdiction; Venue. EACH PARTY AGREES TO SUBMIT TO THE EXCLUSIVE PERSONAL JURISDICTION AND VENUE OF THE STATE AND/OR FEDERAL COURTS LOCATED IN COMMONWEALTH OF MASSACHUSETTS FOR RESOLUTION OF ALL DISPUTES ARISING OUT OF, IN CONNECTION WITH, OR BY REASON OF THE INTERPRETATION, CONSTRUCTION, AND ENFORCEMENT OF THIS AGREEMENT, AND HEREBY WAIVES THE CLAIM OR DEFENSE THEREIN THAT SUCH COURTS CONSTITUTE AN INCONVENIENT FORUM. In any such action or proceeding, the parties each hereby absolutely and irrevocably (i) waives personal service of any summons, compliant, declaration or other process, and (ii) agrees that the service thereof may be made by certified or registered first class mail directed to such party, as the case may be, at their respective addresses in accordance with Section 10 hereof. 17. Waiver of Jury Trial. AS A MATERIAL INDUCEMENT FOR THIS AGREEMENT, EACH PARTY HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY WAIVES ALL RIGHTS TO A TRIAL BY JURY OF ANY ISSUES SO TRIABLE. 18. No Third Party Beneficiary. No party other than the parties hereto has, or shall have, any lien, claim or security interest in the Holdback Funds or any part thereof. No financing statement under the Uniform Commercial Code is on file, or will be filed, in any jurisdiction claiming a security interest in or describing (whether specifically or generally) the Holdback Funds or any part thereof. 19. Counterparts. This Agreement may be executed by each party upon a separate counterpart, and in such case one copy of this Agreement shall consist of enough of such copies to reflect the signature of all of the parties to this Agreement. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement or the terms of this Agreement to produce or account for more than one of such counterparts. 20. Assignment. No party may assign any of its rights or delegate any of its obligations hereunder without the prior written consent of the other parties. This Agreement binds, inures to the benefit of and is enforceable by the respective successors and permitted assigns of the parties and it does not confer any rights on any other persons or entities. 21. Tax-Related Terms. (a) Certification of Tax Indemnification Number. The Parent hereto agrees to provide the Escrow Agent with a certified tax identification number by signing and returning a Form W-9 (or Form W-8, in case of non-U.S. persons) to the Escrow Agent prior to the date on which any income earned on the investment of the Holdback Funds is credited to the Holdback Escrow. The Parent understands that, in the event its tax identification numbers is not certified to the Escrow Agent, the Internal Revenue Code, as amended from time to time, may require withholding of a portion of any interest or other income earned on the investment -8- 48 of the Holdback Funds. (b) Tax Indemnification. Each of the Buyer, on the one hand, and the Sellers, on the other hand, agree, jointly and severally, (i) to assume any and all obligations imposed now or hereafter by any applicable tax law with respect to any payment or distribution of the Holdback Funds or performance of other activities under this Agreement, (ii) to instruct the Escrow Agent in writing with respect to the Escrow Agent's responsibilities for withholding and other taxes, assessments or other governmental charges, and to instruct the Escrow Agent with respect to any certifications and governmental reporting that may be required under any laws or regulations that may be applicable in connection with its acting as Escrow Agent under this Agreement, and (iii) to indemnify and hold the Escrow Agent harmless from any liability or obligation on account of taxes, assessments, additions for late payment, interest, penalties, expenses and other governmental charges that may be assessed or asserted against the Escrow Agent in connection with or relating to any payment made or other activities performed under the terms of this Agreement, including, without limitation, any liability for the withholding or deduction of (or the failure to withhold or deduct) the same, and any liability for failure to obtain proper certifications or to report properly to governmental authorities in connection with this Agreement, including costs and expenses (including reasonable legal fees and expenses), interest and penalties. The foregoing indemnification and agreement to hold harmless shall survive the termination of this Agreement. 22. Force Majeure. The Escrow Agent shall not be responsible for delays or failures in performance resulting from acts beyond its control. Such acts shall include but not be limited to acts of God, strikes, lockouts, riots, acts of war, epidemics, governmental regulations superimposed after the fact, fire, communication line failures, computer viruses, power failures, earthquakes or other disasters. 23. Reproduction of Documents. This Agreement and all documents relating thereto, including, without limitation, (a) consents, waivers and modifications which may hereafter be executed, and (b) certificates and other information previously or hereafter furnished, may be reproduced by any photographic, photostatic, microfilm, optical disk, micro-card, miniature photographic or other similar process. The parties agree that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the original is in existence and whether or not such reproduction was made by a party in the regular course of business, and that any enlargement, facsimile or further reproduction of such reproduction of such reproduction shall likewise be admissible in evidence. [Remainder of this Page Intentionally Left Blank] -9- 49 WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above SELLERS ADVANCED HEALTH MANAGEMENT CORPORATION Attest:__________________________ By:_____________________________ Name: Its: INTEGRATED MEDICAL MANAGEMENT, INC. Attest:__________________________ By:_____________________________ Name: Its: ADVANCED HEALTH CORPORATION d/b/a AHT CORPORATION Attest:__________________________ By:_____________________________ Name: Its: BUYER -10- 50 PRACTICARE, INC. Attest:__________________________ By: /s/ C. Douglas Collins ------------------------------ Name: C. Douglas Collins, MD Its: President ESCROW AGENT STATE STREET BANK AND TRUST COMPANY Attest:__________________________ By: /s/ Arthur L. Blakeslee ------------------------------ Name: Arthur L. Blakeslee Its: President -11- 51 EXHIBIT B GENERAL ASSIGNMENT AND ASSUMPTION OF LIABILITIES AND BILL OF SALE ADVANCED HEALTH MANAGEMENT CORPORATION, INTEGRATED MEDICAL MANAGEMENT, INC. and ADVANCED HEALTH CORPORATION d/b/a AHT CORPORATION, PRACTICARE, INC., Assignors to Assignee Pursuant to and in accordance with the terms and provisions of that certain Asset Purchase Agreement, dated as of May , 1999 (the "Agreement") by and among Advanced Health Management Corporation, a Delaware corporation, Integrated Medical Management, Inc., a Delaware corporation and Advanced Health Corporation d/b/a AHT Corporation, a Delaware corporation (the "Parent") (each an "Assignor" and collectively, the "Assignors") and PractiCare, Inc., a Delaware corporation (the "Assignee") and for the consideration therein specified, Assignors do hereby (subject to Section 9.4 of the Agreement) sell, convey, deliver, assign and transfer to Assignee, free and clear of any Encumbrance except as permitted therein, and Assignee does hereby acquire from Assignors, all of Assignors' right, title and interest in and to the Purchased Assets, namely: (a) each Assignor's equipment, supplies, leasehold improvements, furniture, fixtures and other fixed assets set forth in Schedule 1.1(a) to the Agreement; (b) each Assignor's receivables relating to the Business as set forth in Schedule 1.1(b) to the Agreement; (c) each Assignor's rights and benefits accruing to such Assignor under all orders, contracts, leases and agreements made by such Assignor, and each Assignor's vendor and supplier relationships as the same relate to the Business, as set forth in Schedule 1.1(c) to the Agreement; (d) each Assignor's operating data and operating records in whatever form and media which pertain to: (i) the Purchased Assets, including any accounting records and such other records as are reasonably necessary to collect the Purchased Receivables and pay the Assumed Liabilities; (ii) the Business, including supplier lists, manuals, correspondence, mailing lists, account lists, Works (as defined in various contracts included in the Purchased Contract and Other Rights except as specifically excluded on SCHEDULE 1.1 (d)) and other similar documents and records as specified in Schedule 1.1(d) to the Agreement; and (iii) advertising and sales materials as specified in Schedule 1.1(d) to the Agreement; 52 (e) the proprietary rights owned or licensed by each Assignor and used in the conduct of the Business, including, without limitation, all trademarks, service marks and designs, trade names, trade secrets, technology, software, operating systems, know-how, slogans, copyrights, processes, operating rights, Marks (as defined in various contracts included in the Purchased Contract and Other Rights, to the extent permitted thereby) and other similar intangible property and rights relating to the Business, as set forth in Schedule 1.1(e) to the Agreement; (f) each Assignor's prepaid expenses relating to the Business and as set forth in Schedule 1.1(f) to the Agreement, subject to adjustment as provided in Section 6.5 therein; (g) each Assignor's right and interest in and to the telephone and facsimile numbers set forth in Schedule 1.1(g) to the Agreement; (h) each Assignor's licenses and permits which pertain to the Purchased Assets, the Business and/or the operation and conduct thereof, to the extent transferable, as set forth in Schedule 1.1(h) to the Agreement; and (i) each Assignor's right, title and interest in and to all of the goodwill associated with the Purchased Assets, the Business and/or the conduct and operation thereof. TO HAVE AND TO HOLD the same, with the appurtenances thereof, unto Assignee, its successors and assigns, forever, to its own use and behalf. Pursuant to Section 2.1 of the Agreement, the Assignee hereby assumes and agrees to pay or discharge when due in accordance with their respective terms only: (a) the ordinary trade payables of the Assignors, which payables have arisen in the ordinary course of the Business and which are more fully described in Schedule 2.1(a)(ii)(x) to the Agreement; (b) the equipment-related payables of the Assignors, which payables have arisen in the ordinary course of the Business and which are more fully described in Schedule 2.1(a)(ii)(y) to the Agreement; and (c) the obligations of the Assignors arising and to be performed after the Closing Date pursuant to the Purchased Contract and Other Rights and Purchaser Proprietary Rights. The Assignee expressly does not assume and will not have any responsibility, however, with respect to any other obligation or liability of any Assignor. Capitalized terms used herein and not otherwise defined herein shall have the meanings respectively ascribed to them in the Agreement. This General Assignment and Assumption of Liabilities and Bill of Sale shall be effective for all purposes upon its delivery and shall inure to the benefit of, and shall be binding upon and enforceable against, each of the undersigned and their respective successors and assigns. This -2- 53 General Assignment and Assumption of Liabilities and Bill of Sale may be executed in any number of counterparts, each of which shall be an original and all of which shall constitute one and the same instrument. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -3- 54 IN WITNESS WHEREOF, each of the undersigned has caused this instrument to be executed under seal by its duly authorized officer, respectively, as of May __, 1999. ASSIGNORS: ASSIGNEE: ADVANCED HEALTH MANAGEMENT PRACTICARE, INC. CORPORATION By: ________________________________ By: ______________________________ Name: Name: Title: Title: INTEGRATED MEDICAL MANAGEMENT, INC. By: ________________________________ Name: Title: ADVANCED HEALTH CORPORATION d/b/a AHT CORPORATION By: ________________________________ Name: Title: -4- 55 EXHIBIT E TRANSFEROR'S CERTIFICATION OF NON-FOREIGN STATUS UNDER TREAS. REG. SECTION 1.1445-2(b)(2) Section 1445 of the Internal Revenue Code of 1986, as amended (the "Code"), provides that a transferee of a U.S. real property interest must withhold tax if the transferor is a foreign person. To inform the transferee that withholding of tax is not required upon the disposition of a U.S. real property interest by Integrated Medical Management, Inc., a Delaware corporation (the "Seller"), the undersigned hereby certifies the following on behalf of the Seller: 1. The Seller is not a foreign corporation, foreign partnership, foreign trust, or foreign estate (as those terms are defined in the Code and the Income Tax Regulations); 2. The Seller's U.S. employer identification number is __-_______; and 3. The Seller's office address is __________________________. The Seller understands that this certification may be disclosed to the Internal Revenue Service by the transferee and that any false statement contained herein could be punished by fine, imprisonment, or both. Under penalties of perjury I declare that I have examined this certification and to the best of my knowledge and belief it is true, correct and complete, and I further declare that I have authority to sign this document on behalf of the Seller. INTEGRATED MEDICAL MANAGEMENT, INC __________________________________ Name: Title: Date: EX-10.22 4 SECURITIES PURCHASE AGREEMENT 1 Exhibit 10.22 SECURITIES PURCHASE AGREEMENT BY AND BETWEEN AHT CORPORATION AS THE COMPANY AND CYBEAR, INC. AS THE PURCHASER DATED: MARCH 27, 2000 2 SECURITIES PURCHASE AGREEMENT AGREEMENT, dated March 27, 2000, by and between AHT CORPORATION, a Delaware corporation (the "Company"), and CYBEAR, INC., a Delaware corporation (the "Purchaser"). R E C I T A L S: WHEREAS, the Company is currently contemplating raising up to $4,000,000 in a private placement of debt securities (the "Offering"); and WHEREAS, the Company desires to sell and issue to the Purchaser, and the Purchaser desires to purchase from the Company, $4,000,000 aggregate principal amount of the Company's 10% Senior Secured Convertible Note due March 31, 2001 (the "Convertible Note"), with terms and conditions as set forth in the form of Convertible Note attached hereto as EXHIBIT A (with such changes and modifications as may be approved by the Purchaser); and WHEREAS, in order to induce the Purchaser to enter into the transactions described in this Agreement, the Company desires to issue to the Purchaser warrants to purchase 300,000 shares of the Company's common stock, $.01 par value (the "Common Stock") on the terms and conditions described in the Common Stock Purchase Warrant in the form attached hereto as EXHIBIT B (with such changes and modifications as may be approved by the Purchaser) (the "Warrants"); and WHEREAS, the Convertible Note will be convertible into shares of Common Stock, and the Purchaser will have registration rights with respect to such shares of Common Stock issuable upon conversion as set forth in the Registration Rights Agreement in the form attached hereto as EXHIBIT C; and WHEREAS, the Purchaser will have certain registration rights with respect to the shares of Common Stock issuable upon exercise of the Warrants as set forth in the Registration Rights Agreement; NOW, THEREFORE, in consideration of the foregoing premises and the covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. DEFINITIONS 1.1 Definitions. The following terms, as used herein, have the following meanings: "Affiliate" means, with respect to any Person (the "Subject Person"), (i) any other Person (a "Controlling Person") that directly, or indirectly through one or more intermediaries, Controls the Subject Person or (ii) any other Person (other than the Subject Person or a Consolidated Subsidiary 3 of the Subject Person) which is Controlled by or is under common Control with a Controlling Person. "Agreement" means this Securities Purchase Agreement, as amended, supplemented or otherwise modified from time to time in accordance with its terms. "Asset Sale" has the meaning set forth in Section 8.7. "Average Market Price" means, for any security as of any date, the average of the closing price on the Nasdaq Market as reported by Bloomberg or, if the Nasdaq Market is not the principal trading market for such security, the closing price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the closing price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing price is reported for such security by Bloomberg, then the average of the high bid prices of any market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc., in each case for the thirty (30) consecutive Trading Days immediately prior to such date. "Balance Sheet Date" has the meaning set forth in Section 4.7. "Benefit Arrangement" means at any time an employee benefit plan within the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and which is maintained or otherwise contributed to by the Company. "Benefit Plans" has the meaning set forth in Section 4.9(b). "Bloomberg" means Bloomberg, L.P. "Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in New York, New York and Miami, Florida are authorized or required by law to close. "Capital Reorganization" has the meaning set forth in Section 11.5. "Change of Control" means: (i) after the date of this Agreement any Person, other than the Purchaser or an Affiliate of the Purchaser, shall have acquired beneficial ownership (within the meaning of Rules 13d-3 and 13d-5 promulgated by the SEC pursuant to the Exchange Act) of 33.3% or more of the outstanding shares of Common Stock of the Company; (ii) a transfer of all or substantially all of the assets of the Company to any Person, other than the Purchaser or an Affiliate of the Purchaser, in a single transaction or series of related transactions; (iii) a consolidation, merger or amalgamation of the Company with or into another Person, other than the Purchaser or an Affiliate of the Purchaser, (other than a merger (x) which does not result in any reclassification, conversion, exchange or cancellation of 2 4 outstanding shares of Common Stock or in which the Company is the surviving entity, (y) which is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock solely into shares of Common Stock or (z) consummated in compliance with Section 8.5 hereof); or (iv) individuals constituting the Board of Directors of the Company on the date hereof (together with any new Directors whose election by such Board of Directors or whose nomination for election by the stockholders of the Company (x) was approved by a vote of at least 50.1% of the Directors then still in office who were either Directors as of the date hereof or whose election or nomination for election was previously so approved or (y) supported by the Purchaser or its Affiliates, cease for any reason to constitute at least a majority of the Board of Directors of the Company then in office; or "Closing" has the meaning set forth in Section 2.3. "Closing Date" means March 27, 2000. "Code" means the Internal Revenue Code of 1986, as amended. "Company" means AHT Corporation, a Delaware corporation, and its successors. "Company Corporate Documents" means the certificate of incorporation and by-laws of the Company. "Consolidated Subsidiary" means at any date with respect to any Person, any Subsidiary or other entity, the accounts of which would be consolidated with those of such Person in its consolidated financial statements if such statements were prepared as of such date. "Control" (including, with correlative meanings, the terms "Controlling," "Controlled by" and under "common Control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities, by contract or otherwise . "Conversion Date" shall mean the date of delivery (including delivery via telecopy) of a Notice of Conversion for all or a portion of the Convertible Note by the holder thereof to the Company if such day is a Business Day, or the next succeeding Business Day if the date of delivery is not a Business Day. "Conversion Price" means the lower of (i) 80% of the Average Market Price per share of Common Stock on the Conversion Date; or (ii) $4.34. "Conversion Shares" has the meaning set forth in Section 4.5. "Convertible Note" means the Company's 10% Senior Secured Convertible Note substantially in the form set forth as EXHIBIT A hereto. 3 5 "Deadline" has the meaning set forth in Section 10.1. "Debt" of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes, or other similar instruments issued by such Person, (iii) all obligations of such Person as lessee which (y) are capitalized in accordance with GAAP or (z) arise pursuant to sale-leaseback transactions, (iv) all reimbursement obligations of such Person in respect of letters of credit or other similar instruments, (v) all Debt of others secured by a Lien on any asset of such Person, whether or not such Debt is otherwise an obligation of such Person and (vi) all Debt of others Guaranteed by such Person. "Default" means any event or condition which constitutes an Event of Default or which, with the giving of notice or lapse of time or both would, unless cured or waived, will constitute an Event of Default. "Default Interest Rate" has the meaning set forth in the Convertible Note. "Derivative Securities" has the meaning set forth in Section 10.6. "Directors" means the individuals then serving on the Board of Directors or similar such management council of the Company. "Environmental Laws" means any and all federal, state, municipal, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions relating to the environment or to emissions, discharges or releases of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or hazardous substances or wastes into the environment, including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or hazardous substances or wastes or the cleanup or other remediation thereof. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute. "ERISA Group" means the Company and each Subsidiary and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Company or any Subsidiary, are treated as a single employer under the Code. "Event of Default" has the meaning set forth in Section 12 hereof. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Fixed Price(s)" has the meaning set forth in Section 11.1. "GAAP" has the meaning set forth in Section 1.2. 4 6 "Guarantee" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing (whether by virtue of partnership arrangements, by agreement to keep well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain a minimum net worth, financial ratio or similar requirements, or otherwise) any Debt of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or (ii) entered into for the purpose of assuring in any other manner the holder of such Debt of the payment thereof or to protect such holder against loss in respect thereof (in whole or in part); PROVIDED that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term Guarantee used as a verb has a corresponding meaning. "Guaranty Agreement" means the Guaranty Agreement of even date herewith between Advanced Health Technologies Corporation, Advanced Health Management Corporation, and Advanced Health Bukstel and Halfpenny Corporation, each a Delaware corporation and wholly owned subsidiary of the Company, in the form attached hereto as EXHIBIT H. "Hazardous Materials" means any hazardous materials, hazardous wastes, hazardous constituents, hazardous or toxic substances or petroleum products (including crude oil or any derivative or fraction thereof), defined or regulated as such in or under any Environmental Laws. "Intellectual Property" has the meaning set forth in Section 4.20. "Issuer Registration Statement" means a registration statement filed by the Company which seeks to register the sale of securities by the Company for cash. "License Agreement" means the Co-Marketing and License Agreement of even date herewith between the Purchaser and Advanced Health Technologies Corporation, a wholly owned subsidiary of the Company, in the form attached hereto as EXHIBIT G. "Lien" means, any lien, mechanic's lien, materialmen's lien, lease, easement, charge, encumbrance, mortgage, conditional sale agreement, title retention agreement, agreement to sell or convey, option, claim, title imperfection, encroachment or other survey defect, pledge, restriction, security interest or other adverse claim, whether arising by contract or under law or otherwise (including, without limitation, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction in respect of any of the foregoing). "Liquidated Damages Amount" has the meaning set forth in Section 8.2. "Listing Applications" shall have the meaning set forth in Section 4.4. "Material Adverse Effect" means for a specified party, a material adverse effect on (a) the business, operations, property or condition of the specified party taken as a whole, (b) the ability of the specified party to perform its material obligations under this Agreement, or (c) the validity or enforceability against the specified party of this Agreement or the rights or remedies of any other party 5 7 hereunder to such an extent that such Agreement or the rights or remedies of any other party hereunder to such an extent that such other party would be deprived of the practical realization of the benefits contemplated by this Agreement to be derived by such other party from this Agreement, including the exhibits to this Agreement, and on the transactions contemplated hereby or by the agreements or instruments to be entered into in connection herewith, and; provided, however, that the existence of a Material Adverse Effect shall be deemed not to include (x) the adverse impact, if any, of changes in laws, rules, regulations, interpretations or other promulgations of any governmental authority, or changes in GAAP, regulatory accounting requirements and market conditions applicable to companies in the same line of business as the specified party, or (y) the impact of the fees and expenses of all counsel, accountants and financial advisors, and the other costs and expenses reasonably incurred by the specified party, in connection with this Agreement and the transactions contemplated by this Agreement. "Material Plan" means at any time a Plan or Plans having aggregate Unfunded Liabilities in excess of $500,000. "Maturity Date" shall mean the date of maturity of the Convertible Note; specifically, March 31, 2001. "Maximum Number of Shares" shall mean 2,213,550 shares of Common Stock, which amount is equal to 19.9% of the outstanding Common Stock on the Closing Date, less 300,000 for Warrants. "Multiemployer Plan" means at any time an employee pension benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions, including for these purposes any Person which ceased to be a member of the ERISA Group during such five year period. "Nasdaq Market" means the Nasdaq Stock Market's National Market. "Net Cash Proceeds" means, with respect to any transaction, the total amount of cash proceeds received by the Company or any Subsidiary less (i) underwriters' fees, brokerage commissions, professional fees and other customary out-of-pocket expenses payable in connection with such transaction, and (ii) in the case of dispositions of assets, (A) actual transfer taxes and income taxes payable with respect to such dispositions, and (B) the amount of Debt, if any, secured by a Lien on the asset or assets disposed of and required to be, and actually repaid by the Company or any Subsidiary in connection therewith, and any trade payables specifically relating to such asset or assets sold by the Company or any Subsidiary that are not assumed by the purchaser of such asset or assets. "Notice of Conversion" means the form to be delivered by the holder of the Convertible Note upon conversion of all or a portion thereof to the Company substantially in the form of EXHIBIT D attached hereto. "Notice of Exercise" means the form to be delivered by a holder of a Warrant upon exercise of all or a portion thereof to the Company. 6 8 "Offering" has the meaning set forth in the Recitals. "Other Taxes" has the meaning set forth in Section 3.6(d). "Par Value Redemption Price" has the meaning set forth in Section 3.3(a). "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Permits" means all domestic and foreign licenses, franchises, grants, authorizations, permits, easements, variances, exemptions, consents, certificates, orders and approvals necessary to own, lease and operate the properties of, and to carry on the business of the Company and the Subsidiaries. "Permitted Debt" has the meaning set forth in Section 8.1. "Person" means an individual, corporation, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, government (or any agency or political subdivision thereof) or other entity of any kind. "Plan" means at any time an employee pension benefit plan (other than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under the Code and either (i) is maintained, or contributed to, by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained, or contributed to, by any Person which was at such time a member of the ERISA Group for employees of any Person which was at such time a member of the ERISA Group. "Premium Price" shall mean a dollar amount equal to: (i) one hundred twenty percent (120%) of the principal amount of the Convertible Note then outstanding, plus (ii) all accrued and unpaid interest (including Default Interest, if any) thereon. "Purchase Price" means the purchase price for the Securities set forth in Section 2.2 hereof. "Purchaser" means Cybear, Inc., a Delaware corporation, and its successors and assigns. "Registrable Securities" has the meaning set forth in Section 10.4(a). "Registration Default" has the meaning set forth in Section 10.4(e). "Registration Default Notice" has the meaning set forth in Section 10.4(f). "Registration Maintenance Period" has the meaning set forth in Section 10.4(d). "Registration Rights Agreement" means the agreement between the Company and the Purchaser dated the Closing Date substantially in the form set forth in EXHIBIT C attached hereto. "Required Effectiveness Date" has the meaning set forth in Section 10.4(d). 7 9 "Required Registration Statement" means a registration statement on which the Registrable Securities are listed pursuant to the Registration Rights Agreement. "Rights Offering" has the meaning set forth in Section 11.3. "SEC" means the Securities and Exchange Commission or any entity succeeding to all of its material functions. "SEC Reports" shall have the meaning set forth in Section 4.7. "Securities" means the Convertible Note, the Warrants and, as applicable, the Conversion Shares and the Warrant Shares. "Securities Act" means the Securities Act of 1933, as amended. "Security Agreement" means the agreement between the Purchaser, the Company and Advanced Health Technologies Corporation, Advanced Health Management Corporation, and Advanced Health Bukstel and Halfpenny Corporation (each a Delaware corporation and wholly owned subsidiary of the Company) dated the Closing Date substantially in the form set forth in EXHIBIT E attached hereto. "Share Reorganization" has the meaning set forth in Section 11.2. "Significant Subsidiary" has the meaning ascribed to it under the regulations promulgated under the Securities Act. "Solvency Certificate" shall mean a certificate executed by the chief financial officer of the Company as to the solvency of the Company, the adequacy of its capital and its ability to pay its debts, all after giving effect to the issuance and sale of the Convertible Note and the completion of the offering (including without limitation the payment of any fees or expenses in connection therewith). "Special Distribution" has the meaning set forth in Section 11.4. "Subordination Terms" means with respect to any Debt the terms of subordination set forth in EXHIBIT F hereto and which terms shall be set forth in the instrument evidencing or governing such Debt. "Subsidiary" means, with respect to any Person, any corporation or other entity of which a majority of the capital stock or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person. Unless specified to the contrary, "Subsidiary" means a Subsidiary of the Company. "Subsidiary Corporate Documents" means the certificates of incorporation and by-laws of each Subsidiary. 8 10 "Taxes" has the meaning set forth in Section 3.5(a). "Trading Day" shall mean any Business Day in which the Nasdaq Market or other automated quotation system or exchange on which the Common Stock is then traded is open for trading for at least four (4) hours. "Transaction Agreements" means this Agreement, the Convertible Note, the Warrants, the Registration Rights Agreement, the License Agreement, the Security Agreement and the Guaranty Agreement. "Transfer" means any disposition of Securities that would constitute a sale thereof under the Securities Act. "Unfunded Liabilities" means, with respect to any Plan at any time, the amount (if any) by which (i) the present value of all benefits under such Plan exceeds (ii) the fair market value of all Plan assets allocable to such benefits (excluding any accrued but unpaid contributions), all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or any other Person under Title IV of ERISA. "Warrants" means the Common Stock Purchase Warrants to purchase 300,000 shares of Common Stock issued to the Purchaser on the Closing Date in the form of EXHIBIT B hereto "Warrant Shares" has the meaning set forth in Section 4.5. 9 11 1.2 Accounting Terms And Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared, in accordance with generally accepted accounting principles as in effect from time to time, applied on a consistent basis (except for changes concurred in by the Company's independent public accountants) ("GAAP"). All references to "dollars," "Dollars" or "$" are to United States dollars unless otherwise indicated. 2. PURCHASE AND SALE OF SECURITIES 2.1 Purchase and Sale of Convertible Note. Subject to the terms and conditions set forth herein, the Company agrees to issue and sell to the Purchaser, and the Purchaser agrees to purchase from the Company, on the Closing Date, the Convertible Note in the principal amount of $4,000,000. In connection with the purchase and sale of the Convertible Note, the Company will issue to the Purchaser the Warrants to purchase 300,000 shares of Common Stock in the form of EXHIBIT B hereto. 2.2 Purchase Price. The purchase price for the Convertible Note shall be 100% of the principal amount thereof. One Dollar ($1.00) of the purchase price of the Convertible Note shall be allocated to the Warrants. The aggregate consideration payable by the Purchaser to the Company for the Convertible Note and the Warrants shall be $4,000,000 (the "Purchase Price"). 2.3 Closing and Form of Payment. (a) On the Closing Date, payment of the Purchase Price by the Purchaser, subject to the satisfaction of all terms and conditions set forth herein, shall be made by wire transfer to the Company of immediately available funds. (b) The closing of the transactions contemplated by this Agreement shall occur on the Closing Date at the offices of the Company (the "Closing"). At the Closing, the Company shall deliver to the Purchaser (A) the Convertible Note issued to the Purchaser as of the Closing Date, and (B) the Warrants issued to the Purchaser as of the Closing Date, against payment of the Purchase Price. 3. PAYMENT TERMS OF CONVERTIBLE NOTE 3.1 Payment Mechanics. The Company will pay all sums becoming due on the Convertible Note by the method and at the address specified for such purpose as the Purchaser shall specify to the Company in writing for such purpose, without the presentation or surrender of the Convertible Note or the making of any notation thereon, except that upon written request of the Company made concurrently with or reasonably promptly after payment or prepayment in full of this Convertible Note, the Purchaser shall surrender the Convertible Note for cancellation, reasonably promptly after any such request, to the Company at its principal executive office. All payments to the Purchaser shall be made for the Purchaser's benefit to the Purchaser. Prior to any sale or other disposition of the Convertible Note, the Purchaser will, at its election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender the Convertible Note to the Company in exchange for a new Convertible Note. The Company will afford 10 12 the benefits of this Section 3.1 to any transferee of the Convertible Note purchased under this Agreement and that has made the same agreement relating to this Convertible Note as the Purchaser has in this Section 3.1; PROVIDED that such transferee is an "accredited investor" under Rule 501 of the Securities Act. 3.2 Voluntary Prepayment. Following the Closing Date, the Company, at any time and from time to time, upon not less than thirty (30) days prior written notice ("Prepayment Notice") to the Purchaser, shall have the right to redeem all, but not less than all, of the outstanding principal amount of the Convertible Note then outstanding at the Premium Price. The Purchaser will have Conversion Rights until the close of business on the date immediately preceding the date fixed for redemption. 3.3 Mandatory Payments. (a) Interest Payments: Par Value Redemption. Commencing on the Closing Date and continuing thereafter until the Maturity Date, the Company shall pay to Purchaser on a quarterly basis interest computed at a rate equal to ten percent (10%) per annum on the outstanding principal balance of the Convertible Note outstanding from time to time during such quarterly period. The first quarterly interest payment shall be due on June 30, 2000. Two subsequent quarterly interest payments shall be made, one on September 30, 2000 and the other on December 31, 2000. On March 31, 2001 the remaining outstanding principal balance of the Convertible Note plus all accrued and unpaid interest thereon shall be due and payable in full (including, without limitation, Default Interest, if any) (the unpaid principal balance of the Convertible Note, plus all accrued and unpaid interest thereon, including Default Interest, if any, is herein referred to as the "Par Value Redemption Price"). (b) Change of Control Premium Price Redemption. Upon the occurrence of a Change of Control of the Company and for a period of six months thereafter, the Purchaser shall have the right to cause the Company to redeem the principal amount of the Convertible Note then outstanding, together with all accrued and unpaid interest (including Default Interest, if any) thereon at the Premium Price, upon ten (10) days prior written notice. 3.4 Prepayment Procedures. (a) Any prepayment or redemption of the Convertible Note pursuant to Sections 3.2 or 3.3 above shall be deemed to be effective and consummated (for purposes of determining the Premium Price, the amount of accrued and unpaid interest and the time at which the Holder shall thereafter not be entitled to deliver a Notice of Conversion for the Convertible Note) on the date the redemption is consummated. (b) Within five (5) Business Days after (i) the Maturity Date or (ii) the effective date of a prepayment or redemption of the Convertible Note as specified in Section 3.4(a) above, the Company shall deliver by wire transfer in immediately available funds the applicable prepayment/redemption price to the Purchaser. If the Purchaser does not receive payment of any amounts due for prepayment or on redemption of the Convertible Note by reason of the Company's failure to make payment at the times prescribed above for any reason, the Company shall pay to the 11 13 Purchaser on demand (i) interest on the sums not paid when due at an annual rate equal to the Default Interest Rate; and (ii) all costs of collection, including, but not limited to, reasonable attorneys' fees and costs, whether or not any suit or other formal proceedings are instituted. (c) Any Notice of Conversion delivered by the Purchaser (including delivery via telecopy) to the Company prior to the (i) Maturity Date or (ii) effective date of a redemption specified in Section 3.4(a) above, shall be honored by the Company and the conversion of the Convertible Note shall be deemed effected on the Conversion Date. In addition, between the effective date of redemption specified in Section 3.4(a) above and the date the Company is required to deliver the redemption proceeds to the Purchaser, the Purchaser may deliver a Notice of Conversion to the Company, PROVIDED that such notice will be (i) of no force or effect if the Company timely pays the redemption proceeds to the Purchaser when due or (ii) honored on or as of the date the Notice of Conversion if the Company fails to timely pay the redemption proceeds to the Purchaser when due. 3.5 Payment of Additional Amounts. Any and all payments by the Company hereunder or under the Convertible Note to the Purchaser shall be made without deduction or withholding for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto (all such taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes") unless such Taxes are required by law or the administration thereof to be deducted or withheld. If the Company shall be required by law or the administration thereof to deduct or withhold any Taxes from or in respect of any sum payable under the Convertible Note (i) the Company shall make such deductions or withholdings; and (ii) the Company shall forthwith pay the full amount deducted or withheld to the relevant taxation or other authority in accordance with applicable law. 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to the Purchaser as of the Closing Date the following: 4.1 Organization and Qualification. The Company and each Significant Subsidiary is a corporation (or other legal entity) duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, with full power and authority to own, lease, use and operate its properties and to carry on its business as and where now owned, leased, used, operated and conducted. The SEC Reports sets forth a list of all Significant Subsidiaries and the jurisdiction in which each is incorporated. The Company and each of its Significant Subsidiaries is duly qualified to conduct business as a foreign corporation and is in good standing in every jurisdiction in which the nature of the business conducted by it makes such qualification necessary, except where such failure would not have a Material Adverse Effect. 4.2 Authorization and Execution. (a) Except as contemplated by Section 7.9, the Company has all requisite corporate power and authority to enter into and perform the Transaction Agreements and to consummate the transactions contemplated hereby and thereby and to issue the Securities in accordance with the terms hereof and thereof. 12 14 (b) Except as contemplated by Section 7.9, the execution, delivery and performance by the Company of each Transaction Agreement and the issuance by the Company of the Securities have been duly and validly authorized and no further consent or authorization of the Company, its Board of Directors or its shareholders is required. (c) The Transaction Agreements have been duly executed and delivered by the Company. (d) The Transaction Agreements constitute, and upon execution and delivery thereof by the Purchaser , will constitute, a valid and binding agreement of the Company, in each case enforceable against the Company in accordance with its respective terms, subject to (i) applicable bankruptcy, insolvency or similar laws affecting the enforceability of creditors rights generally and (ii) equitable principles of general applicability. 13 15 4.3 Capitalization. As of December 31, 1999, the authorized, issued and outstanding capital stock of the Company is as set forth on Schedule 4.3 hereto. All of such outstanding shares of capital stock are, or upon issuance will be, duly authorized, validly issued, fully paid and non-assessable. No shares of capital stock of the Company are subject to preemptive rights of the stockholders of the Company or any liens or encumbrances imposed through the actions or failure to act of the Company. Other than as set forth in the SEC Reports or as disclosed in Schedule 4.3, as of the date hereof, (i) there are no outstanding options, warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal, agreements, understandings, claims or other commitments or rights of any character whatsoever relating to, or securities or rights convertible into or exchangeable for any shares of capital stock of the Company or any of its Subsidiaries, or other arrangements, in each case under which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries, and (ii) there are no agreements or arrangements under which the Company or any of its Subsidiaries are obligated to register the sale of any of its or their securities under the Securities Act (except pursuant to the Registration Rights Agreement) and (iii) there are no anti-dilution or price adjustment provisions contained in any security issued by the Company (or in any agreement providing rights to security holders) that will be triggered by the issuance of the Convertible Note, Conversion Shares, Warrants or Warrant Shares. The Company has made available to the Purchaser true and correct copies of the Company's SEC Reports, and the terms of all securities convertible into or exercisable for Common Stock and the material rights of the holders thereof in respect thereto. 4.4 Governmental Authorization. The execution and delivery by the Company of the Transaction Agreements will not, the issuance and sale by the Company of the Securities will not, and the consummation of the transactions contemplated hereby and by the other Transaction Agreements will not, require any action by or in respect of, or filing with, any governmental body, agency or governmental official except (a) such actions or filings that have been undertaken or made prior to the date hereof and that will be in full force and effect (or as to which all applicable waiting periods have expired) on and as of the date hereof or which are not required to be filed on or prior to the Closing Date, (b) such actions or filings that, if not obtained, would not result in a Material Adverse Effect, (c) the additional share notice ("Listing Applications") to be filed with the Nasdaq Market relating to the shares of Common Stock issuable upon conversion of the Convertible Note and exercise of the Warrants and (d) the filing of a "Form D" as described in Section 7.13 below. 4.5 Issuance of Shares. Subject to the matters contemplated by Section 7.9, upon conversion in accordance with the terms of the Convertible Note, or upon exercise in accordance with the terms of the Warrants (assuming the payment of the exercise price set forth in the Warrants), the shares of Common Stock issued upon conversion of the Convertible Note (the "Conversion Shares") or exercise of the Warrants (the "Warrant Shares") shall be duly and validly issued and outstanding, fully paid and nonassessable, free and clear of any taxes, Liens and charges with respect to issuance and shall not be subject to preemptive rights or similar rights of any other stockholders of the Company. Assuming the representations and warranties of the Purchaser herein are true and correct in all material respects, each of the Securities will have been issued in material compliance with all applicable United States federal securities laws. The Company understands and acknowledges that, in certain circumstances, the issuance of the Conversion Shares could dilute the ownership interests of other stockholders of the Company. The Company further acknowledges that its obligation to issue the Conversion Shares upon conversion of the Convertible Note in accordance with this 14 16 Agreement and the Convertible Note is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Company. 4.6 No Conflicts. The execution and delivery by the Company of the Transaction Agreements to which it is a party will not, the issuance and sale by the Company of the Securities will not and the consummation of the transactions contemplated hereby and by the other Transaction Agreements will not, as of the date hereof, contravene or constitute a default under or violation of (i) any provision of applicable law or regulation, (ii) the Company Corporate Documents, (iii) any agreement, judgment, injunction, order, decree or other material instrument binding upon the Company or any Subsidiary or any of their respective assets, or result in the creation or imposition of any Lien on any asset of the Company or any Subsidiary, except in the case of (i) or (ii) hereof where such contravention or default would not have a Material Adverse Effect. The Company and each Subsidiary is in compliance with and conforms to all statutes, laws, ordinances, rules, regulations, orders, restrictions and all other legal requirements of any domestic or foreign government or any instrumentality thereof having jurisdiction over the conduct of its businesses or the ownership of its properties, except in each case where such failure would not have a Material Adverse Effect. 4.7 Financial Information and Sec Reports. Since December 31, 1998, the Company has timely filed all forms, reports and documents with the SEC required to be filed by it under the Exchange Act through the date hereof (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents (other than exhibits) incorporated by reference therein, being referred to herein collectively as the "SEC Reports"). The Company has made available to the Purchaser true and complete copies of the SEC Reports, except for such exhibits and incorporated documents, as well as the Company's unaudited financial statements for the year ended December 31, 1999 which the Company intends to file after the completion of its audit as part of its Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (the "1999 Statement"). Such SEC Reports, at the time filed complied in all material respects in light of the circumstances when made with the requirements of the Exchange Act and the rules and regulations of the SEC thereunder applicable to such SEC Reports. The SEC Reports (including without limitation, the financial statements or schedules included therein) do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The audited and unaudited consolidated balance sheets of the Company and its Subsidiaries contained in the SEC Reports and the 1999 Statement, and the related consolidated statements of income, changes in stockholders' equity and changes in cash flows for the periods then ended, including the footnotes thereto, except as indicated therein, (i) complied in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, (ii) have been prepared in accordance with GAAP consistently applied throughout the periods indicated, except that the unaudited financial statements do not contain notes and may be subject to normal audit adjustments and normal annual adjustments and (iii) fairly present the financial condition of the Company and its Subsidiaries at the dates indicated and the consolidated results of their operations and cash flows for the periods then ended. Since December 31, 1999 (the "Balance Sheet Date"), except as disclosed in the SEC Reports, the 1999 Statement or otherwise disclosed to the Purchaser in writing, there has been (i) no material adverse change in the assets or liabilities, or in the business or financial condition, or in the results of operations, of the Company 15 17 and its Subsidiaries, whether as a result of any legislative or regulatory change, revocation of any license or rights to do business, fire, explosion, accident, casualty, labor trouble, flood, drought, riot, storm, condemnation, act of God, public force or otherwise and (ii) no material adverse change in the assets or liabilities, or in the business or financial condition, or in the results of operations of the Company and its Subsidiaries except in the ordinary course of business. 4.8 Litigation. Except as disclosed in the SEC Reports or in Schedule 4.8, there is no action, suit or proceeding pending or, to the knowledge of the Company, threatened against the Company or any Subsidiary, before any court or arbitrator or any governmental body, agency or official which is reasonably likely to have a Material Adverse Effect. 4.9 Compliance with ERISA and Other Benefit Plans. (a) Each member of the ERISA Group has fulfilled its obligations under the minimum funding standards of ERISA and the Code with respect to each Plan and is in compliance in all material respects with the presently applicable provisions of ERISA and the Code with respect to each Plan. No member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Code in respect of any Plan, (ii) failed to make any required contribution or payment to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, which has resulted or could result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Code or (iii) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. (b) The benefit plans not covered under clause (a) above (including profit sharing, deferred compensation, stock option, employee stock purchase, bonus, retirement, health or insurance plans, collectively the "Benefit Plans") relating to the employees of the Company are duly registered where required by, and are in good standing in all material respects under, all applicable laws. All required employer and employee contributions and premiums under the Benefit Plans to the date hereof have been made, the respective fund or funds established under the Benefit Plans are funded in accordance with applicable laws, and no past service funding liabilities exist thereunder. (c) No Benefit Plans have any unfunded liabilities, either on a "going concern" or "winding up" basis and determined in accordance with all applicable laws and actuarial practices and using actuarial assumptions and methods that are reasonable in the circumstances. No event has occurred and no condition exists with respect to any Benefit Plans that has resulted or could reasonably be expected to result in any pension plan having its registration revoked or wound up (in whole or in part) or refused for the purposes of any applicable laws or being placed under the administration of any relevant pension benefits regulatory authority or being required to pay any taxes or penalties (in any material amounts) under any applicable laws. 4.10 Environmental Matters. The costs and liabilities associated with Environmental Laws (including the cost of compliance therewith) are unlikely to have a Material Adverse Effect. Each of the Company and the Subsidiaries conducts its businesses in compliance in all material respects with all applicable Environmental Laws. 16 18 4.11 Taxes. All United States federal, state, county, municipal, local or foreign income tax returns and all other material tax returns (including foreign tax returns) which are required to be filed by or on behalf of the Company and each Subsidiary have been filed and all material taxes due pursuant to such returns or pursuant to any assessment received by the Company and each Subsidiary have been paid except those being disputed in good faith and for which adequate reserves have been established. The charges, accruals and reserves on the books of the Company and each Subsidiary in respect of taxes or other governmental charges have been established in accordance with GAAP. 4.12 Investments, Joint Ventures. Except set forth on Schedule 4.12, the Company has no Significant Subsidiaries or other direct or indirect Investment in any Person, and the Company is not a party to any partnership, management, shareholders' or joint venture or similar agreement, other than as set forth in the SEC Reports. 17 19 4.13 Not an Investment Company. Neither the Company nor any Subsidiary is an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 4.14 No Solicitation; No Integration with Other Offerings. No form of general solicitation or general advertising was used by the Company or, to the best of its actual knowledge, any other Person acting on behalf of the Company, in connection with the offer and sale of the Securities. Neither the Company, nor, to its knowledge, any Person acting on behalf of the Company, has, either directly or indirectly, sold or offered for sale to any Person (other than the Purchaser) any of the Securities or, within the six months prior to the date hereof, any other similar security of the Company except as contemplated by this Agreement, and the Company represents that neither itself nor any Person authorized to act on its behalf (except that the Company makes no representation as to the Purchaser and its Affiliates) will sell or offer for sale any such security to, or solicit any offers to buy any such security from, or otherwise approach or negotiate in respect thereof with, any Person or Persons so as thereby to cause the issuance or sale of any of the Securities to be in violation of any of the provisions of Section 5 of the Securities Act. The issuance of the Securities to the Purchaser will not be integrated with any other issuance of the Company's securities (past, current or future) which requires stockholder approval under the rules of the Nasdaq Market. 4.15 Permits. Each of the Company and its Subsidiaries has all material Permits; (b) all such Permits are in full force and effect, and each of the Company and its Subsidiaries has fulfilled and performed all material obligations with respect to such Permits; and (c) no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination by the issuer thereof or which results in any other material impairment of the rights of the holder of any such Permit. 4.16 Leases. Except as disclosed in the SEC Reports, neither the Company nor any Subsidiary is a party to any capital lease obligation with a value greater than $100,000 or to any operating lease with an aggregate annual rental greater than $100,000 during the life of such lease. 4.17 Public Utility Holding Company. Neither the Company nor any Subsidiary is, or will be upon the issuance and sale of the Securities and the use of the proceeds described herein, subject to regulation under the Public Utility Holding Company Act of 1935, as amended, the Federal Power Act, the Interstate Commerce Act or to any federal or state statute or regulation limiting its ability to issue and perform its obligations under any Transaction Agreement. 4.18 Intellectual Property Rights. (a) Except as set forth on Schedule 4.18 attached hereto, each of the Company and its Subsidiaries owns, or is licensed under, and has the rights to use, as applicable, all of the patents, trademarks, tradenames, service marks, service names, trade secrets, protected computer software (including, without limitation, any source or object codes therefor or documentation relating thereto) and copyright registrations, and applications therefor, including all Internet domain names registered with any third party, technology rights and licenses, franchises, know-how, processes, inventions and intellectual property rights necessary for and material to the conduct of its business (collectively, "Material Intellectual Property"). 18 20 (b) Schedule 4.18 contains a true and complete list of all Material Intellectual Property, therefor owned by or licensed to the Company or its Subsidiaries on the date hereof, including all Internet domain names registered with any third party. Except as set forth in Schedule 4.18, the Company or its Subsidiaries owns, or is a valid licensee of all Material Intellectual Property used in its business as currently conducted. Neither the Company, its Subsidiaries or, to the Company's and its Subsidiaries' knowledge, its predecessors has materially interfered with or misappropriated the intellectual property of others, and none of the Material Intellectual Property as used in the business conducted by such entity infringes in any material manner upon or otherwise violates the intellectual property of others, nor to the Company's and its Subsidiaries' knowledge with respect to predecessors, has any person asserted a claim of such material infringement or violation of intellectual property against any such entity. Except as set forth on Schedule 4.18, neither the Company nor its Subsidiaries has licensed or sublicensed its rights in any Material Intellectual Property, except non-exclusive licenses in the ordinary course of business, forms of which license agreements and a list of which licensees, the Company has delivered or made available to the Purchaser. (c) To the Company's and its Subsidiaries' knowledge, except as described on Schedule 4.18 or disclosed in the SEC Reports, no officer, director or employee of the Company or its Subsidiaries has entered into any contract other than on behalf of the Company or such Subsidiary and with the Company's authorization, which requires such officer, director or employee to assign any interest in any Material Intellectual Property. (d) The Material Intellectual Property owned or licensed by the Company or its Subsidiaries is sufficient to continue to operate the business as conducted on the date hereof. (e) Except as set forth on Schedule 4.18, there are no settlements, forbearances to sue, consents, judgments, or orders of which the Company or a Subsidiary is a party or of which it is aware and which (i) restrict the Company's or a Subsidiary's rights to use any Material Intellectual Property owned by or licensed to the Company or such Subsidiary or (ii) permit third parties to use any Material Intellectual Property. (f) Except as set forth in Section 12 hereof or on Schedule 4.18, the consummation of the transactions contemplated hereby will not result in the material loss or impairment of Company's or a Subsidiary's right to own or use any of the Material Intellectual Property, nor will require the consent of any government authority or third party in respect of such Material Intellectual Property. 4.19 Insurance. The Company and its Subsidiaries maintain insurance in at least such amounts and cover such risks such that any uninsured loss would not have a Material Adverse Effect. All insurance coverages of the Company and its Subsidiaries are in full force and effect and there are no past due premiums in respect of any such insurance. 4.20 Title to Properties. The Company and its Subsidiaries have good and marketable title to all their respective properties reflected on the financial statements referred to in Section 4.7 as being owned by the Company. 19 21 4.21 Internal Accounting Controls. The Company and each of its Subsidiaries maintain a system of internal accounting controls sufficient, in the judgment of the Company's Board of Directors, to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP, (iii) access to assets is permitted only in accordance with management's general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences, where non-compliance therewith could not reasonably be expected, in the aggregate, to have a Material Adverse Effect. 4.22 Standstill. The Company shall comply with the terms and provisions of Section 8.3 and has no intention of violating the terms and provisions of such Section. 5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER Purchaser hereby represents and warrants to the Company that: 5.1 Authorization and Execution. (a) The execution, delivery and performance of the Transaction Agreements, to the extent the Purchaser has executed such agreements and the purchase of the Securities pursuant hereto are within the Purchaser's corporate powers, and have been duly and validly authorized by all requisite corporate action; (b) The Transaction Agreements have been duly executed and delivered by the Purchaser. (c) The execution and delivery by the Purchaser of the Transaction Agreements to which it is a party does not, and the consummation of the transactions contemplated hereby and thereby will not, contravene or constitute a default under or violation of (i) any provision of applicable law or regulation, or (ii) any agreement, judgment, injunction, order, decree or other instrument binding upon Purchaser. 5.2 Acquisition for Investment. The Purchaser is acquiring the Convertible Note and the Warrants, and will acquire the Conversion Shares and the Warrant Shares, for its own account for investment and not with a view towards the public sale or distribution thereof within the meaning of the Securities Act; and the Purchaser has no intention of making any distribution, within the meaning of the Securities Act, of the Securities except in compliance with the registration requirements of the Securities Act or pursuant to an exemption therefrom; PROVIDED, however, that by making this representation the Purchaser does not agree to hold the securities for any minimum or specified period of time (unless any such holding period is required by the terms of any such exemption being relied on by the Purchaser); and PROVIDED that the disposition of the Purchaser's property shall at all times be and remain within its control. 5.3 Accredited Investor. The Purchaser is an "accredited investor" as that term is defined in Rule 501 of Regulation D under the Securities Act by reason of Rule 501(a)(3) thereof; 20 22 5.4 Reoffers and Resales. The Purchaser will not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of) any of the Securities unless registered under the Securities Act, pursuant to an exemption from registration under the Securities Act or in a transaction not requiring registration under the Securities Act; 5.5 Company Reliance. The Purchaser understands that (a) the Convertible Note is being offered and sold and the Warrants are being issued to the Purchaser, (b) upon conversion of the Convertible Note, the Conversion Shares will be issued to the Purchaser, (c) upon exercise of the Warrants, the Warrant Shares will be issued to the Purchaser, in each such case in reliance on one or more exemptions from the registration requirements of the Securities Act, including, without limitation, Regulation D, and exemptions from state securities laws and that the Company is relying upon the truth and accuracy of, and the Purchaser's compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of the Purchaser to acquire or receive an offer to acquire the Securities; and the information with respect to the Purchaser provided to the Company by the Purchaser is accurate and complete in all material respects; 5.6 Information Provided. The Purchaser and its advisors, if any, have requested, received and considered all information relating to the business, properties, operations, condition (financial or other), results of operations or prospects of the Company and information relating to the offer and sale of the Convertible Note and issuance of the Warrants, and the offer of the Conversion Shares and the Warrant Shares deemed relevant by them (assuming the accuracy and completeness of the SEC Reports and of the Company's responses to the Purchaser's requests); the Purchaser and its advisors, if any, have been afforded the opportunity to ask questions of the Company concerning the terms of the offering of the Securities and the business, properties, operations, condition (financial or other), results of operations and prospects of the Company and have received satisfactory answers to any such inquiries (assuming the accuracy and completeness of the SEC Reports and the Company's responses to the Purchaser's requests); without limiting the generality of the foregoing, the Purchaser has had the opportunity to obtain and to review the SEC Reports and the Schedules hereto in connection with its decision to purchase the Convertible Note and to acquire the Warrants, the Purchaser has relied solely upon the SEC Reports, the Schedules hereto, the representations, warranties, covenants and agreements of the Company set forth in this Agreement and to be contained in the other Transaction Documents, as well as any independent investigation of the Company completed by the Purchaser or its advisors, if any, and is not relying on any oral representation, statement or promise of any employee or agent of the Company; the Purchaser understands that its investment in the Securities involves a high degree of risk. 5.7 Absence of Approvals. The Purchaser understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Securities; 5.8 Purchaser Status. The Purchaser is not a "broker" or "dealer" as those terms are defined in the Exchange Act which is required to be registered with the SEC pursuant to Section 15 of the Exchange Act. 21 23 5.9 Standstill. The Purchaser shall comply with the terms and provisions of Section 8.3 and has no intention of violating the terms and provisions of such Section. 6. CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES 6.1 Conditions Precedent to the Purchaser's Obligation to Purchase. The obligation of the Purchaser to purchase the Convertible Note and Warrants at the Closing is subject to the satisfaction, on or before the Closing Date of each of the following conditions, PROVIDED that these conditions are for Purchaser's sole benefit and may be waived by Purchaser at any time in its sole discretion: (a) The Company shall have executed and delivered to the Purchaser the Transaction Agreements; (b) The Company shall have delivered to the Purchaser duly executed certificates representing the Convertible Note and the Warrants in accordance with Section 2.3 hereof; (c) The Company shall have delivered the Solvency Certificate; (d) The representations and warranties of the Company contained in each Transaction Agreement shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at such time (except for representations and warranties that speak as of a specified date) and the Company shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by such Transaction Agreements to be performed, satisfied or complied with by it at or prior to the Closing Date. The Purchaser shall have received an Officer's Certificate, executed by the chief executive officer of the Company, dated as of the Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by the Purchaser; (e) The Company shall have received all governmental, board of directors, shareholders and third party consents and approvals necessary in connection with the issuance and sale of the Securities; (f) All applicable waiting periods in respect to the issuance and sale of the Securities shall have expired without any action having been taken by any competent authority that could restrain, prevent or impose any materially adverse conditions thereon or that could seek or threaten any of the foregoing; (g) The Purchaser shall have received an opinion, dated the Closing Date, of O'Sullivan Graev & Karabell LLP, counsel to the Company, in a form acceptable to the Purchaser, as to certain matters relating to the Company and the transactions contemplated by this Agreement; (h) All fees and expenses due and payable by the Company on or prior to the Closing Date shall have been paid; (i) The Company Corporate Documents and the Subsidiary Corporate Documents, if any, shall be in full force and effect and no term or condition thereof shall have been amended, waived or otherwise modified without the prior written consent of the Purchaser; 22 24 (j) There shall exist no action, suit, investigation, litigation or proceeding pending or threatened in any court or before any arbitrator or governmental instrumentality that challenges the validity of or purports to affect this Agreement or any other Transaction Agreement, or other transaction contemplated hereby or thereby or that could reasonably be expected to have a Material Adverse Effect, or any material adverse effect on the enforceability of the Transaction Agreements or the Securities or the rights of the Purchaser; (k) The Purchaser shall have confirmed receipt of the Convertible Note and the Warrants to be issued, duly executed by the Company; (l) Immediately before and after the Closing Date, no Default or Event of Default shall have occurred and be continuing; and (m) The Purchaser shall have received all other opinions, resolutions, certificates, instruments, agreements or other documents as it shall reasonably request. 6.2 Conditions to the Company's Obligations. The obligations of the Company to issue and sell the Securities to the Purchaser pursuant to this Agreement are subject to the satisfaction, at or prior to the Closing Date, of the following conditions: (a) The representations and warranties of the Purchaser contained herein shall be true and correct in all material respects on the Closing Date and the Purchaser shall have performed and complied in all material respects with all agreements required by this Agreement to be performed or complied with by the Purchaser at or prior to the Closing Date; (b) The issue and sale of the Securities by the Company shall not be prohibited by any applicable law, court order or governmental regulation; (c) Receipt by the Company of duly executed counterparts of the Transaction Agreements signed by the Purchaser; and (d) The Company shall have received payment of the Purchase Price of the Convertible Note. 7. AFFIRMATIVE COVENANTS The Company hereby agrees that, from and after the date hereof for so long as the Convertible Note remains outstanding (except for Sections 7.1(a), 7.8, 7.9, 7.10 and 7.11, which shall apply for so long as the Convertible Note or Warrants remain outstanding) and for the benefit of the Purchaser: 7.1 Information. The Company will deliver to each holder of the Convertible Note: (a) promptly upon the filing thereof, copies of (i) all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent), (ii) all reports on Forms 10-K, 10-Q and 8-K (or their equivalents) which the Company or any Subsidiary has filed with the SEC and (iii) any material press releases issued by the Company or any Subsidiary; 23 25 (b) within five Business Days after the Company's Chief Executive Officer or Chief Financial Officer obtains knowledge of a Default or Event of Default , a certificate of the chief financial officer of the Company setting forth the details thereof and the action which the Company is taking or proposes to take with respect thereto; (c) promptly upon the mailing thereof to the shareholders of the Company generally, copies of all financial statements, reports and proxy statements so mailed and any other document generally distributed to shareholders; (d) if and when any member of the ERISA Group (i) gives or is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA or notice that any Multiemployer Plan is in reorganization, is insolvent or has been terminated, a copy of such notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of such notice; (iv) applies for a waiver of the minimum funding standard under Section 412 of the Code, a copy of such application; (v) gives notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and other information filed with the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails to make any required payment or contribution to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement or makes any amendment to any Plan or Benefit Arrangement which has resulted or could result in the imposition of a Lien or the posting of a bond or other security, a certificate of the chief financial officer or the chief accounting officer of the Company setting forth details as to such occurrence and action, if any, which the Company or applicable member of the ERISA Group is required or proposes to take; and (e) promptly following the commencement thereof, notice and a description in reasonable detail of any material litigation or proceeding to which the Company or any Subsidiary is a party which the Company is required to disclose in its SEC Reports. 7.2 Payment of Obligations. The Company and its Subsidiaries will pay and discharge, at or before maturity, all their respective material obligations, including, without limitation, tax liabilities, except where the same may be contested in good faith by appropriate proceedings and will maintain, in accordance with GAAP, appropriate reserves for the accrual of any of the same. 7.3 Maintenance of Property; Insurance. The Company and each Subsidiary will keep, all property useful and reasonably necessary in its business in good working order and condition, ordinary wear and tear excepted. In addition, the Company and each Subsidiary will maintain insurance in at least such amounts and against such risks as it has insured against as of the Closing Date. 24 26 7.4 Maintenance of Existence. The Company will continue to engage in business of the same general type as now conducted by the Company, and will preserve, renew and keep in full force and effect its respective corporate existence and their respective material rights, privileges and franchises necessary or desirable in the normal conduct of business except as permitted pursuant to Section 8.5. 7.5 Compliance with Laws. The Company and each Subsidiary will comply, in all material respects, with all federal, state, municipal, local or foreign applicable laws, ordinances, rules, regulations, municipal by-laws, codes and requirements of governmental authorities (including, without limitation, Environmental Laws and ERISA and the rules and regulations thereunder) except (i) where compliance therewith is contested in good faith by appropriate proceedings or (ii) where non-compliance therewith could not reasonably be expected, in the aggregate, to have a Material Adverse Effect. 7.6 Inspection of Property, Books and Records. The Company and each Subsidiary will keep proper books of record and account in accordance with GAAP; and will permit, during normal business hours upon reasonable notice, the Purchaser or an Affiliate thereof, as representatives of the Purchaser, to visit and inspect any of their respective properties, upon reasonable prior notice, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective executive officers and independent public accountants, all at such reasonable times at Purchaser's expense. The Purchaser and any such Affiliate shall maintain the confidentiality of any information of the Company disclosed to it. 7.7 Investment Company Act. The Company will not be or become an open-end investment trust, unit investment trust or face-amount certificate company that is or is required to be registered under Section 8 of the Investment Company Act of 1940, as amended. 7.8 Supplemental Information. If at any time the Company is not subject to the requirements of Section 13 or 15(d) of the Exchange Act, the Company will promptly furnish at its expense, upon request, for the benefit of the holders from time to time of Securities, and prospective purchasers of Securities, information satisfying the information requirements of Rule 144 under the Securities Act. 7.9 Reserved Shares and Listings. (a) The Purchaser acknowledges that the Company does not presently have sufficient authorized but unissued shares of Common Stock to deliver to the Purchaser upon exercise of the Warrants and conversion of the Convertible Notes. No later than July 14, 2000, the Company shall have taken all action necessary, including, without limitation, calling a meeting of shareholders to amend its certificate of incorporation to authorize a sufficient number of shares to enable the Company to issue the Maximum Number of Shares plus the shares issuable upon exercise of the Warrant; (b) Subject to Section 7.9(a), the Company shall at all times have authorized, and reserved for the purpose of issuance, a sufficient number of shares of Common Stock to provide for the full conversion of the outstanding Convertible Note and issuance of the Conversion Shares (based on the Maximum Number of Shares under the Convertible Note), and the exercise in full of the Warrants and the issuance of the Warrant Shares (based on the exercise price of the Warrants in 25 27 effect from time to time). The Company shall not reduce the number of shares of Common Stock reserved for issuance upon conversion of the Convertible Note and exercise of the Warrants without the prior written consent of the Purchaser. (c) The Company shall promptly secure the listing of the Conversion Shares and Warrant Shares upon each national securities exchange or automated quotation system, if any, upon which the shares of Common Stock are then listed (subject to official notice of issuance) and shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all Conversion Shares and Warrant Shares from time to time issuable upon conversion or exercise of the Convertible Note and Warrants. The Company will obtain and maintain the listing and trading of its Common Stock on the Nasdaq Market, the Nasdaq SmallCap Market, the New York Stock Exchange, Inc., or the American Stock Exchange Inc., and will comply in all respects with the Company's reporting, filing and other obligations under the bylaws or rules of the National Association of Securities Dealers, Inc. (the "NASD") and such exchanges, as applicable. The Company shall promptly provide to the Purchaser copies of any notices it receives from Nasdaq regarding the continued eligibility of the Common Stock for listing on the Nasdaq Market. (d) On or prior to the date that the SEC declares effective the Required Registration Statement, the Company shall properly file all Listing Applications with the Nasdaq Market associated with the shares of Common Stock covered by such registration statement. 26 28 7.10 Issuance of Shares of Common Stock. Upon receipt of a Notice of Conversion or Notice of Exercise, as applicable, the Company shall immediately issue irrevocable instructions to its transfer agent to issue certificates, registered in the name of the Purchaser or its nominee, for the Conversion Shares or Warrant Shares, as applicable, in such amounts as specified from time to time by the Purchaser to the Company upon proper conversion of the Convertible Note or exercise of the Warrants. Upon conversion of the Convertible Note in accordance with its terms, and/or exercise of the Warrants in accordance with their terms, the Company will, and will use its best lawful efforts to cause its transfer agent to, issue one or more certificates representing shares of Common Stock in such name or names and in such denominations specified by Purchaser in a Notice of Conversion or Notice of Exercise, as the case may be. As long as a Required Registration Statement contemplated by the Registration Rights Agreement shall remain effective, the shares of Common Stock issuable upon conversion of Convertible Note or exercise of the Warrants, if transferred pursuant to such Required Registration Statement, shall be issued to any transferee of such shares from Purchaser without any restrictive legend. Nothing in this Section 7.12 shall affect in any way Purchaser's obligations to comply with all securities laws applicable to Purchaser upon resale of such shares of Common Stock, including any prospectus delivery requirements. 7.11 Form D; Blue Sky Laws. The Company agrees to file a "Form D" with respect to the Securities as required under Regulation D of the Securities Act and to provide a copy thereof to the Purchaser promptly after such filing. The Company shall, on or before the Closing Date, take such action as the Company shall reasonable determine is necessary to qualify the Securities for sale to the Purchaser at the Closing pursuant to this Agreement under applicable securities or "blue sky" laws of the states of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so taken to the Purchaser on or prior to the Closing Date. 8. NEGATIVE COVENANTS The Company or the Purchaser, as the case may be, hereby agrees that, from and after the date hereof for so long as the Convertible Note remains outstanding and for the benefit of the other party: 8.1 Limitation on Debt or Other Liabilities. The Company will not itself, and will not permit any Subsidiary to, create, assume, incur or in any manner become liable in respect of, including, without limitation, by reason of any business combination transaction (all of which are referred to herein as "incurring"), any Debt; PROVIDED that the following items of Debt shall be excluded from such calculation (such Debt being referred to as "Permitted Debt"): (a) Debt not in excess of $1,000,000 aggregate principal amount which is outstanding on the date hereof and which would be reflected on a consolidated balance sheet of the Company as of the date hereof prepared in accordance with GAAP; (b) Non-recourse Debt not in excess of $1,000,000 aggregate principal amount which Debt, by its terms, bars the lender thereof from action against the Company or any Subsidiary, as borrower, if the security value falls below the amount required to repay such Debt; 27 29 (c) Debt not in excess of $2,000,000 aggregate principal amount incurred in connection with equipment leases to which the Company or its Subsidiaries are a party incurred in the ordinary course of business; and (d) Debt not in excess of $5,000,000 aggregate principal amount incurred in connection with trade accounts payable, imbalances and refunds arising in the ordinary course of business. (e) Debt which is subordinated to this Convertible Note as to payment on the Subordination Terms set forth in EXHIBIT E or on such other terms as shall have been approved in advance of the incurrence of such Debt by the Purchaser as evidenced by the written approval of the Purchaser given prior to the incurrence of such Debt and for which no payment of principal of such Debt is scheduled to be due prior to the date that is six months after the Maturity Date; so long as in the case of Debt permitted by the preceding clauses (b) through (e), at the time of incurrence of such Debt no Event of Default has occurred and is continuing or would result from such incurrence and no event which, with notice or passage of time, or both, would become an Event of Default has occurred and is continuing or would result from such incurrence. 8.2 Exclusivity. For a period of thirty (30) days from March 17, 2000 (the "Exclusivity Period"), the Company will not, and will not permit its officers, directors, employees, agents or representatives to enter into or participate in material discussions with any third party other than the Purchaser and its Affiliates concerning (i) the possible acquisition or sale of the Company or of substantially all of its stock or assets, including its technology; or (ii) an agreement to loan One Million Dollars ($1,000,000) or more to the Company or similar financing arrangement. If the Company breaches this provision, the Company shall pay Purchaser, as liquidated damages, the sum of Two Million Dollars ($2,000,000) without the necessity of proof by the Company of actual damages (the "Liquidated Damages Amount"). The parties acknowledge that the Liquidated Damages Amount is a fair and reasonable measure of the damages that the Purchaser would sustain as a result of the breach of this provision, and that the amount of actual damages in the event of such breach would be impossible to ascertain. The parties acknowledge and agree that, in addition to all other remedies available (at law or otherwise) to Purchaser, Purchaser shall be entitled to equitable relief (including injunction and specific performance) as a remedy for any breach or threatened breach of this provision. 8.3 Standstill. For a period of two years after the Closing, the Company and the Purchaser shall not and shall cause their Affiliates to refrain from, directly or indirectly, alone or in concert with others, acquiring, offering to acquire (by purchase, gift or otherwise) or selling short the securities of the other party hereto, or otherwise in any manner seeking to depress the price of the securities of the other party hereto through trading in the securities of such party or derivatives of such securities. 8.4 Transactions with Affiliates. The Company and each Subsidiary will not, directly or indirectly, pay any funds to or for the account of, make any investment in (whether by acquisition of stock or indebtedness, by loan, advance, transfer of property, guarantee or other agreement to pay, purchase or service, directly or indirectly, any Debt, or otherwise), lease, sell, transfer or otherwise dispose of any assets, tangible or intangible, to, or participate in, or effect any transaction in 28 30 connection with any joint enterprise or other joint arrangement with, any Affiliate, except, (i) pursuant to those agreements specifically identified on Schedule 8.4 attached hereto (with a copy of such agreements annexed to such Schedule 8.4) (ii) on terms to the Company or such Subsidiary no less favorable than terms that could be obtained by the Company or such Subsidiary from a Person that is not an Affiliate of the Company upon negotiation at arms' length, as determined in good faith by the Board of Directors of the Company or (iii) with and among the Company and its Subsidiaries; PROVIDED that no determination of the Board of Directors shall be required with respect to any such transactions entered into in the ordinary course of business. 8.5 Merger or Consolidation. The Company will not, in a single transaction or a series of related transactions, (i) consolidate with or merge with or into any other Person, or (ii) permit any other Person to consolidate with or merge into it, unless (w) either (A) the Company shall be the survivor of such merger or consolidation or (B) the surviving Person shall expressly assume by supplemental agreement all of the obligations of the Company under the Securities and this Agreement; (x) immediately before and immediately after giving effect to such transaction (including any indebtedness incurred or anticipated to be incurred in connection with the transaction), no Default or Event of Default shall have occurred and be continuing; (y) if the Company is not the surviving entity, such surviving entity's common shares shall be listed on either The New York Stock Exchange, American Stock Exchange, or the Nasdaq Stock Market's National Market or the Nasdaq Small Cap Market and (z) the Company has delivered to the Purchaser an officers' certificate stating that such consolidation, merger or transfer complies with this Agreement, that the surviving Person agrees to be bound by all of the agreements and covenants set forth in the Transaction Agreements as if such surviving Person is the Company, and that all conditions precedent in this Agreement relating to such transaction have been satisfied. 8.6 Restrictions on Certain Amendments. Neither the Company nor any Subsidiary will waive any provision of, amend, or suffer to be amended, any provision of such entity's existing indebtedness, any Company Corporate Document or Subsidiary Corporate Document if such amendment, in the Company's reasonable judgment, would materially adversely affect the Purchaser without the prior written consent of the Purchaser, which such consent shall not be unreasonably withheld. 29 31 8.7 Limitation on Asset Sales. Neither the Company nor any Subsidiary will consummate an Asset Sale unless (a) it receives consideration in cash at the time of such Asset Sale at least equal to the fair market value of the assets sold or otherwise disposed of (as determined in good faith by the Company's Board of Directors) and (b) the Net Cash Proceeds of such sale are used either (i) to purchase similar assets in the same line of business of equivalent value within twelve (12) months of the date of the Asset Sale or (ii) to immediately redeem or prepay the Convertible Note or (iii) for a combination of purchases and prepayment permitted by the foregoing clauses (i) and (ii). As used herein, "Asset Sale" means any sale, lease, transfer or other disposition (or series of related sales, leases, transfers or dispositions) of shares of capital stock of a Subsidiary (other than directors' qualifying shares), property or other assets (each referred to for the purposes of this definition as a "disposition"), including any disposition by means of a merger, consolidation or similar transaction (other than as permitted under Section 8.5), other than a disposition of property or assets in the ordinary course of business. 8.8 Limitation on Subsidiaries. Neither the Company nor any Subsidiary shall permit the creation of any Subsidiaries in which the Company, directly or indirectly, does not own at least a majority of the outstanding equity interests, unless approved by the Purchaser, which such consent shall not be unreasonably withheld. 8.9 Limitation on Stock Repurchases. So long as the Convertible Note is outstanding, the Company shall not, without the prior written consent of the Purchaser, redeem, repurchase or otherwise acquire (whether for cash or in exchange for property or other securities or otherwise) in any rolling twelve (12) month period more than five percent (5%) of the shares of capital stock of the Company or any warrants, rights or options to purchase or acquire any such shares held by persons others than the Purchaser. 9. LIMITATION ON TRANSFERS 9.1 Restrictions on Transfer. From and after their respective dates of issuance, none of the Securities shall be transferable except upon the conditions specified in this Section 9, which conditions are intended to ensure compliance with the provisions of the Securities Act in respect of the Transfer of any of such Securities or any interest therein. Purchaser will use its best efforts to cause any proposed transferee of any Securities held by it to agree to take and hold such Securities subject to the provisions and upon the conditions specified in this Section 9. 9.2 Restrictive Legends. (a) Each certificate for Securities issued to Purchaser or to a subsequent transferee shall (except as contemplated by Section 7.12 and Section 9.1 hereof) include a legend in substantially the following form: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE CORPORATION THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE CORPORATION, (B) PURSUANT TO THE EXEMPTION FROM REGISTRATION UNDER 30 32 THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER, IF AVAILABLE, OR (C) IF REGISTERED UNDER THE SECURITIES ACT. 9.3 Notice of Proposed Transfers. Prior to any proposed Transfer of the Securities other than a transfer (i) registered under the Securities Act, (ii) to an affiliate of Purchaser which is an "accredited investor" within the meaning of Rule 501(a) under the Securities Act, PROVIDED that any such transferee shall agree to be bound by the terms of this Agreement, and (iii) to be made in reliance on Rule 144 under the Securities Act, the holder thereof shall give written notice to the Company of such holder's intention to effect such Transfer, setting forth the manner and circumstances of the proposed Transfer, which shall be accompanied by (A) an opinion of counsel to the Company, confirming that such transfer does not give rise to a violation of the Securities Act, (B) representation letters in form and substance reasonably satisfactory to the Company to ensure compliance with the provisions of the Securities Act and (C) letters in form and substance reasonably satisfactory to the Company from each such transferee stating such transferee's agreement to be bound by the terms of this Agreement and the Registration Rights Agreement. Such proposed Transfer may be effected only if the Company shall have received such notice of transfer, opinion of counsel, representation letters and other letters referred to in the immediately preceding sentence, whereupon the holder of such Securities shall be entitled to Transfer such Securities in accordance with the terms of the notice delivered by the holder to the Company. 10. ADDITIONAL AGREEMENTS AMONG THE PARTIES 10.1 Liquidated Damages. (a) The Company shall, and shall use its best efforts to cause its transfer agent to, issue and deliver shares of Common Stock within five (5) trading days of delivery of a properly completed Notice of Conversion or Notice of Exercise, as applicable (the "Deadline") to the Purchaser (or any party receiving Securities by Transfer from Purchaser) at the address of the Purchaser set forth in the Notice of Conversion or Notice of Exercise, as the case may be. Consistent with Section 7.12 hereof, if such Notice of Conversion or Notice of Exercise, as applicable, is delivered while a Required Registration Statement is effective, such certificates shall be delivered without restrictive legend if such shares are being transferred pursuant to such Required Registration Statement. The Company understands that a delay in the issuance of such certificates after the Deadline could result in economic loss to the Purchaser. (b) Without in any way limiting the Purchaser's right to pursue other remedies, including actual damages and/or equitable relief, the Company agrees that if delivery of the Conversion Shares or Warrant Shares following delivery of a properly completed Notice of Conversion or Notice of Exercise is more than one (1) Business Day after the Deadline, the Company shall pay to the Purchaser as liquidated damages and not a penalty $1,000 per day in cash, for each of the first two (2) days beyond the Deadline and $2,500 per day in cash for each day thereafter that the Company fails to deliver such Common Stock. Such cash amount shall be paid to the Purchaser by the fifth day of the month following the month in which it has accrued or, at the option of the Purchaser (by written notice to the Company by the first day of the month following the month in which it has accrued). 31 33 10.2 Conversion Notice. The Company agrees that, in addition to any other remedies which may be available to the Purchaser, including, but not limited to, the remedies available under Section 10.1, in the event the Company fails for any reason (other than as a result of actions taken by Purchaser in breach of this Agreement) to effect delivery to Purchaser of certificates as contemplated by Section 10.1 representing the shares of Common Stock on or prior to the Deadline after conversion of the Convertible Note, or certificates contemplated by Section 10.1 after exercise of any Warrant, Purchaser will be entitled, if prior to the delivery of such certificates, to revoke the Notice of Conversion or Notice of Exercise, as applicable, by delivering a notice to such effect to the Company whereupon the Company and the Purchaser shall each be restored to their respective positions immediately prior to delivery of such Notice of Conversion or Notice of Exercise. 10.3 Delivery of Source Code. Within five (5) days of the Closing Date, the Company shall deliver to the Purchaser in escrow, the Source Code and the Commentary (each as defined in the License Agreement) for the software programs entitled "Dr. Chart" and "@Rx," together will all necessary codes, keys and all similar types of access information in order to access all such Source Code and to customize, modify, and manipulate the related software programs. The Purchaser shall deposit materials in a secure, environmentally safe, locked facility which is accessible only to authorized representatives of the Purchaser. The Purchaser shall have the obligation to use its best efforts to protect and maintain the confidentiality of the deposit materials. The Purchaser shall not disclose, transfer, make available, or use the deposit materials and shall not disclose the contents of the deposit material to any third party or to any unauthorized personnel. Upon the occurrence of an Event of Default which remains uncured for a period of thirty (30) days, the Company shall grant to the Purchaser a perpetual, non-exclusive, non-transferable, limited license to use and copy "Dr. Chart" and "@Rx", in source code form, and to create derivative works therefrom, thirty (30) days from such Event of Default if such Event of Default remains uncured. The Purchaser will acknowledge and agree that such license shall not commence unless and until such Event of Default occurs and remains uncured for a period of thirty (30) days, and the Purchaser shall have no right to use any source code unless and until the occurrence and continuance of such Event of Default. 10.4 Registration Rights; Additional Registration Statements. (a) The Company shall grant the Purchaser registration rights covering the Conversion Shares and Warrant Shares (the "Registrable Securities") on the terms set forth in the Registration Rights Agreement. (b) At any time during the period ending on the first date that follows a total of 90 days following the effectiveness of a Required Registration Statement during which there has been no (i) Registration Default relating to such Required Registration Statement or (ii) any other delay in the ability of the Purchaser to sell the Common Stock pursuant to such Required Registration Statement, the Company agrees that it will not cause any registration statement (other than a Required Registration Statement or an Issuer Registration Statement) to be declared effective by the SEC. (c) At any time during the period beginning on the date Purchaser demands registration pursuant to the Registration Rights Agreement and ending on the date of the effectiveness of a Required Registration Statement filed pursuant to such demand, the Company 32 34 agrees that it will not file any registration statement (other a Required Registration Statement or an Issuer Registration Statement) without the written consent of the Purchaser. (d) A "Registration Default" shall have occurred if (i) a registration statement on which the Registrable Securities are listed pursuant to the Registration Rights Agreement (a "Required Registration Statement") is not declared effective by the SEC within 120 days of the filing thereof (the "Required Effectiveness Date"); or (ii) such effectiveness is not maintained for a continuous period of at least 90 days (the "Registration Maintenance Period"), and provided the Purchaser has not unreasonably delayed providing any information concerning the Purchaser as selling shareholder as may be reasonably requested by the Company for inclusion in such Required Registration Statement; or (iii) the Company has filed or caused to be declared effective a registration statement (other than a Required Registration Statement or an Issuer Registration Statement) in breach of Sections 10.4(b) or (c). 11. ADJUSTMENT OF FIXED PRICE 11.1 Reorganization. The Conversion Price, and the Maximum Number of Shares (collectively, the "Fixed Prices") shall be adjusted as hereafter provided. 11.2 Share Reorganization. If and whenever the Company shall subdivide the outstanding shares of Common Stock into a greater number of shares, consolidate the outstanding shares of Common Stock into a smaller number of shares, issue Common Stock or securities convertible into or exchangeable for shares of Common Stock as a stock dividend to all or substantially all the holders of Common Stock, or make a distribution on the outstanding Common Stock to all or substantially all the holders of Common Stock payable in Common Stock or securities convertible into or exchangeable for Common Stock, any of such events being herein called a "Share Reorganization," then in each such case the applicable Fixed Price shall be adjusted, effective immediately after the record date at which the holders of Common Stock are determined for the purposes of the Share Reorganization or, if no record date is fixed, the effective date of the Share Reorganization, by multiplying the applicable Fixed Price in effect on such record or effective date, as the case may be, by a fraction of which: (a) the numerator shall be the number of shares of Common Stock outstanding on such record or effective date (without giving effect to the transaction); and (b) the denominator shall be the number of shares of Common Stock outstanding after giving effect to such Share Reorganization, including, in the case of a distribution of securities convertible into or exchangeable for shares of Common Stock, the number of shares of Common Stock that would have been outstanding if such securities had been converted into or exchanged for Common Stock on such record or effective date. 33 35 11.3 Rights Offering. If and whenever the Company shall issue to all or substantially all the holders of Common Stock, rights, options or warrants under which such holders are entitled, during a period expiring not more than forty-five (45) days after the record date of such issue, to subscribe for or purchase Common Stock (or Derivative Securities), at a price per share (or, in the case of Derivative Securities, at an exchange or conversion price per share at the date of issue of such securities) of less than 95% of the Market Price of the Common Stock on such record date (any such event being herein called a "Rights Offering"), then in each such case the applicable Fixed Price shall be adjusted, effective immediately after the record date at which holders of Common Stock are determined for the purposes of the Rights Offering, by multiplying the applicable Fixed Price in effect on such record date by a fraction of which: (a) the numerator shall be the sum of the number of shares of Common Stock outstanding on such record date, and a number obtained by dividing: (i) either, (x) the product of the total number of shares of Common Stock so offered for subscription or purchase and the price at which such shares are so offered, or (y) the product of the maximum number of shares of Common Stock into or for which the convertible or exchangeable securities so offered for subscription or purchase may be converted or exchanged and the conversion or exchange price of such securities, or, as the case may be, by (ii) the Market Price of the Common Stock on such record date; and (b) the denominator shall be the sum of the number of shares of Common Stock outstanding on such record date, and the number of shares of Common Stock so offered for subscription or purchase (or, in the case of Derivative Securities), the maximum number of shares of Common Stock for or into which the securities so offered for subscription or purchase may be converted or exchanged). To the extent that such rights, options or warrants are not exercised prior to the expiry time thereof, the applicable Fixed Price shall be readjusted effective immediately after such expiry time to the applicable Fixed Price which would then have been in effect upon the number of shares of Common Stock (or Derivative Securities) actually delivered upon the exercise of such rights, options or warrants. 11.4 Special Distribution. If and whenever the Company shall issue or distribute to all or substantially all the holders of Common Stock shares of the Company of any class, other than Common Stock, rights, options or warrants, or any other assets (excluding cash dividends and equivalent dividends in shares paid in lieu of cash dividends in the ordinary course); and if such issuance or distribution does not constitute a Share Reorganization or a Rights Offering (any such event being herein called a "Special Distribution"), then in each such case the applicable Fixed Price shall be adjusted, effective immediately after the record date at which the holders of Common Stock are determined for purposes of the Special Distribution, by multiplying the applicable Fixed Price in effect on such record date by a fraction of which: (a) the numerator shall be the difference between (i) the product of the number of shares of Common Stock outstanding on such record date and the Market Price of the Common 34 36 Stock on such date; and (ii) the fair market value, as determined by the Directors (whose determination shall be conclusive), to the holders of Common Stock of the shares, rights, options, warrants, evidences of indebtedness or other assets issued or distributed in the Special Distribution (net of any consideration paid therefor by the holders of Common Stock), and (b) the denominator shall be the product of the number of shares of Common Stock outstanding on such record date and the Market Price of the Common Stock on such date. 11.5 Capital Reorganization. If and whenever there shall occur a reclassification or redesignation of the shares of Common Stock or any change of the shares of Common Stock into other shares, other than in a Share Reorganization, a consolidation, merger or amalgamation of the Company with, or into another body corporate, or the transfer of all or substantially all of the assets of the Company to another body corporate, (any such event being herein called a "Capital Reorganization"), then in each such case the holder who exercises the right to convert Convertible Note or exercise the Warrants after the effective date of such Capital Reorganization shall be entitled to receive and shall accept, upon the exercise of such right, in lieu of the number of shares of Common Stock to which such holder was theretofore entitled upon the exercise of the conversion privilege, the aggregate number of shares or other securities or property of the Company or of the body corporate resulting from such Capital Reorganization that such holder would have been entitled to receive as a result of such Capital Reorganization if, on the effective date thereof, such holders had been the holder of the number of shares of Common Stock to which such holder was theretofore entitled upon conversion of the Convertible Note; PROVIDED, however, that no such Capital Reorganization shall be consummated in effect unless all necessary steps shall have been taken so that the holder of the Convertible Note shall thereafter be entitled to receive such number of shares or other securities of the Company or of the body corporate resulting from such Capital Reorganization, subject to adjustment thereafter in accordance with provisions the same, as nearly as may be possible, as those contained above. 11.6 Adjustment Rules. The following rules and procedures shall be applicable to adjustments made in this Section 11: (a) no adjustment in the applicable Fixed Price shall be required unless such adjustment would result in a change of at least 1% in the applicable Fixed Price then in effect; PROVIDED, however, that any adjustments which, but for the provisions of this clause would otherwise have been required to be made, shall be carried forward and taken into account in any subsequent adjustment; (b) no adjustment in the applicable Fixed Price shall be made pursuant to this Article 11 in respect of the issue from time to time of Common Stock to holders of Common Stock who exercise an option to receive substantially equivalent dividends in Common Stock in lieu of receiving cash dividends in the ordinary course; and (c) if a dispute shall at any time arise with respect to any adjustment of the applicable Fixed Price, such dispute shall be conclusively determined by the auditors of the Company or, if they are unable or unwilling to act, by a firm of independent chartered accountants selected by the 35 37 Directors of the Company and any such determination shall be binding upon the Company and Purchaser. 11.7 Certificate as to Adjustment. The Company shall from time to time promptly after the occurrence of any event which requires an adjustment in the applicable Fixed Price deliver to the Purchaser a certificate specifying the nature of the event requiring the adjustment, the amount of the adjustment necessitated thereby, the applicable Fixed Price after giving effect to such adjustment and setting forth, in reasonable detail, the method of calculation and the facts upon which such calculation is based. 11.8 Notice to Purchaser. If the Company shall fix a record date for: any Share Reorganization (other than the subdivision of outstanding Common Stock into a greater number of shares or the consolidation of outstanding Common Stock into a smaller number of shares), any Rights Offering, any Special Distribution, any Capital Reorganization (other than a reclassification or redesignation of the Common Stock into other shares), or any cash dividend, the Company shall, not less than 10 days prior to such record date or, if no record date is fixed, prior to the effective date of such event, give to the Purchaser notice of the particulars of the proposed event or the extent that such particulars have been determined at the time of giving the notice. 12. EVENTS OF DEFAULT 12.1 Events of Default. Each of the following events is an "Event of Default" under this Agreement and the Transaction Agreements: (a) failure by the Company to pay or prepay when due, all or any part of the principal on the Convertible Note (whether by virtue of the agreements specified in this Agreement or the Convertible Note) and the continuance of such failure for thirty (30) days); (b) failure by the Company or any of its Subsidiaries to pay or prepay when due, all or any part of the principal on the Permitted Debt and the continuance of such failure for thirty (30) days); (c) failure by the Company to pay (i) within thirty (30) days of the due date thereof any interest on the Convertible Note or (ii) within thirty (30) days following the delivery of notice to the Company of any fees or any other amount payable (not otherwise referred to in (a) above or this clause (b)) by the Company under this Agreement; (d) failure by the Company to timely comply with the requirements of Section 10.1(a) or (b) hereof, which failure is not cured within thirty (30) days of such failure; (e) an event of default or breach shall have occurred and continued for thirty (30) days after notice from the Purchaser under any Transaction Agreement; 36 38 (f) failure on the part of the Company or any of its Subsidiaries to observe or perform any covenant contained in any part of Sections 7 or 8 of this Agreement and continuation of such default for thirty (30) days after notice; (g) the Company shall have its Common Stock delisted or suspended from the Nasdaq Market for at least fifteen (15) consecutive Trading Days and is unable to obtain a listing on either the New York Stock Exchange, the American Stock Exchange, the Nasdaq Stock Market's SmallCap Market or the Nasdaq Market within such fifteen (15) Trading Days; (h) the Company or any of its Subsidiaries has commenced a voluntary case or other proceeding seeking liquidation, winding-up, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency, moratorium or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or has consented to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or has made a general assignment for the benefit of creditors; (i) an involuntary case or other proceeding has been commenced against the Company or any of its Subsidiaries seeking liquidation, winding-up, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency, moratorium or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of sixty (60) days, or an order for relief has been entered against the Company under the federal bankruptcy laws as now or hereafter in effect; (j) any representation, warranty, certification or statement made by the Company or any of its Subsidiaries in any Transaction Agreement or which is contained in any certificate, document or financial or other statement furnished at any time under or in connection with any Transaction Agreement shall prove to have been untrue in any material respect when made and such breach shall continue for thirty (30) days after notice; or (k) any member of the ERISA Group has failed to pay when due an amount or amounts aggregating in excess of $100,000 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Material Plan has been filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC has instituted proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer any Material Plan; or a condition has existed by reason of which the PBGC is entitled to obtain a decree adjudicating that any Material Plan must be terminated; or there has occurred a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c) (5) of ERISA, with respect to, one or more Multiemployer Plans which could cause one or more members of the ERISA Group to incur a current payment obligation in excess of $100,000; 37 39 12.2 Default Remedies. If one or more of the above Events of Default shall have occurred and be continuing, then, and in every such occurrence, the Purchaser shall have the right to, by notice to the Company: (a) declare the Convertible Note to be, and the Convertible Note shall thereon become immediately due and payable, PROVIDED that in the case of any of the Events of Default specified in paragraph (h) or (i) above with respect the Company or any Subsidiary, then, without any notice to the Company or any other act by any Purchaser, the entire amount of the Convertible Note shall become immediately due and payable; (b) convert the Convertible Note at fifty percent (50%) of the Conversion Price; (c) exercise its rights under the Security Agreement; and (d) exercise its rights under the License Agreement, including the extension of the term of the License Agreement to a perpetual license and the release of the Purchaser of its obligation to make any payments to the Company pursuant thereto; PROVIDED further, if any Event of Default has occurred and is continuing, and irrespective of whether the Convertible Note has been declared immediately due and payable hereunder, any Purchaser may proceed to protect and enforce the rights of Purchaser by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in the Convertible Note, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise. 12.3 Powers and Remedies Cumulative. No right or remedy herein conferred upon or reserved to the Purchaser is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. Every power and remedy given by the Convertible Note or by law may be exercised from time to time, and as often as shall be deemed expedient, by the Purchaser. 13. MISCELLANEOUS 13.1 Notices. All notices, demands and other communications to any party hereunder shall be in writing (including telecopier or similar writing) and shall be given to such party at the address set forth below, or such other address as such party may hereafter specify for the purpose to the other parties. Each such notice, demand or other communication shall be effective (i) if given by telecopy, when such telecopy is transmitted to the telecopy number specified below, (ii) if given by mail, four (4) days after such communication is deposited in the mail with first class postage prepaid, addressed as aforesaid or (iii) if given by any other means, when delivered at the address specified in or pursuant to this Section. 38 40 If to Company: AHT Corporation 555 White Plains Road Tarrytown, NY 10591 Telecopy: (914) 332-1741 Attn: Jonathan Edelson, Chairman and Chief Executive Officer Eddy Friedfeld, General Counsel with a copy to: John Suydam O'Sullivan Graev & Karabell, LLP 30 Rockefeller Plaza New York, NY 10112 Telecopy: (212) 728-5950 If to Purchaser: Cybear, Inc. 5000 Blue Lake Drive, Suite 200 Boca Raton, FL 33431 Telecopy: (561) 994-2828 Attn: Timothy E. Nolan, President and Chief Operating Officer with a copy to: Charles J. Rennert Berman Wolfe Rennert Vogel & Mandler, P.A. Bank of America Tower 100 Southeast 2nd Street, Suite 3500 Miami, FL 33131 Telecopy: 305-373-6036 13.2 No Waivers; Amendments. No failure or delay on the part of any party in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. No provision of this Agreement may be amended, supplemented or waived unless such amendment, supplement or waiver is in writing and is signed by the Company and the Purchaser. 13.3 Indemnification. (a) The Company agrees to indemnify and hold harmless the Purchaser, its Affiliates, and each Person, if any, who controls Purchaser, or any of its Affiliates, within the meaning of the Securities Act or the Exchange Act (each a "Controlling Person"), and the respective partners, agents, employees, officers and directors of Purchaser, its Affiliates and any such Controlling Person (each an "Indemnified Party" and collectively, the "Indemnified Parties"), from and against any and all losses, claims, damages, liabilities and expenses (including, without limitation, and as incurred, reasonable costs of investigating, preparing or defending any such claim or action, whether or not such Indemnified Party is a party thereto, PROVIDED that the Company shall not be obligated to advance such costs to any Indemnified Party other than the Purchaser unless it has received from such Indemnified Party an undertaking to repay to the Company the costs so advanced if it should be determined by final judgment of a court of competent jurisdiction that such Indemnified Party was 39 41 not entitled to indemnification hereunder with respect to such costs) which may be incurred by such Indemnified Party in connection with any investigative, administrative or judicial proceeding brought or threatened that relates to or arises out of, or is in connection with any activities contemplated by any Transaction Agreement or any other services rendered in connection herewith; PROVIDED that the Company will not be responsible for any claims, liabilities losses, damages or expenses that are determined by final judgment of a court of competent jurisdiction to result from such Indemnified Party's gross negligence, willful misconduct or bad faith. (b) If any action shall be brought against an Indemnified Party with respect to which indemnity may be sought against the Company under this Agreement, such Indemnified Party shall promptly notify the Company in writing and the Company, at its option, may, assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Party and payment of all reasonable fees and expenses. The failure to so notify the Company shall not affect any obligations the Company may have to such Indemnified Party under this Agreement or otherwise unless the Company is materially adversely affected by such failure. Such Indemnified Party shall have the right to employ separate counsel in such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party, unless: (i) the Company has failed to assume the defense and employ counsel or (ii) the named parties to any such action (including any impleaded parties) include such Indemnified Party and the Company, and such Indemnified Party shall have been advised by counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the Company, in which case, if such Indemnified Party notifies the Company in writing that it elects to employ separate counsel at the expense of the Company, the Company shall not have the right to assume the defense of such action or proceeding on behalf of such Indemnified Party, PROVIDED, however, that the Company shall not, in connection with any one such action or proceeding or separate but substantially similar or related actions or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be responsible hereunder for the reasonable fees and expenses of more than one such firm of separate counsel, in addition to any local counsel, which counsel shall be designated by the Purchaser. The Company shall not be liable for any settlement of any such action effected without the written consent of the Company (which shall not be unreasonably withheld) and the Company agrees to indemnify and hold harmless each Indemnified Party from and against any loss or liability by reason of settlement of any action effected with the consent of the Company. In addition, the Company will not, without the prior written consent of the Purchaser, settle or compromise or consent to the entry of any judgment in or otherwise seek to terminate any pending or threatened action, claim, suit or proceeding in respect to which indemnification or contribution may be sought hereunder (whether or not any Indemnified Party is a party thereto) unless such settlement, compromise, consent or termination includes an express unconditional release of the Purchaser and the other Indemnified Parties, satisfactory in form and substance to the Purchaser, from all liability arising out of such action, claim, suit or proceeding. (c) If for any reason the foregoing indemnity is unavailable (otherwise than pursuant to the express terms of such indemnity) to an Indemnified Party or insufficient to hold an Indemnified Party harmless, then in lieu of indemnifying such Indemnified Party, the Company shall contribute to the amount paid or payable by such Indemnified Party as a result of such claims, liabilities, losses, damages, or expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and by the Purchaser on the other from the 40 42 transactions contemplated by this Agreement or (ii) if the allocation provided by clause (i) is not permitted under applicable law, in such proportion as is appropriate to reflect not only the relative benefits received by the Company on the one hand and the Purchaser on the other, but also the relative fault of the Company and the Purchaser as well as any other relevant equitable considerations. Notwithstanding the provisions of this Section 13.3, the aggregate contribution of all Indemnified Parties shall not exceed the amount of interest and fees actually received by the Purchaser pursuant to this Agreement. It is hereby further agreed that the relative benefits to the Company on the one hand and the Purchaser on the other with respect to the transactions contemplated hereby shall be determined by reference to, among other things, whether any untrue or alleged untrue statement of material fact or the omission or alleged omission to state a material fact related to information supplied by the Company or by the Purchaser and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation (d) The indemnification, contribution and expense reimbursement obligations set forth in this Section 13.3: (i) shall be in addition to any liability the Company may have to any Indemnified Party at common law or otherwise, (ii) shall survive the termination of this Agreement and the other Transaction Agreements and the payment in full of the Convertible Note and (iii) shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Purchaser or any other Indemnified Party. 13.4 Expenses: Documentary Taxes. The Company agrees to pay (i) all reasonable out-of-pocket expenses of the Purchaser, including fees and disbursements of counsel, in connection with any waiver or consent hereunder or under any other Transaction Document or any amendment hereof or thereof and (ii) all reasonable out-of-pocket expenses of the Purchaser and each holder of Securities, including fees and disbursements of counsel, in connection with any collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom. In addition, the Company agrees to pay any and all stamp, transfer and other similar taxes, assessments or charges payable in connection with the execution and delivery of any Transaction Agreement or the issuance of the Securities to the Purchaser, excluding its assigns. 13.5 Payment. The Company agrees that, so long as Purchaser shall own the Convertible Note purchased by it from the Company hereunder, the Company will make payments to Purchaser of all amounts due thereon by wire transfer by 1:00 P.M. (Eastern Standard Time) on the date of payment. 13.6 Usury. It is the intention of the parties to comply with all applicable usury laws. Accordingly, it is agreed that notwithstanding any provision to the contrary in the Transaction Agreements, in no event shall the Transaction Agreements require the payment or permit the collection of interest in excess of the maximum amount permitted by such laws. If any such excess of interest is contracted for, charged or received under the Transaction Agreements, or in the event the maturity of the indebtedness evidenced by such Transaction Agreements is accelerated in whole or in part, so that under any such circumstance, the amount of interest contracted for, charged or received shall exceed the maximum amount of interest permitted by 41 43 the applicable usury laws, then in any such event (a) the provisions of this paragraph shall govern or control, (b) neither the Company nor any other person or entity now or hereafter liable for repayment of the Convertible Note shall be obligated to pay the amount of such interest not permitted by the applicable usury laws, (c) any such excess which may have been collected shall be refunded to the Company and (d) the effective rate of interest for the Convertible Note shall be automatically reduced to the maximum lawful rate allowed under applicable usury laws. 13.7 Successors and Assigns. This Agreement, the Schedules and Exhibits hereto, and the documents and instruments and other agreements among the parties hereto referenced herein: (a) constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof; (b) shall be binding upon the Company and upon the Purchaser and its successors and assigns; (c) are not intended to confer upon any other person any rights or remedies hereunder; and (d) shall not be assigned by operation of law or otherwise except as otherwise specifically provided, except that Purchaser may assign its rights and delegate its respective obligations hereunder and thereunder to Andrx Corporation or another of its Affiliates. All provisions hereunder purporting to give rights to Purchaser and its affiliates or to holders of Securities are for the express benefit of such Persons and their successors and assigns. 13.8 Brokers. The Company represents and warrants that it has not employed any broker, finder, financial advisor or investment banker who would be entitled to any brokerage, finder's or other fee or commission payable by the Company or the Purchaser in connection with the sale of the Securities. Purchaser hereby warrants that it has not employed any broker, finder, financial advisor or investment banker who would be entitled to any brokerage, finder's or other fee or commission payable by the Company in connection with the sale of the Securities. 13.9 CHOICE OF LAW. THIS AGREEMENT AND ALL CLAIMS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY TRANSACTION AGREEMENT, WHETHER ASSERTED IN CONTRACT OR TORT, SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE. EACH PARTY HERETO HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT IN THE SOUTHERN DISTRICT OF FLORIDA AND OF ANY FLORIDA STATE COURT SITTING IN PALM BEACH COUNTY, FLORIDA FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. 13.10 Waiver of Jury Trial. The parties hereto each knowingly, voluntarily and intentionally waive their respective rights to a trial by jury in respect of any litigation related to or arising from this Agreement, or any course of conduct, course of dealing, statement or actions of any of the parties hereto. 42 44 13.11 Further Assurance. The Company and the Purchaser shall each take such further actions as requested by any party hereto which are necessary, desirable or proper to carry out the purposes of this Agreement and each Transaction Agreement. 13.12 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated unless a failure of consideration would result thereby. 13.13 Survival. All provisions contained in this Agreement (unless specifically noted to the contrary) shall survive the payment in full of the Convertible Note and shall remain operative and in full force and effect. 13.14 Counterparts. This Agreement may be executed by telecopy signature and in any number of counterparts each of which shall be an original with the same effect as if the signatures there to and hereto were upon the same instrument. [signatures on following page] 43 45 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers, as of the date first above written. AHT CORPORATION CYBEAR, INC. By: /s/ Jonathan Edelson By: /s/ Eric Moscow --------------------------- --------------------------- Name: Jonathan Edelson Name: Eric Moskow, M.D. Title: Chairman and Chief Executive Officer Title: Executive Vice President 44 46 EXHIBIT A FORM OF 10% SENIOR SECURED CONVERTIBLE NOTE 47 EXHIBIT B FORM OF WARRANT 48 EXHIBIT C FORM OF REGISTRATION RIGHTS AGREEMENT 49 EXHIBIT D FORM OF NOTICE OF CONVERSION The undersigned hereby irrevocably elects to convert $__________ of the Company's 10% Senior Secured Convertible Note (the Convertible Note") into shares of Common Stock of AHT Corporation, par value $.01 per share, according to the conditions set forth in such Convertible Note, as of the date written below. If Shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer and other taxes and charges payable with respect thereto. Date of Conversion: _________, 20__ Applicable Conversion Price: $_________ per share Signature of Holder: ___________________________ Name:_____________________ Title: _____________________ SSN or EIN of Holder: ____________________ Address of Holder: ____________________________ ____________________________ SHARES ARE TO BE REGISTERED IN THE FOLLOWING NAME: Name: ____________________ SSN or EIN: ____________________ Address: ____________________________ ____________________________ Telephone Number: (___) ___-____ Fax Number: (___) ___-____ SHARES ARE TO BE SENT OR DELIVERED TO THE FOLLOWING ACCOUNT: Account Name: ____________________ Address: ____________________________ ____________________________ 50 EXHIBIT E FORM OF SECURITY AGREEMENT 51 EXHIBIT F SUBORDINATION TERMS Any Debt to be issued as permitted by clause (e) of the definition of Permitted Debt in the Securities Purchase Agreement shall contain the following provisions and no provision inconsistent with the following provisions: ARTICLE __ -- SUBORDINATION 1. AGREEMENT OF SUBORDINATION. The Company covenants and agrees, and each holder of the indebtedness created by this instrument (this "Debt") by its acceptance hereof or thereof covenants and agrees, expressly for the benefit of holders of Senior Debt, that this Debt shall be issued subject to the provisions of this Article; and each person holding this Debt, whether upon original issue or upon transfer, assignment or exchange thereof, accepts and agrees to be bound by such provisions. The payment of the principal of, premium, if any, and interest on this Debt (including, without limitation, upon any redemption or repurchase of this Debt) shall, to the extent and in the manner hereinafter set forth, be subordinated and subject in right of payment to the prior payment in full of all Senior Debt in cash or other payment satisfactory to the holders of such Senior Debt. No provision of this Article shall prevent the occurrence of any default or event of default with respect to this Debt. 2. PAYMENTS TO HOLDERS OF THIS DEBT. (a)(1) No payment shall be made with respect to the principal of, premium, if any, or interest on this Debt (including, without limitation, the redemption price with respect to any of this Debt to be called for redemption in accordance with its terms or any repurchase of this Debt) if: (i) a default in the payment of principal, premium, if any, interest or other obligations in respect of the Senior Debt occurs and is continuing (a "Payment Default"), unless and until such Payment Default shall have been cured or waived or shall have ceased to exist; or (ii) a default, other than a Payment Default, on any Senior Debt occurs and is continuing that then permits holders of such Senior Debt to accelerate its maturity and the holder of this Debt (or indenture trustee or other representative thereof) receives a notice of the default (a "Payment Blockage Notice") from a holder of Senior Debt, a representative of the holder of such Senior Debt or the Company (a "Non-Payment Default"). If the holder of this Debt (or indenture trustee or representative thereof) receives any Payment Blockage Notice pursuant to the immediately preceding clause (ii), no subsequent Payment Blockage Notice shall be effective for purposes of this Section __ unless and until (A) at least 365 days shall have elapsed since the initial effectiveness of the immediately prior Payment Blockage Notice and (B) all scheduled payments of principal, premium, if any, and interest on this Debt that have become due and are required by the terms of this Debt to be paid in cash have been paid in full in cash. No 52 Non-Payment Default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the holder of this Debt (or indenture trustee or other representative thereof) shall be, or be made, the basis for a subsequent Payment Blockage Notice, unless such Non-Payment Default is based upon facts or events arising after the date of delivery of such Payment Blockage Notice. (2) The Company may and shall resume payments on and distributions in respect of this Debt upon: (A) in the case of a Payment Default, the date upon which any such Payment Default is cured or waived or ceases to exist, or (B) in the case of a Non-Payment Default, the earlier of (a) the date upon which such default is cured or waived or ceases to exist or (b) 179 days after the applicable Payment Blockage Notice is received by the holder of this Debt (or indenture trustee or other representative thereof) if the maturity of such Senior Debt has not been accelerated and no Payment Default with respect to any Senior Debt has occurred which has not been cured or waived (in which case clause (A) shall be applicable), unless this Section __ otherwise prohibits the payment or distribution at the time of such payment or distribution. (b) A "Reorganization" shall include and mean any dissolution, winding up, total or partial liquidation or reorganization of the Company, or any similar transaction resulting in any payment or distribution of cash, securities or other property ("Distributions") to creditors, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings. (c) Upon any Reorganization, all amounts due or to become due upon all Senior Debt shall first be paid in full in cash or other payment satisfactory to the holders of such Senior Debt, or payment thereof provided for in cash or other payment satisfactory to the holders of such Senior Debt, before any Distribution is made to, for, or on account of this Debt or any portion thereof (including, without limitation, any Distribution in connection with a payment of principal, interest or premium or the redemption or repurchase of all or any portion of this Debt) (other than Distributions in the form of junior securities as defined in Section 7). (d) Upon any Reorganization, all Distributions (other than Distributions in the form of Junior Securities) on account of this Debt shall be made by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent, assignee for the benefit of creditors or other person making such Distribution directly to the holders of Senior Debt (pro rata to such holders on the basis of the respective amounts of Senior Debt held by such holders, or as otherwise required by law or a court order or the terms of any subordination as between or among such Senior Debt) or their respective representative or representatives, as their respective interests may appear, to the extent necessary to pay all Senior Debt in full in cash or other payment satisfactory to the holders of such Senior Debt, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt, before any Distribution is made on account of this Debt. (e) In the event that, notwithstanding the foregoing, a Distribution (other than a Distribution in the form of Junior Securities) on account of this Debt is received by a holder thereof (or indenture trustee or other representative thereof) from the Company (including, without limitation, by way of set-off) or from the holder (or indenture trustee or other representative thereof) of any indebtedness subordinated to this Debt, such Distribution shall be held by the recipient or recipients thereof in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Debt, or their F-2 53 respective representative or representatives, in the same manner and fashion as the Company is obligated to make the same under paragraphs (d) and (e) above. (f) In the event that, notwithstanding the foregoing, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities (including, without limitation, by way of set-off or otherwise), prohibited by the foregoing, shall be received by any holder of this Debt (or indenture trustee or other representative thereof) before all Senior Debt is paid in full in cash or other payment satisfactory to the holders of such Senior Debt, or provision is made for such payment in accordance with its terms in cash or other payment satisfactory to the holders of such Senior Debt, such payment or distribution shall be held by the recipient or recipients in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Debt or their respective representative or representatives, as their respective interests may appear, as calculated by the Company, for application to the payment of all Senior Debt remaining unpaid to the extent necessary to pay all Senior Debt in full in cash or other payment satisfactory to the holders of such Senior Debt, after giving effect to any concurrent payment or distribution (or provision therefor) to or for the holders of such Senior Debt. (g) In the event of the acceleration of this Debt because of an event of default or any amount of principal of or premium on this Debt becomes due prior to the maturity date of this Debt, no payment or distribution (other than junior securities) shall be made any holder of this Debt (or indenture trustee or other representative thereof) in respect of the principal of, premium, if any, or interest on this Debt (including, without limitation, any redemption or repurchase price of any of this Debt called for redemption in accordance with its terms or submitted for redemption or repurchase at the option of the holder of this Debt in accordance with its terms, as the case may be), until all Senior Debt has been paid in full in cash or other payment satisfactory to the holders of such Senior Debt or such acceleration is rescinded in accordance with the terms of this Debt. If payment of this Debt is accelerated because of an event of default, the Company, the holder of this Debt (or indenture trustee or other representative thereof) shall promptly notify holders of the Senior Debt of such acceleration. (h) Except as shall be specifically prohibited by this Section _, nothing contained in this Article shall prevent the Company from making any scheduled payment of principal or interest on this Debt. 3. SUBROGATION OF THIS DEBT. Subject to the payment in full of all Senior Debt in cash or other payment satisfactory to the holders of such Senior Debt, the rights of the holders of this Debt shall be subrogated to the extent of the payments or distributions made to the holders of such Senior Debt pursuant to the provisions of this Article (equally and ratably with the holders of all indebtedness of the Company which by its express terms is subordinated to Senior Debt to substantially the same extent as this Debt is subordinated and is entitled to like rights of subrogation) to the rights of the holders of Senior Debt to receive payments or distributions of cash, property or securities of the Company applicable to the Senior Debt until the principal of (and premium, if any) and interest on this Debt shall be paid in full; and, for the purposes of such subrogation, no payments or distributions to the holders of the Senior Debt of any cash, property or securities to which the holders of this Debt would be entitled except for the provisions of this Article, and no payment over pursuant to the provisions of this Article, to or for the benefit of the holders of Senior Debt by holders of this Debt (or indenture trustee or other representative thereof), shall, as among the Company, its creditors other F-3 54 than holders of Senior Debt, and the holders of this Debt, be deemed to be a payment by the Company to or on account of the Senior Debt; and no payments or distributions of cash, property or securities to or for the benefit of the holders of this Debt pursuant to the subrogation provisions of this Article, which would otherwise have been paid to the holders of Senior Debt, shall be deemed to be a payment by the Company to or for the account of this Debt. 4. PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS. It is understood that the provisions of this Article are and are intended solely for the purposes of defining the relative rights of the holders of this Debt, on the one hand, and the holders of the Senior Debt, on the other hand. Nothing contained in this Article or in the terms of this Debt is intended to or shall impair, as among the Company, its creditors other than the holders of Senior Debt, and the holders of this Debt, the obligation of the Company, which is absolute and unconditional, to pay to the holders of this Debt the principal of (and premium, if any) and interest on this Debt as and when the same shall become due and payable in accordance with its terms, or is intended to or shall affect the relative rights of the holders of this Debt and creditors of the Company other than the holders of the Senior Debt, nor shall anything herein or therein prevent any holder of this Debt from exercising all remedies otherwise permitted by applicable law upon default under this Debt, subject to the rights, if any, under this Article of the holders of Senior Debt in respect of cash, property or securities of the Company received upon the exercise of any such remedy. 5. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT. Upon any payment or distribution of assets of the Company referred to in this Article, the holders of this Debt shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which such insolvency, bankruptcy, receivership, dissolution, winding-up, liquidation, reorganization or similar case or proceeding is pending, or a certificate of the receiver, trustee in bankruptcy, liquidating trustee, custodian, agent, assignee for the benefit of creditors, or other person making such payment or distribution, delivered to the holders of this Debt (or indenture trustee or other representative thereof), for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of the Senior Debt and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article. 6. NO IMPAIRMENT OF SUBORDINATION. No right of any present or future holder of any Senior Debt to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of the Convertible Note or the documents, agreements and instruments relating thereto or to this Debt, regardless of any knowledge thereof which any such holder may have or otherwise be charged with. 7. CERTAIN CONVERSIONS DEEMED PAYMENT. If this Debt is convertible into securities of the Company, for the purposes of this Article only, (1) the issuance and delivery of junior securities upon conversion of this Debt in accordance with such conversion rights shall not be deemed to constitute a payment or distribution on account of the principal of (or premium, if any) or interest on this Debt or on account of the purchase or other acquisition of this Debt, and (2) the payment, issuance or delivery of cash, property or securities (other than junior securities) upon conversion of this Debt F-4 55 shall be deemed to constitute payment on account of the principal of (and premium, if any) and interest on this Debt. For the purposes of this Section, the term "junior securities" means (a) shares of any stock of any class of the Company, (b) securities of the Company that are subordinated in right of payment to all Senior Debt to substantially the same extent as, or to a greater extent than, this Debt is so subordinated as provided in this Article and (c) securities, if any, into which this Debt becomes convertible in connection with any business combination transaction if so provided in the terms of this Debt. Nothing contained in this Article or elsewhere in the terms of this Debt is intended to or shall impair, as among the Company, its creditors other than holders of Senior Debt and the holders of this Debt, the right, if any, which is absolute and unconditional, of the holder of this Debt, if by the terms of this Debt this Debt is convertible into securities of the Company, to convert this Debt in accordance with the terms of this Debt. 8. SENIOR DEBT ENTITLED TO RELY. The holders of Senior Debt shall have the right to rely upon this Article, and no amendment or modification of the provisions contained herein shall diminish the rights of such holders unless such holders shall have agreed in writing thereto. 9. DEFINITIONS. As used in this Article, the following terms shall have the following meanings: "Company" means AHT Corporation, a Delaware corporation, and shall include its successors and assigns. "Convertible Note" means the 10% Senior Secured Convertible Note due 2001 at any one time outstanding not in excess of the original aggregate authorized amount of $4,000,000, issued by the Company pursuant to the Securities Purchase Agreements, including any such note issued upon transfer thereof or in lieu of any such note that is mutilated, destroyed, lost or stolen. "Securities Purchase Agreement" means the Securities Purchase Agreement, dated March 27, 2000, by and between the Company and Cybear, Inc., as amended from time to time. "Senior Debt" means the principal of, premium, if any, and interest on (including any interest accruing after the filing of a petition by or against the Company under any bankruptcy law, whether or not allowed as a claim after such filing in any proceeding under such bankruptcy law), and any other payment, due pursuant to the Convertible Note and all renewals, extensions, refundings, deferrals, amendments or modifications of the Convertible Note, whether outstanding at the time of issuance of this Debt or thereafter incurred or created; unless in the case of any such renewal, extension, refunding, amendment, modification or supplement, the instrument or other document creating or evidencing the same or the assumption or guarantee of the same expressly provides that such renewal, extension, refunding, amendment, modification or supplement is not superior in right of payment to, or is pari passu with, this Debt. F-5 56 EXHIBIT G FORM OF LICENSE AGREEMENT 57 EXHIBIT H FORM OF GUARANTY AGREEMENT EX-10.23 5 DEVELOPMENT AGREEMENT 1 Exhibit 10.23 10% SENIOR SECURED CONVERTIBLE NOTE DATED MARCH 27, 2000 THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"). THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES AGREES FOR THE BENEFIT OF THE COMPANY THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE COMPANY, (B) PURSUANT TO THE EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT PROVIDED BY RULE 144 THEREUNDER, IF AVAILABLE, OR (C) IF REGISTERED UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS. IN ADDITION, A SECURITIES PURCHASE AGREEMENT, REGISTRATION RIGHTS AGREEMENT, LICENSE AGREEMENT AND SECURITY AGREEMENT, EACH DATED AS OF THE DATE HEREOF, COPIES OF WHICH MAY BE OBTAINED FROM THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICE, CONTAIN CERTAIN ADDITIONAL AGREEMENTS AMONG THE PARTIES, INCLUDING, WITHOUT LIMITATION, PROVISIONS WHICH, AMONG OTHER THINGS, (A) SPECIFY VOLUNTARY AND MANDATORY REPAYMENT, PREPAYMENT AND REDEMPTION RIGHTS AND OBLIGATIONS AND (B) SPECIFY EVENTS OF DEFAULT FOLLOWING WHICH THE REMAINING BALANCE DUE AND OWING HEREUNDER MAY BE ACCELERATED OR CONVERTED. On or before March 31, 2001 (the "Maturity Date"), AHT CORPORATION, a Delaware corporation (the "Company"), for value received, hereby promises to pay to CYBEAR, INC., a Delaware corporation (the "Holder"), the principal sum of Four Million Dollars ($4,000,000) and to pay interest thereon from the date hereof at the rate of ten percent (10%) per annum (the "Interest Rate"). Interest shall be paid quarterly, in arrears, on (i) June 30, 2000, September 30, 2000 and December 31, 2000 (unless such day is not a Business Day, in which event on the next succeeding Business Day) (each an "Interest Payment Date"), (ii) the Maturity Date, and (iii) the date the principal amount of the Convertible Note shall be declared to be or shall automatically become due and payable, on the principal sum hereof outstanding in like coin or currency, from the most recent Interest Payment Date to which interest has been paid on this Convertible Note, or if no interest has been paid on this Convertible Note, from the date of this Convertible Note until payment in full of the principal sum hereof has been made until the principal hereof is paid in full. Past due amounts (including interest, to the extent permitted by law) will also accrue interest at 13% per annum or, if less, the maximum rate permitted by applicable law, and will be payable on demand (the "Default Interest Rate"). Interest on this Convertible Note will be calculated on the basis of a 365-day year. All payments of principal and interest hereunder shall be made for the benefit of the Holder at the Holder's account at First Union National Bank, 5355 Town Center Road, Suite 101, Boca Raton, Florida, pursuant to the terms of the Purchase Agreement (hereafter defined). 2 This Convertible Note is referred to in that Securities Purchase Agreement (the "Purchase Agreement"), the Registration Rights Agreement, the Letter Agreement and the Security Agreement, each dated as of the date hereof between the Company and the Holder (collectively, the "Agreements"). The Agreements contain certain additional agreements among the parties with respect to the terms of this Convertible Note, including, without limitation, provisions which (i)specify voluntary and mandatory repayment, prepayment and redemption rights and obligations and (ii) specify Events of Default (as defined in the Purchase Agreement) following which the remaining balance due and owing hereunder may be accelerated or converted. All such provisions are an integral part of this Convertible Note and are incorporated herein by reference. Capitalized terms used but not defined herein shall have the meanings set forth in the Agreements. This Convertible Note is transferable and assignable to one or more purchasers, in accordance with the limitations set forth in the Agreements. The Company shall keep a register (the "Register") in which shall be entered the name and address of the registered holder of this Convertible Note and particulars of this Convertible Note held by such holder and of all transfers of this Convertible Note. References to the Holder shall mean the Person listed in the Register as the registered holder of such Convertible Note. The ownership of this Convertible Note shall be proven by the Register. 1. Certain Terms Defined. All terms defined in the Purchase Agreement and not otherwise defined herein shall have for purposes hereof the meanings provided for therein. 2. Payment of Principal. The Company shall repay the remaining unpaid balance on this Convertible Note on the Maturity Date. The Company may, and shall be obligated to, prepay all or a portion of this Convertible Note on the terms specified in the Agreements. 3. Conversion Terms. 3.1 Conversion of Convertible Note. The Holder shall have the right, at its option, at any time and from time to time, after the date hereof to convert the principal amount of this Convertible Note, or any portion of such principal amount in the minimum amount of $1,000 or any integral multiple thereof, into that number of fully paid and nonassessable shares of Common Stock (as such shares shall then be constituted) determined pursuant to this Section 4.1. The number of shares of Common Stock to be issued upon each conversion of this Convertible Note shall be determined by dividing the Conversion Amount (as defined below) by the Conversion Price in effect on the date (the "Conversion Date") a Notice of Conversion is delivered to the Company by the Holder by facsimile or other reasonable means of communication dispatched prior to 11:00 p.m., Eastern Standard Time PROVIDED, HOWEVER, the aggregate number of shares to be issued pursuant to the conversion of this Convertible Note and all other of the Convertible Notes shall never exceed the Maximum Number of Shares. The term "Conversion Amount" means, with respect to any conversion of this Convertible Note, the sum of (i) the principal amount of this Convertible Note to be converted in such conversion (including any premium thereon pursuant to the Purchase Agreement) plus (ii) accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Convertible Note to the Conversion Date plus (iii) Default Interest, if any, on the interest referred to in the immediately preceding clause (ii). 2 3 3.2 Conversion Price. The Conversion Price of this Convertible Note (the "Conversion Price") per share shall be the lower of (i) 80% of the Average Market Price per share of Common Stock on the Conversion Date; or (ii) $4.34 (the "Conversion Price"), subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Company relating to the Company's securities or the securities of any Subsidiary of the Company, combinations, recapitalization, reclassifications, extraordinary distributions and similar events, as provided in the Purchase Agreement. 3.3 Authorized Shares. (a) Consistent with Section 7.12 of the Purchase Agreement, the Company (i) acknowledges that it shall irrevocably instruct its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Convertible Note and (ii) agrees that its issuance of this Convertible Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Convertible Note. (b) If at any time a Holder of this Convertible Note submits a Notice of Conversion, (i) the Company does not have sufficient authorized but unissued shares of Common Stock available to effect such conversion in full in accordance with the provisions of this Section 4 (each, a "Conversion Default"), the Company shall issue to the Holder all of the shares of Common Stock which are then available to effect such conversion. The portion of this Convertible Note which the Holder included in its Conversion Notice and which exceeds the amount which is then convertible into available shares of Common Stock (the "Excess Amount") shall, notwithstanding anything to the contrary contained herein, not be convertible into Common Stock in accordance with the terms hereof until (and at the Holder's option at any time after) the date additional shares of Common Stock are authorized by the Company, or its stockholders, as applicable, at which time the Conversion Price in respect thereof shall be the lower of (i) the Conversion Price on the Conversion Default Date (as defined below) and (ii) the Conversion Price on the Conversion Date thereafter elected by the Holder in respect thereof. 3.4 Method of Conversion. (a) Notwithstanding anything to the contrary set forth herein, upon conversion of this Convertible Note in accordance with the terms hereof, the Company shall not be required to physically surrender this Convertible Note to the Holder unless the entire unpaid principal amount of this Convertible Note is so converted. The Company and the Holder shall maintain records showing the principal amount so converted and the date of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Convertible Note upon each such conversion. In the event of any dispute or discrepancy, such records of the Company shall be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of this Convertible Note is converted as aforesaid, the Company may not transfer this Convertible Note unless the Holder first physically surrenders this Convertible Note to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes), may 3 4 request, representing in the aggregate the remaining unpaid principal amount of this Convertible Note. The Holder and any assignee, by acceptance of this Convertible Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Convertible Note, the unpaid and unconverted principal amount of this Convertible Note represented by this Convertible Note may be less than the amount stated on the face hereof. (b) The Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of shares of Common Stock or other securities or property on conversion of this Convertible Note in a name other than that of the Holder (or in street name), and the Company shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons (other than the Holder or the custodian in whose street name such shares are to be held for the Holder's account) requesting the issuance thereof shall have paid to the Company the amount of any such tax or shall have established to the satisfaction of the Company that such tax has been paid. (c) Upon receipt by the Company of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion on the Conversion Date, the outstanding principal amount and the amount of accrued and unpaid interest on this Convertible Note shall be reduced to reflect such conversion, and, unless the Company defaults on its obligations under this Article 4, all rights with respect to the portion of this Convertible Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If the Holder shall have given a Notice of Conversion as provided herein, the Company's obligation to issue and deliver the certificates for shares of Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Company to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Company, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with such conversion. The date of receipt of such Notice of Conversion shall be the Conversion Date so long as it is received before 11:00 p.m., Eastern Standard Time, on such date. (d) Notwithstanding the foregoing, if the Holder has not received certificates for all shares of Common Stock prior to the second (2nd) business day after the expiration of the Deadline with respect to a conversion of any portion of this Convertible Note following delivery of a properly completed Notice of Conversion for any reason, then (unless the Holder otherwise elects to retain its status as a holder of Common Stock by so notifying the Company), the Holder shall regain the rights of a Holder of this Convertible Note with respect to such unconverted portions of this Convertible Note and the Company shall, as soon as practicable, return such unconverted Convertible Note to the holder or, if the Convertible Note has not been surrendered, adjust its records to reflect that such portion of this Convertible Note has not been converted. In all cases, the Holder shall retain all of its rights and remedies for the Company's failure to convert this Convertible Note. 4 5 (e) In lieu of delivering physical certificates representing the shares of Common Stock assessable upon conversion, provided the Company's transfer agent is participating in the Depository Trust Company ("DTC") Fast Automated Securities Transfer program, upon request of the Holder and its compliance with the provisions contained in Section 4.1 and in this Section 4.4, the Company shall use its best efforts to cause its transfer agent to electronically transmit the shares of Common Stock assessable upon conversion to the Holder by crediting the account of Holder's Prime Broker with DTC through its Deposit Withdrawal Agent Commission system. 4. Modification of Convertible Note. This Convertible Note may not be modified without prior written consent of the Company and the Holder. 5. Usury. All agreements in this Convertible Note and in the other Transaction Agreements are expressly limited so that in no contingency or event whatsoever, whether by reason of advancement or acceleration of maturity of the Obligations, or otherwise, shall the amount paid or agreed to be paid hereunder or thereunder for the use, forbearance or detention of money exceed the highest lawful rate permitted under applicable usury laws. If, from any circumstance whatsoever, fulfillment of any provision of this Convertible Note or any of the other Transaction Agreements, at the time performance of such provision shall be due, shall involve transcending the limit of validity prescribed by law which a court of competent jurisdiction may deem applicable hereto, then, ipso facto, the obligation to be fulfilled shall be reduced to the limit of such validity and if, from any circumstance whatsoever, the Holder shall ever receive as interest an amount which would exceed the highest lawful rate, the receipt of such excess shall be deemed a mistake and shall be canceled automatically or, if theretofore paid, such excess shall be held in trust by the Holder for the benefit of the Company and shall be credited against the principal amount of the Convertible Note to which the same may lawfully be credited, and any portion of such excess not capable of being so credited shall be rebated to the Company. 6. Miscellaneous. This Convertible Note shall be deemed to be a contract made under the laws of the State of Delaware, and for all purposes shall be governed by and construed in accordance with the laws of said State. The parties hereto, including all guarantors or endorsers, hereby waive presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance and enforcement of this Convertible Note, except as specifically provided herein, and assent to extensions of the time of payment, or forbearance or other indulgence without notice. The Company hereby submits to the exclusive jurisdiction of the United States District Court for the Southern District of Florida and of any Florida state court sitting in Palm Beach County for purposes of all legal proceedings arising out of or relating to this Convertible Note. The Company irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. The Holder of this Convertible Note by acceptance of this Convertible Note agrees to be bound by the provisions of this Convertible Note which are expressly binding on such Holder. This Convertible Note has been executed, delivered and shall at all times be held outside the State of Florida. 5 6 IN WITNESS WHEREOF, the Company has caused this Note to be executed in its name, and its corporate seal to be hereunto affixed by its proper officers thereunder duly authorized. Date: March 27, 2000 AHT CORPORATION (Corporate Seal) By: /s/ Jonathan Edelson -------------------------------------- Name: Jonathan Edelson Title: Chairman and Chief Executive Officer 6 EX-10.24 6 CO-MARKETING AND LICENSEE AGREEMENT 1 Exhibit 10.24 WARRANT THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"). THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES AGREES FOR THE BENEFIT OF THE COMPANY THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE COMPANY, (B) PURSUANT TO THE EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT PROVIDED BY RULE 144 THEREUNDER, IF AVAILABLE, OR (C) IF REGISTERED UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS. IN ADDITION, A SECURITIES PURCHASE AGREEMENT, REGISTRATION RIGHTS AGREEMENT, LETTER AGREEMENT AND SECURITY AGREEMENT, EACH DATED AS OF THE DATE HEREOF, COPIES OF WHICH MAY BE OBTAINED FROM THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICE, CONTAIN CERTAIN ADDITIONAL AGREEMENTS AMONG THE PARTIES. WARRANT TO PURCHASE COMMON STOCK, PAR VALUE $.01 PER SHARE OF AHT CORPORATION This certifies that, for value received, Cybear, Inc. or registered assigns (the "Warrantholder"), is entitled to purchase from AHT CORPORATION (the "Company"), subject to the provisions of this Warrant, at any time and from time to time until 5:00 p.m. Eastern Standard Time on March 31, 2005, three hundred thousand (300,000) shares of the Company's Common Stock, par value $.01 per share (the "Warrant Shares"). The purchase price payable upon the exercise of this Warrant shall be $4.34 per Warrant Share. The Warrant Price and the number of Warrant Shares which the Warrantholder is entitled to purchase is subject to adjustment upon the occurrence of the contingencies set forth in Section 3 of this Warrant; as adjusted from time to time, such purchase price is hereinafter referred to as the "Warrant Price." This Warrant, evidencing the right to purchase Common Stock of the Company, is referred to in, among other agreements, that Securities Purchase Agreement (the "Purchase Agreement") and the Registration Rights Agreement each dated March 27, 2000, between the Company and the Warrantholder (collectively, the "Agreements"). The Agreements contain certain additional agreements among the parties with respect to the terms of this Warrant. All such provisions are an integral part of this Warrant and are incorporated herein by reference. Capitalized terms used but not defined herein shall have the meanings set forth in the Agreements. This Warrant is subject to the following terms and conditions: 2 1. Exercise of Warrant. (a) This Warrant may be exercised in whole or in part but not for a fractional share. Upon delivery of this Warrant at the offices of the Company or at such other address as the Company may designate by notice in writing to the registered holder hereof with the Subscription Form annexed hereto duly executed, accompanied by payment of the Warrant Price for the number of Warrant Shares purchased (in cash, by certified, cashier's or other check acceptable to the Company, by Common Stock of the Company having a Market Value (as hereinafter defined) equal to the aggregate Warrant Price for the Warrant Shares to be purchased, or any combination of the foregoing), the registered holder of this Warrant shall be entitled to receive a certificate or certificates for the Warrant Shares so purchased. Such certificate or certificates shall be promptly delivered to the Warrantholder. Upon any partial exercise of this Warrant, the Company shall promptly execute and deliver a new Warrant of like tenor for the balance of the Warrant Shares purchasable hereunder. (b) In lieu of exercising this Warrant pursuant to Section 1(a), the holder may elect to receive shares of Common Stock equal to the value of this Warrant determined in the manner described below (or any portion thereof remaining unexercised) upon delivery of this Warrant at the offices of the Company or at such other address as the Company may designate by notice in writing to the registered holder hereof with the Notice of Cashless Exercise Form annexed hereto duly executed. In such event the Company shall issue to the holder a number of shares of the Company's Common Stock computed using the following formula: X = Y (A-B) ______________ A Where X = the number of shares of Common Stock to be issued to the holder. Y = the number of shares of Common Stock purchasable under this Warrant (at the date of such calculation). A = the Market Value of the Company's Common Stock on the business day immediately preceding the day on which the Notice of Cashless Exercise is received by the Company. B = Warrant Price (as adjusted to the date of such calculation). (c) Subject to Section 7.9 of the Purchase Agreement, the Warrant Shares deliverable hereunder shall, upon issuance, be fully paid and non-assessable and the Company agrees that at all times during the term of this Warrant it shall cause to be reserved for issuance such number of shares of its Common Stock as shall be required for issuance and delivery upon exercise of this Warrant. (d) For purposes of this Warrant, the Market Value of a share of Common Stock on any date shall be determined as follows: 3 (i) If the Common Stock is listed on Nasdaq, the closing price on the date of valuation; (ii) If the Common Stock is listed on the New York Stock Exchange or the American Stock Exchange, the closing price on such exchange on the date of valuation; (iii) If neither (i) nor (ii) apply but the Common Stock is quoted in the over-the-counter market, another recognized exchange, on the pink sheets or the OTC Bulletin Board, the mean between the high reported "bid" prices thereof on the date of valuation; and (iv) if the Common Stock is not traded on a national securities exchange or in the over-the-counter market, the fair market value of a share of Common Stock on such date as determined in good faith by the Board of Directors. If the Warrantholder disagrees with the determination of the Market Value of any securities of the Company determined by the Board of Directors under Section 1(d)(iv), the Market Value of such securities shall be determined by an independent appraiser acceptable to the Company and the holder (or, if they cannot agree on such an appraiser, by an independent appraiser selected by each of them, and Market Value shall be the median of the appraisals made by such appraisers). If there is one appraiser, the cost of the appraisal shall be shared equally between the Company and the holder. If there are two appraisers, each of the Company and the holder shall pay for its own appraisal. The Company will, at the time of the exercise, exchange or transfer of this Warrant, upon the request of the registered Warrantholder hereof, acknowledge in writing its continuing obligation to afford to such Warrantholder or transferee any rights (including, without limitation, any right to registration of the Company's shares of Common Stock) to which such Warrantholder or transferee shall continue to be entitled after such exercise, exchange or transfer in accordance with the provisions of this Warrant, provided that if the registered Warrantholder of this Warrant shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such Warrantholder or transferee any such rights. 2. Transfer or Assignment of Warrant. (a) Any assignment or transfer of this Warrant shall be made by surrender of this Warrant at the offices of the Company or at such other address as the Company may designate in writing to the registered holder hereof with the Assignment Form annexed hereto duly executed and accompanied by payment of any requisite transfer taxes, and the Company shall, without charge, execute and deliver a new Warrant of like tenor in the name of the assignee for the portion so assigned in case of only a partial assignment, with a new Warrant of like tenor to the assignor for the balance of the Warrant Shares purchasable. (b) Prior to any assignment or transfer of this Warrant, the holder thereof shall deliver an opinion of counsel to the Company to the effect that the proposed transfer may be effected without registration under the Act. 4 3. Adjustment of Warrant Price and Warrant Shares -- Anti-Dilution Provisions. (a) (1) Except as hereinafter provided, in case the Company shall at any time after the date hereof issue any shares of Common Stock (including shares held in the Company's treasury) without consideration, then, and thereafter successively upon each issuance, the Warrant Price in effect immediately prior to each such issuance shall forthwith be reduced to a price determined by multiplying the Warrant Price in effect immediately prior to such issuance by a fraction: (A) the numerator of which shall be the total number of shares of Common Stock outstanding immediately prior to such issuance, and (B) the denominator of which shall be the total number of shares of Common Stock outstanding immediately after such issuance. For the purposes of any computation to be made in accordance with the provisions of this clause (1), the following provisions shall be applicable: (i) Shares of Common Stock issuable by way of dividend or other distribution on any stock of the Company shall be deemed to have been issued and to be outstanding at the close of business on the record date fixed for the determination of stockholders entitled to receive such dividend or other distribution and shall be deemed to have been issued without consideration. Shares of Common Stock issued otherwise than as a dividend or other distribution, shall be deemed to have been issued and to be outstanding at the close of business on the date of issue; and (ii) the number of shares of Common Stock at any time outstanding shall not include any shares then owned or held by or for the account of the Company. (2) In case the Company shall at any time subdivide or combine the outstanding shares of Common Stock, the Warrant Price shall forthwith be proportionately decreased in the case of the subdivision or proportionately increased in the case of combination to the nearest one cent. Any such adjustment shall become effective at the close of business on the date that such subdivision or combination shall become effective. (b) In the event that the number of outstanding shares of Common Stock is increased by a stock dividend payable in shares of Common Stock or by a subdivision of the outstanding shares of Common Stock, which may include a stock split, then from and after the time at which the adjusted Warrant Price becomes effective pursuant to the foregoing Subsection (a) of this Section by reason of such dividend or subdivision, the number of shares issuable upon the exercise of this Warrant shall be increased in proportion to such increase in outstanding shares. In the event that the number of outstanding shares of Common Stock is decreased by a combination of the outstanding shares of Common Stock, then, from and after the time at which the adjusted Warrant Price becomes effective pursuant to such Subsection A of this Section by reason of such combination, the number of shares issuable upon the exercise of this Warrant shall be decreased in proportion to such decrease in outstanding shares. 5 (c) In the event of an adjustment of the Warrant Price, the number of shares of Common Stock (or reclassified stock) issuable upon exercise of this Warrant after such adjustment shall be equal to the number determined by dividing: (1) an amount equal to the product of (i) the number of shares of Common Stock issuable upon exercise of this Warrant immediately prior to such adjustment, and (ii) the Warrant Price immediately prior to such adjustment, by (2) the Warrant Price immediately after such adjustment. (d) In the case of (1) any reorganization or reclassification of the outstanding shares of Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination) or (2) any consolidation of the Company with, or merger of the Company with, another corporation, or in the case of any sale, lease or conveyance of all, or substantially all, of the property, assets, business and goodwill of the Company as an entity, the holder of this Warrant shall thereafter have the right upon exercise to purchase the kind and amount of shares of stock and other securities and property receivable upon such reorganization, reclassification, consolidation, merger or sale by a holder of the number of shares of Common Stock which the holder of this Warrant would have received had all Warrant Shares issuable upon exercise of this Warrant been issued immediately prior to such reorganization, reclassification, consolidation, merger or sale, at a price equal to the Warrant Price then in effect pertaining to this Warrant (the kind, amount and price of such stock and other securities to be subject to adjustment as herein provided). The Company shall not effect a transaction of the type described in clause (2) of this sub-paragraph (D) unless upon or prior to the consummation thereof, the Company's successor corporation, or if the Company shall be the surviving company in any such transaction but is not the issuer of the shares of stock, securities or other property to be delivered to the holders of the Company's outstanding shares of Common Stock at the effective time thereof, then such issuer, shall assume in writing the obligation hereunder to deliver to the Warrantholder of this Warrant such shares of stock, securities, cash or other property as such holder shall be entitled to purchase in accordance with the provisions hereof. (e) In case the Company shall, at any time prior to the expiration of this Warrant and prior to the exercise thereof, dissolve, liquidate or wind up its affairs, the Warrantholder shall be entitled, upon the exercise thereof, to receive, in lieu of the Warrant Shares of the Company which it would have been entitled to receive, the same kind and amount of assets as would have been issued, distributed or paid to it upon such Warrant Shares of the Company, had it been the holder of record of shares of Common Stock receivable upon the exercise of this Warrant on the record date for the determination of those entitled to receive any such liquidating distribution. After any such dissolution, liquidation or winding up which shall result in any distribution in excess of the Warrant Price provided for by this Warrant, the Warrantholder may at its option exercise the same without making payment of the aggregate Warrant Price and in such case the Company shall upon the distribution to said Warrantholder consider that the aggregate Warrant Price has been paid in full to it and in making settlement to said Warrantholder, shall deduct from the amount payable to such Warrantholder an amount equal to the aggregate Warrant Price. Except as otherwise expressly provided in the prior paragraph, in the event of any dissolution of the Company following the transfer of all or substantially all of its properties or assets, the Company, prior to such dissolution, shall at its expense deliver or cause to be delivered the stock 6 and other securities and property (including cash, where applicable) receivable by the holders of the Warrants after the effective date of such dissolution pursuant to this sub-paragraph (E) to a bank or trust company having its principal office in New York City, as trustee for the holder or holders of the Warrants. (f) Except as otherwise expressly provided in this Section 2, upon any reorganization, consolidation, merger or transfer (and any dissolution following any transfer) referred to in this Section 2, this Warrant shall continue in full force and effect and the terms hereof shall be applicable to the shares of stock and other securities and property receivable on the exercise of this Warrant after the consummation of such reorganization, consolidation or merger or the effective date of dissolution following any such transfer, as the case may be, and shall be binding upon the issuer of any such stock or other securities, including, in the case of any such transfer, the person acquiring all or substantially all of the properties or assets of the Company, whether or not such person shall have expressly assumed the terms of this Warrant. (g) In case the Company shall, at any time prior to the expiration of this Warrant and prior to the exercise thereof make a distribution of assets (other than cash) or securities of the Company to its stockholders (the "Distribution") the Warrantholder shall be entitled, upon the exercise thereof, to receive, in addition to the Warrant Shares it is entitled to receive, the same kind and amount of assets or securities as would have been distributed to it in the Distribution had it been the holder of record of shares of Common Stock receivable upon exercise of this Warrant on the record date for determination of those entitled to receive the Distribution. (h) Irrespective of any adjustments in the number of Warrant Shares and the Warrant Price or the number or kind of shares purchasable upon exercise of this Warrant, this Warrant may continue to express the same price and number and kind of shares as originally issued. 4. Officer's Certificate. Whenever the number of Warrant Shares and the Warrant Price shall be adjusted pursuant to the provisions hereof, the Company shall forthwith file at its principal executive office an officers' certificate, signed by the Chairman of the Board, President, or one of the Vice Presidents of the Company and by its Chief Financial Officer or one of its Treasurers or Assistant Treasurers, stating the adjusted number of Warrant Shares and the new Warrant Price calculated to the nearest one hundredth and setting forth in reasonable detail the method of calculation and the facts requiring such adjustment and upon which such calculation is based. Each adjustment shall remain in effect until a subsequent adjustment hereunder is required. A copy of such statement shall be mailed to the Warrantholder at its address in the records of the Company in accordance with the notice provision of the Securities Purchase Agreement. The Company will forthwith mail a copy of each such certificate to each holder of a Warrant, and will, on the written request at any time of any holder of a Warrant, furnish to such holder a like certificate setting forth the Warrant Price and the number and type of Shares at the time in effect and showing how it was calculated. 7 5. Charges, Taxes and Expenses. The issuance of certificates for Warrant Shares upon any exercise of this Warrant shall be made without charge to the Warrantholder for any tax or other expense in respect to the issuance of such certificates, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued only in the name of the Warrantholder. 6. No Dilution or Impairment. The Company will not, by amendment of its Articles of Incorporation or By-laws, or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of the Warrants, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holders of the Warrants, as specified herein and in the Securities Purchase Agreement, against dilution (to the extent specifically provided herein) or other impairment. Without limiting the generality of the foregoing, the Company (a) will not increase the par value of any shares of stock receivable on the exercise of the Warrants above the amount payable therefor on such exercise, and (b) will not effect a subdivision or split up of shares or similar transaction with respect to any class of the Common Stock without effecting an equivalent transaction with respect to all other classes of Common Stock. 7. Notice of Record Date. In case of (a) any taking by the Company of a record of the holders of any class of its securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, or (b) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any transfer of all or substantially all the assets of the Company to or consolidation or merger of the Company with or any voluntary or involuntary dissolution, liquidation or winding up of the Company, or (c) events shall have occurred resulting in the voluntary or involuntary dissolution, liquidation or winding up of the Company then and in each such event the Company will mail or cause to be mailed to each holder of a Warrant a notice specifying (i) the date on which any record is to be taken for the purpose of any such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable on such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding up, and (iii) the amount and character of any stock or other securities, or rights or options with respect thereto, proposed to be issued or granted, the date of such proposed issue or grant and the persons or class of persons to whom such proposed issue or grant is to be offered or made. Such notice shall be mailed at least thirty (30) days prior to the date specified in such notice on which any such action is to be taken. 8 8. Exchange of Warrants. On surrender for exchange of any Warrant, properly endorsed, to the Company, the Company, at its expense, will issue and deliver to or on the order of the holder thereof a new Warrant or Warrants of like tenor, in the name of such holder or as such holder (on payment by such holder or any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant or Warrants so surrendered. 9. Replacement of Warrants. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of any Warrant and, in the case of any such loss, theft or destruction of any Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of such Warrant, the Company, at its expense, will execute and deliver, in lieu thereof, a new Warrant of like tenor. 10. Warrant Agent. The Company may, by written notice to each holder of a Warrant, appoint an agent having an office in New York, New York, for the purpose of issuing shares of Common Stock on the exercise of the Warrants pursuant to Section 1, exchanging Warrants pursuant to Section 7, and replacing Warrants pursuant to Section 8, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such agent. 11. Remedies. The Company stipulates that the remedies at law of the holder of this Warrant in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate, and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. 12. Negotiability, Etc. This Warrant is issued upon the following terms, to all of which each Warrantholder or owner hereof by the taking hereof consents and agrees: (a) (a)subject to the terms of Section 2 of this Warrant, title to this Warrant may be transferred by endorsement (by the Warrantholder hereof executing the form of assignment at the end hereof) and delivery in the same manner as in the case of a negotiable instrument transferable by endorsement and delivery; (b) (b)any person in possession of this Warrant properly endorsed is authorized to represent himself as absolute owner hereof and is empowered to transfer absolute title hereto by endorsement and delivery hereof to a bona fide purchaser hereof for value; each prior taker or owner waives and renounces all of his equities or rights in this Warrant in favor of each such 9 bona fide purchaser, and each such bona fide purchaser shall acquire absolute title hereto and to all rights represented hereby; and (c) (c)until this Warrant is transferred on the books of the Company, the Company may treat the register Warrantholder hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. 13. Notices. All notices and other communications from the Company to the registered Warrantholder of this Warrant shall be given in writing (unless otherwise specified herein) and shall be effective upon personal delivery, via facsimile (upon receipt of confirmation of error-free transmission) or two business days following deposit of such notice with an internationally recognized courier service, with postage prepaid and addressed, to such address as may have been furnished to the Company in writing by such registered Warrantholder or, until any such registered Warrantholder furnishes to the Company an address, then to, and at the address of, the last registered Warrantholder of this Warrant who has so furnished an address to the Company. 14. Miscellaneous. (a) (a)The terms of this Warrant shall be binding upon and shall inure to the benefit of any successors or assigns of the Company and of the holder or holders hereof and of the shares of Common Stock issued or issuable upon the exercise hereof. (b) Except as otherwise set forth herein, no holder of this Warrant, as such, shall be entitled to vote or receive dividends or be deemed to be a stockholder of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the holder of this Warrant, as such, any rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action, receive notice of meetings, receive dividends or subscription rights, or otherwise. (c) Receipt of this Warrant by the holder hereof shall constitute acceptance of an agreement to the foregoing terms and conditions. (d) The Warrant and the performance of the parties hereunder shall be construed and interpreted in accordance with the laws of the State of Delaware and the parties hereunder consent and agree that the State and Federal Courts which sit in Palm Beach County, Florida shall have exclusive jurisdiction with respect to all controversies and disputes arising hereunder. (e) This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized officer and its corporate seal to be affixed hereto. Dated: March 27, 2000 10 AHT CORPORATION BY: /s/ Jonathan Edelson ` ________________________ Name: Jonathan Edelson Title: Chairman and Chief Executive Officer 11 SUBSCRIPTION FORM (TO BE EXECUTED BY THE REGISTERED HOLDER IF HE DESIRES TO EXERCISE THE WARRANT) To:AHT CORPORATION The undersigned hereby exercises the right to purchase _________ shares of Common Stock, par value $.01 per share, covered by the attached Warrant in accordance with the terms and conditions thereof, and herewith makes payment of the Warrant Price for such shares in full. The undersigned requests that a certificate for such shares of Common Stock be registered in the name of _____________, whose address is ___________________________________________, and that such Certificate be delivered to ____________ whose address is ____________________________. _______________________________ NAME (please print) _______________________________ SIGNATURE (Signature must conform in all respects to the name of the registered Warrantholder, as specified on the face of the Warrant.) _______________________________ SOCIAL SECURITY NUMBER (or Other Identifying Number of Holder) _______________________________ ADDRESS DATED: ___________________ 12 NOTICE OF EXERCISE OF COMMON STOCK WARRANT PURSUANT TO NET ISSUE ("CASHLESS") EXERCISE PROVISIONS (TO BE EXECUTED BY THE REGISTERED WARRANTHOLDER IN ADDITION TO THE SUBSCRIPTION FORM, IF HE DESIRES TO EXERCISE THE WARRANT IN A CASHLESS EXERCISE)
AHT Corporation Aggregate Price of Warrant $_______ 555 White Plains Rd Tarrytown, NY 10591 Attn: John Edelson Aggregate Price Being Exercised: $_______ Warrant Price (per share): $_______ Number of Shares of Common Stock to be Issued Under this Notice: _______
13 CASHLESS EXERCISE Gentlemen: The undersigned, registered holder of the Warrant to Purchase Common Stock delivered herewith ("Warrant") hereby irrevocably exercises such Warrant for, and purchases thereunder, shares of the Common Stock of AHT CORPORATION, a Delaware corporation, as provided below. Capitalized terms used herein, unless otherwise defined herein, shall have the meanings given in the Warrant. The portion of the Aggregate Price (as hereinafter defined) to be applied toward the purchase of Common Stock pursuant to this Notice of Exercise is $________, thereby leaving a remainder Aggregate Price (if any) equal to $________. Such exercise shall be pursuant to the net issue exercise provisions of Section I. (b) of the Warrant; therefore, the holder makes no payment with this Notice of Exercise. The number of shares to be issued pursuant to this exercise shall be determined by reference to the formula in Section I.(b)of the Warrant which requires the use of the Market Value (as defined in Section I.(d) of the Warrant) of the Company's Common Stock in accordance with the provisions thereof. To the extent the foregoing exercise is for less than the full Aggregate Price of the Warrant, the remainder of the Warrant representing a number of Shares equal to the quotient obtained by dividing the remainder of the Aggregate Price by the Warrant Price (and otherwise of like form, tenor and effect) may be exercised under Section I.(a) of the Warrant. For purposes of this Notice the term "Aggregate Price" means the product obtained by multiplying the number of shares of Common Stock for which the Warrant is exercisable times the Warrant Price. _______________________________ SIGNATURE _______________________________ DATE:_______ ADDRESS 14 ASSIGNMENT (TO BE EXECUTED BY THE REGISTERED WARRANTHOLDER IF HE DESIRES TO TRANSFER THE WARRANT) FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto _________________________________ (please print name and address of transferee) the right to purchase shares of Common Stock of AHT CORPORATION, evidenced by the within Warrant, and does hereby irrevocably constitute and appoint __________________________ Attorney to transfer the said Warrant on the books of the Company, with full power of substitution. _______________________________ NAME (please print) _______________________________ SIGNATURE (Signature must conform in all respects to the name of the registered Warrantholder, as specified on the face of the Warrant.) _______________________________ SOCIAL SECURITY NUMBER (or Other Identifying Number of Holder) IN THE PRESENCE OF: __________________ EX-23.2 7 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.0 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K, into the Company's previously filed Registration Statement File No. 333-83671. ARTHUR ANDERSEN LLP New York, New York April 13, 2000 EX-27 8 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1999 DEC-31-1999 2,528 0 312 50 0 3,501 4,367 2,312 13,890 2,822 0 0 0 110 10,454 13,890 1,086 1,086 1,261 1,261 13,621 0 (793) (23,342) 36 (23,378) 2,574 0 0 (20,804) (1.95) (1.95)
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