AGREEMENT REGARDING COLLECTION OF ACCOUNTS RECEIVABLE AND SERVICING OF
CUSTOMERS AS RELATED TO DEFERRED REVENUES
AGREEMENT REGARDING COLLECTION OF ACCOUNTS REEIVABLE AND SERVICING OF
CUSTOMERS AS RELATED TO DEFERRED REVENUES DATED AS OF June 17, 1996, among
Continental Healthcare Systems, Inc., a Delaware corporation, ("Continental")
and Digimedics Corp., a California corporation (Digimedics").
RECITALS
WHEREAS, Continental and Digimedics are parties to a certain Asset
Purchase Agreement dated June 17, 1996 providing for, among other things, the
purchase by Digimedics from Continental of certain assets related to
Continental's business of developing, selling and supporting computer software
systems and providing management information systems, for hospital pharmacies in
the United States and other countries (the "Business"); and
WHEREAS, while Digimedics is purchasing some accounts receivable of the
Business, Digimedics is not purchasing, and Continental is retaining, other
accounts receivable of the Business;
WHEREAS, relating to the accounts receivable retained by Continental,
additional work needs to be done;
WHEREAS, Continental wishes to contract with Digimedics to perform this
additional work relating to and to assist Continental in collecting the accounts
receivable that Continental is retaining, and Digimedics is willing to do so on
the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and other good and sufficient consideration paid, the parties
hereby agree as follows:
1. Collection of Accounts Receivable.
a. In General. Continental is contracting with Digimedics as
provided in this agreement to assist with the collection of the
Receivables (defined below) and in consideration therefor Continental
will pay to Digimedics thirty percent (30%) of the amount of
Receivables actually collected.
b. Amount and Identification of Receivables. As of the date
hereof, certain receivables will be transferred and become the property
of Digimedics while the remaining receivables remain the property of
Continental. These remaining receivables, totaling Five Million One
Hundred Eighty Five Thousand Eight Hundred Nineteen Dollars
($5,185,819), remain the property of Continental and will be referred
to in this agreement as the "Receivables;" any one of the Receivables
will be referred to a "Receivable." A list of all of the Receivables is
set forth on Schedule A attached hereto.
c. Level and Extent of Effort.
i. Commercially Reasonable Efforts. Digimedics will
assume the primary responsibility for collecting the
Receivables and will use commercially reasonable efforts to
make such collections. During the period when Digimedics is
responsible for collecting the Receivables, Continental will
not make any efforts whatsoever to also collect the
Receivables that have not yet been billed to the customer by
Continental. Commercially reasonable efforts means that
Digimedics will contact the customers owing the Receivables
and attempt to collect the Receivables due from that customer
but does not mean that Digimedics is required to lose money in
this process, that is, to use a level of effort to collect
from a customer which costs (on a fully allocated basis
including a profit margin) more than the thirty percent (30%)
of the receivables owned by that customer. In no event will
Digimedics be required to [A] engage a collection agency, or
[B] to commence litigation against any account debtor, or [C]
attempt to enforce against a customer an existing contractual
obligation, such as to purchase a module, where after entering
the contract the customer has decided not to make such
purchase, in order to collect Receivables. However, should
Digimedics deem it advisable to engage a third party to
collect all or part of the Receivables and provided
Continental agrees in writing to do so, the costs of the third
party will be deducted from the Receivables and the remainder
will be allocated seventy percent (70%) to Continental and
thirty percent (30%) to Digimedics. The limitation on the
amount to be spent by Digimedics on collection provided in
this paragraph is independent of and not a limitation on
Digimedics' costs to perform the work for customers referred
to in paragraph 2 below.
ii. Uncollectible Receivables. The parties recognize
that it may be difficult to collect certain of the
Receivables. At any time, Digimedics may indicate in writing
to Continental that it is not able to collect a Receivable for
which customer work has been completed at which point
Digimedics will be relieved from any obligation to collect
such Receivable, which obligation will fall to Continental. In
any event, should Digimedics not be able to collect a
Receivable within twelve (12) months after Digimedics has
completed the work Continental is contracting with Digimedics
to do under paragraph 2 below, then Continental may by written
notice require that Digimedics cease its efforts and be
relieved from any obligation to collect such Receivable, which
obligation will fall to Continental. In the event the
obligation to collect a Receivable falls on Continental, then
whatever amount Continental collects shall be for the sole
benefit of Continental.
d. Mechanism for Payment of Receivables to Continental and of
Collection Fee to Digimedics.
i. Continental, Digimedics and Lock Box Procedure.
With respect to the Receivables that have been invoiced by
Continental prior to the date of this Agreement, it is
anticipated that the customer will pay the amount to
Continental as indicated on the invoice and Continental will
pay thirty percent (30%) of such funds to Digimedics on
receipt by Continental. Regarding the Receivables not so
billed by Continental prior to the date hereof, Digimedics
will instruct and use its best reasonable efforts to have
customers pay amounts related to Receivables directly into a
lock box or account (the "Lock Box") at a Bank (the "Bank")
pursuant to a lock box agreement attached hereto as Exhibit 1
(the "Lock Box Agreement"). Among other things, the Lock Box
Agreement provides that as promptly as practicable, depending
upon the Bank's standard practices, to the extent Receivables
are collected, 91) the Bank will provide to both Continental
and Digimedics a list of the deposits made into the Lock Box
during the prior period, identifying the name of the depositor
and the amount deposited and 92) the Bank will pay seventy
percent (70%) of such funds to Continental and thirty percent
(30%) of such funds to Digimedics.
ii. "True-Up" Mechanism. It is recognized that
despite the intentions and efforts of the parties otherwise,
customers may pay (1) Receivables directly to Digimedics, (2)
amounts that are not Receivables ("Non-Receivables") to the
Lock Box, or (3) Receivables plus Non-Receivables into the
Lock Box or directly to Digimedics. If Receivable are paid to
Digimedics, promptly after discovery Digimedics will pay those
Receivables into the Lock Box. If Non-Receivables are paid
into the Lock Box, promptly after discovery Continental will
pay to Digimedics seventy percent (70%) of the Non-Receivables
paid into the , representing the total of the Non-Receivables
Continental has received via operation of the Lock Box
Agreement. If an amount composed of both Receivables and
Non-Receivables is paid to Digimedics, then promptly after
discovery Digimedics will pay the Receivables portion into the
Lock Box. If a an amount composed of both Receivables an
Non-Receivables is paid to the Lock Box, then promptly after
discovery Continental will pay to Digimedics seventy percent
(70%) of the Non-Receivables portion paid into the Lock box,
representing the total of the Non-Receivables portion
Continental has received via operation of the Lock Box
Agreement.
e. Procedures for Avoidance of Confusion and Allocation of
Payments by Customers. Notwithstanding the foregoing, the party's
acknowledge that there may be confusion regarding payments from
customers which are intended to be applied to the Receivables and
payments from customers which are intended to be applied to new
receivables for work or services provided by Digimedics (other than
work referred to in paragraph 2 below) arising after Digimedics assumes
the conduct of the Business. To avoid such confusion, all payments
which are clearly identified (either by reference to an invoice number,
by exactly matching the amount of a specific invoice, or otherwise) as
payments for maintenance or service charges for the period starting on
the date of the closing of Digimedics' acquisition of the Business
shall be paid to and retained in its entirety by Digimedics. All
payments representing maintenance or support charges for the period
starting on the Closing Date shall be paid to and retained 100"% by
Digimedics. All payments which are identified by the customer hospital
as relating to a particular invoice shall be allocated to that invoice.
All payments which are identical in amount to an invoice shall be
allocated to such invoice. All items designated as maintenance or
relating to the amount of periodic maintenance will be allocated to
maintenance. In the event that the dollar amount of the payment
received is identical to one or more maintenance invoices the payment
will be allocated first to the oldest unpaid maintenance invoice which
is no more than 6 months overdue and after all maintenance 6 months or
less overdue are paid, then to the oldest maintenance invoice remaining
unpaid. In the event that payment is received which are not allocated
by the customer And which do not match the dollar amount of an
outstanding unpaid invoice, such payment will be applied to the oldest
outstanding invoice provided such invoice is not more than 6 months
overdue and further provided however, if all invoices are current
(including maintenance invoices), additional funds received from the
customer hospital will be allocated to the oldest unpaid invoice
regardless o whether or not more 6 months overdue. Doe purposes of this
Agreement the phrase "6 months overdue" shall refer to an invoice which
as not been paid for a period of 6 months after the due date for the
payment of such invoice established in accordance with Digimedics'
billing practices. Any invoice on which Digimedics charges interest
shall be considered due on the date that such interest charges
commence.
f. Procedures Regarding Certain Receivables. Regarding
Receivables from those agreements Continental has entered with
customers on or after January 1, 1996, Digimedics agrees that, until
June 17, 1997, should all or part of a Digimedics pharmacy system
substitute for the Pharmakon system then being used by the customer in
accordance with that agreement, such substitution will not reduce the
amount of the Receivable payable by the customer under that agreement
and the amounts paid by the customer for the Digimedics substitute
shall be deemed to be payment of the Receivable by the customer for
purposes of this Agreement, provided, however, that in no event will
the Receivable due from or paid by a customer exceed the amount set
forth for each customer on Schedule A hereto.
2. Performance of Additional Services Related to Deferred Revenues.
a. Assumption of Obligation to perform Work. As of the date of
this Agreement, substantial additional services must be performed by
the customers identified on Schedule B hereto, such as installation of
systems, customizing systems, training of customer personnel in the use
of the system and certain additional hardware (approximately $10,000 to
$20,000 at cost, in addition to hardware in inventory) must be provided
to the customers before the Receivables related to such services and
hardware can be billed and/or collected, which amount of work is
quantified on Continental's financial statements as of April 30, 1996
and identified by the term "Deferred Revenues." Deferred Revenues as of
the date of this Agreement equal $1,236,987 (one Million Two Hundred
Thirty Six Thousand Nine Hundred Eighty Seven Dollars). The performance
of such work is a condition to payment by those customers of certain of
the Receivables. Digimedics will agree to perform these services and
provide such hardware on behalf of Continental in exchange for the
payment to Digimedics of the Deferred Revenues. Digimedics agrees to
use commercially reasonable efforts to perform the services required in
connection with the Deferred Revenue in a reasonably prompt,
workmanlike and efficient manner. Schedule D sets forth Continental's
good faith estimate of the hours required as of the date set forth on
that schedule, based on Continental's current business practices, to
complete the services necessary to fulfill the requirements to xxxx the
Receivables in accordance with the underlying contracts.
b. Mechanism for Payment of Deferred Revenues. The
abovementioned 41,236,987 (One Million Two Hundred Thirty Six Thousand
Nine Hundred Eighty Seven Dollars) will be paid by Continental to
Digimedics simultaneous with the full payment of the Note 9as such term
is defined in the Asset Purchase Agreement of even date among the
parties and Information Handling Services Group, Inc. Such payment may
be made either (a) at the discre6tion of either party, after written
notice to the other, by offsetting the amount due on the Note, or (b)
by wire transfer to the account designated by Digimedics on Schedule C
hereto.
c. Each party will provide to the other with all records and
information that the other may reasonably request concerning the
collection of the Receivables and Digimedics will provide to
Continental with all records and information that Continental may
reasonably request concerning the status of the additional work to be
performed by Digimedics in accordance with paragraph 2 of this
Agreement. Each party will provide the other with reasonable access to
such records and information so that the parties can review same and
monitor progress. It is anticipated that the parties will meet on a
periodic basis so that each party will be informed by the other with
respect to the Receivables.
d. Certain Matters Related to Certain Contracts.
i. Xxxxx Xxxx and Fairview. Continental's contract
with the Xxxxx Xxxx Hospital potentially requires work to be
done concerning an MT Device. Continental's contract with the
Fairview Hospital potentially requires work to be done
concerning a clinical evaluation manage ("XXXX"). Should
either of these hospitals require that such work be done, any
and all obligations related to the work, including, without
limitation, refunding money, performing the work or defending
a litigation on the matter will be the sole responsibility of
Continental and Continental will indemnify and hold Digimedics
harmless from any and all claims and/or litigation and related
expense (including, without limitations, reasonable attorneys'
fees and disbursements and other obligation and settlement
costs, regardless of the outcome) arising out of or concerning
work to be done for the Xxxxx Xxxx Hospital on the MT Device
or for Fairview Hospital on the XXXX.
ii. Pittsburgh. Continental's contract with the
University of Pittsburgh Medical Center ("Pittsburgh")
potentially requires joint development work to be done
concerning an Electronic MAR. Should Pittsburgh require that
work be done and Digimedics, after unsuccessfully attempting
to dissuade Pittsburgh from requiring the work be done, does
not wish to do the development work, any and al obligations
related to the work, including, without limitation, refunding
money, performing the work or defending a litigation on the
matter will be the sole responsibility of Continental and
Continental will indemnify and hold Digimedics harmless from
any and all claims and/or litigation and related expense
(including, without limitations, reasonable attorneys' fees
and disbursements and other obligation and settlement costs,
regardless of the outcome) arising out of or concerning work
for Pittsburgh to be done on the Electronic MAR.
iii. Indemnity Process. With regard to subparagraphs
i. and ii. Immediately above, as the indemnitor, Continental
may control the defense of any action or claim at its expense
and through counsel of its choice and may resolve or settle
the matter (requiring Digimedics agreement to do so only if
Digimedics is adversely affected by such resolution) and
Digimedics shall cooperate at Continental's expense as
reasonably required.
3. Representations and Warranties. Continental hereby represents and
warrants to Digimedics as follows:
a. Receivables. Schedule A hereto sets forth a true and
complete list of all of the Receivables. All of the Receivables which
have been billed as of the date of this Agreement arose from the sale
of inventory or services to persons, corporations, partnerships or
other entities not affiliated with Continental and in the ordinary
course of business consistent with past practice.
b. Deferred Revenue. The work to be performed in connection
with the Deferred Revenue arose under valid and existing contracts
which are binding on the respective parties thereto an are in full
force and effect.
4. Miscellaneous.
a. Expenses. Except as otherwise specified in this Agreement,
all costs and expenses, including, without limitation, fees and
disbursements of counsel, financial advisors and accountants, incurred
in connection with this Agreement and the transactions contemplated
hereby shall be paid by the part incurring such costs and expenses.
b. Notices. All notices, requests, waivers, claims, demands
and other communications which are required or permitted hereunder
shall be in writing and shall be given or made (and shall be deemed to
have been duly given or made upon receipt) by delivery in person, by
courier service for which a written receipt is given, by cable, by
telecopy (providing evidence of receipt), by telegram, by telex or by
registered or certified mail (postage prepaid, return receipt
requested) to the respective parties at the following addresses (or at
such other address for a party as shall be specified in a notice given
in accordance with this Section 5.02):
i. if to Continental:
Continental Healthcare Systems, Inc.
C/o Information Handling Services Group,Inc.
00 Xxxxxxxxx Xxx Xxxx
Xxxxxxxxx, Xxxxxxxx 00000
Telecopy No.: (000) 000-0000
Attention: President
with a copy to:
TBG Services, Inc.
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Telecopy No.: (000) 000-0000
Attention: Xxxxxxx Xxxxx, Esq.
ii. if to Digimedics:
Digimedics Corp.
0000 Xxxxx Xxxxx Xxxx
Xxxxxx Xxxxxx, XX 00000
Telecopy No.: (000) 000-0000
Attention: Xxx Xxxx
with a copy to:
Mediware Information Systems, Inc.
0000 Xxx Xxxx Xxxxxxx Xxxx
Xxxxxxxx, Xxx Xxxx 00000-0000
Telecopy No.: (000) 000-0000
Attention: President
Hackmyer & Nordlicht
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telecopy No.: (000) 000-0000
Attention: Xxx X. Xxxxxxxxx, Esq.
Winthrop, Stimson, Xxxxxx & Xxxxxxx
Xxx Xxxxxxx Xxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telecopy No.: (000) 000-0000
Attention: Xxxxxxxx X. Xxxxxxxxx, Esq.
All such notices shall be deemed to have been given on the date
personally delivered, upon possession of a receipt establishing that a facsimile
transmission was received or five days after mailed in the manner provided
above. Any party may change its address for delivery of notice by providing
written notice to the other parties in the manner discussed above.
c. Public Announcements. No party to this Agreement shall
make, or cause to be made, any press release or public announcement in
respect of this Agreement or the transactions contemplated hereby or
other wise communicate with any news media without prior consultation
with the other party except as required by applicable law. The parties
shall cooperate as to the timing and contents of any such press release
or public announcement.
d. Headings. The descriptive headings contained in this
Agreement are for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
e. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any Law
or public policy, all other terms and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated hereby is
not affected in any manner materially adverse to any party. Upon such
determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good
faith to modify this Agreement so as to effect the original intent of
the parties as closely as possible in an acceptable manner in order
that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
f. Entire Agreement. This Agreement and the Asset Purchase
Agreement and other agreements referred to therein constitute the
entire agreement of the parties hereto with respect to the subject
matter hereof and supersede all prior agreements and undertakings, both
written and oral, among Continental and Digimedics with respect to the
subject matter hereof.
g. Assignment. This Agreement may not be assigned by operation
of law or otherwise without the express written consent of Continental
and Digimedics (which consent may be granted or withheld in the sole
discretion of Continental and Digimedics); provided, however, that
Digimedics may assign this Agreement to an Affiliate of Digimedics or
to any entity of which it is a controlling stockholder without the
consent of Continental, in which case, such assignee shall thereafter
become obligated to all of the obligations herein set forth to be
performed by Digimedics, but Digimedics shall remain liable for its
obligations under this Agreement.
h. No Third Party Beneficiaries. This Agreement shall be
binding upon and inure solely to the benefit of the parties hereto and
their permitted assignees and nothing herein, express or implied, is
intended to or shall confer upon any other person, corporation,
partnership or other entity, any legal or equitable right, benefit or
remedy of any nature whatsoever.
i. Amendment; Waiver. This Agreement may not be amended or
modified except by an instrument in writing signed by, or on behalf of,
Continental and Digimedics. Any such extension or waiver shall be valid
only if set forth in an instrument in writing signed by the party to be
bound thereby. No provision of this Agreement may be waived unless in
writing signed by the party to be charged therewith. Any waiver of any
term or condition shall not be construed as a waiver of any subsequent
breach or a subsequent waiver of the same term or condition, or a
waiver of any other term or condition, of this Agreement. The failure
of any party to assert any of its rights hereunder shall not constitute
a waiver of any of such rights.
j. Governing Law; Consent to Jurisdiction. This Agreement
shall be governed by, and construed in accordance with, the laws of the
State of New York applicable to contracts executed in and to be
performed entirely within that state. All actions and proceedings
arising out of or relating to this Agreement shall only be heard and
determined in any New York state or federal court sitting in the City
of New York. Any process or notice of motion or other application to
any of such courts may be served within or without such court's
jurisdiction by registered mail or by personal service, provided a
reasonable time for appearance is allows. With respect to such courts,
Digimedics and Continental hereby expressly waive any defense based on
doctrines of venue or forum non conveniens or similar rules or
doctrines.
k. Dispute Resolution.
i. In the event of any controversy, claim or dispute,
the party initiating the controversy, claim or dispute shall
provide to the other party a written notice containing a brief
and concise statement of the matter, together with relevant
supporting facts. During a period of thirty (30) days or such
longer period as mutually agreed, the parties shall attempt to
settle the matter by good faith negotiation. Such efforts
shall include, but not be limited to, full presentation by
each party of its claims, with or without counsel, to the
Presidents of Mediware information Systems, Inc. and of
Information Handling Services Group, Inc., which are the
parent companies of the parties.
ii. If efforts under Subsection 5.k.i. are not
successful, such dispute will be settled by binding
arbitration in New York, New York, under the Commercial Rules
of the American Arbitration Association then in effect (except
as otherwise set forth in the Agreement). The failure to
comply with Subsection 5.k.i. with respect to such dispute
shall be an absolute bar to the institution of arbitration
proceedings with respect thereto. The arbitration shall be
conducted in the English language before a panel of three
arbitrators, one of whom is selected by Continental, one of
whom is selected by Digimedics, and one of whom is selected by
Continental and Digimedics jointly (or by the other two
arbitrators, if the parties cannot agree). The parties will
cooperate with each other in causing the arbitration to be
held in as efficient and expeditious a manner as practicable.
If either party fails to appoint an arbitrator in thirty days,
the other party may request that the American Arbitration
Association may be such appointment. The arbitrators will be
required to render a full and complete written report of their
decision. The decision of a majority of the arbitrators will
constitute the arbitrators' decision. Any award rendered by
the arbitrators shall be binding upon the parties hereto and
shall be final, subject to review by a court of competent
jurisdiction under the statutory standard of review applicable
to arbitration. Judgment on the award may be entered in any
court of record having competent jurisdiction. Each party
shall pay its own expenses or arbitration and the expenses o
the arbitrators shall be equally shared except that if, in the
opinion of the arbitrators, any claim or position by a party
hereto, or any defense or objection thereto by another party
was unreasonable or frivolous, the arbitrators may in their
discretion assess as part of their award all or any art of the
arbitration expenses of the other party or parties (including
reasonable attorneys' fees) and expenses of the arbitrator
against such party. Nothing herein shall prevent the parties
from settling any dispute by mutual agreement at any time. The
law of the State of New York shall govern the validity, scope
and effect of this Subsection 5.k.
l. Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an
original but all of which taken together shall constitute one and the
same agreement.
m. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this
Agreement was not performed in accordance with the terms hereof and
that the parties shall be entitled to specific performance of the terms
hereof, in addition to any other remedy at law or equity without the
necessity of demonstration the inadequacy of monetary damages.
n. Receipt of Money or Other Assets. If any money or other
assets are received by Continental or Digimedics to which the other
party is entitled pursuant to this Agreement, such party shall hold
such money or assets in trust and shall promptly notify and account
therefore to the other within fifteen (15) days of receipt.
o. Exhibits and Schedules. The Schedules to this Agreement
shall be construed with and as an integral part of this Agreement to
the same extent as if the same had been set forth verbatim herein.
IN WITNESS WHEREOF, Continental and Digimedics have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
CONTINENTAL HEALTHCARE SYSTEMS, INC.
By:_______________________________________
Name:_____________________________________
Title:______________________________________
DIGIMEDICS CORP.
By:_______________________________________
Name:_____________________________________
Title:______________________________________
