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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K/A AMENDMENT NO. 2
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-27502.
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HEALTH SYSTEMS DESIGN CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 94-3235734
(State or other Jurisdiction (I.R.S. Employer
of
Incorporation or Identification
Organization) Number)
</TABLE>
1330 BROADWAY, OAKLAND, CALIFORNIA 94612
(Address of principal executive offices) (Zip code)
(510) 763-2629
(Registrant's telephone number, including area code)
------------------------
Securities registered pursuant to Section 12(b) of the Act:
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<S> <C>
Title of each Class Name of each exchange on which registered
NONE NONE
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK
(Title of Class)
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. [ ]
As of November 30, 1998, 6,673,307 shares of the registrant's common stock
were outstanding. The aggregate market value of the common stock held by
non-affiliates of the registrant on that date was approximately $13,566,600.
Documents incorporated by reference: NONE.
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HEALTH SYSTEMS DESIGN CORPORATION
PART III
Item 10 of the Annual Report filed pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934 for the fiscal year ended September 30, 1998
is hereby amended in full as follows:
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
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Russell J. Harrison........ 53 President and Chief Executive Officer of the Company 1997
since August 1997. Mr. Harrison was Vice President
and Chief Information Officer at Paris--based SITA
Globetel, Company S.C., a telecommunications
company, from March 1996 to August 1997. Mr.
Harrison served as Chairman of 3Net Systems, a
provider of client/server solutions to the
healthcare industry, from August 1993 to November
1995 and as President of 3Net Systems from August
1993 to September 1995. From September 1991 to
August 1993, Mr. Harrison served as Chief
Information Officer of McKesson Corporation, a
manufacturer of pharmaceutical products.
Richard C. Auger........... 55 Chairman of the Board of the Company since 1988. Mr. 1988
Auger is a co-founder of the Company and served as
Executive Director of Product Research of the
Company from August 1997 to July 1998, Chief
Executive Officer of the Company from August 1988 to
August 1997 and President of the Company from August
1988 to January 1996.
Catherine C. Roth.......... 48 Ms. Roth is a co-founder of the Company and served 1988
as Executive Director of Business Development of the
Company from August 1997 to July 1998, President of
the Company from January 1996 to August 1997 and
Chief Operating Officer of the Company from April
1994 to August 1997. From 1988 to January 1996, Ms.
Roth was the Company's Executive Vice President.
Christopher J. Herron...... 49 President of Electran Corporation, a software 1997
development company, since January 1998. Mr. Herron
served as Chief Executive Officer of Nexgen Asia
Pacific, a provider of Year 2000 correction
software, from May 1997 to December 1997. From 1995
to 1997, Mr. Herron was President and Chief
Executive Officer of Convoy Corporation, a provider
of data migration software and services. From 1987
to 1994, Mr. Herron was with Synon Corporation, a
provider of software development tools and services,
where he held several positions, including President
and Chief Executive Officer.
</TABLE>
2
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<S> <C> <C> <C>
J. Matthew Mackowski....... 44 Partner of Mackowski & Shepler, a private investment 1992
partnership located in San Francisco, since 1992.
Arthur M. Southam, M.D..... 42 Dr. Southam served as Chief Executive Officer of 1996
Health Net, a health maintenance organization, from
July 1996 to November 1998. From 1993 to July 1996,
Dr. Southam was President and Chief Executive
Officer of CareAmerica Health Plans and from 1986 to
1993 was employed at CareAmerica Health Plans in a
number of capacities, including Executive Vice
President and Chief Operating Officer.
</TABLE>
See also Item 1. above for a discussion of the Company's executive officers.
SECTION 16(A) INFORMATION
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than ten-percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that, during the period from
October 1, 1997 to September 30, 1998 all filing requirements applicable to its
officers, directors, and greater than ten-percent beneficial owners were
complied with, except that each of Robert D. Archibald and Lauryn L. Jones
failed to file a Form 3 reflecting such person's initial beneficial ownership.
Item 11 of the Annual Report filed pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934 for the fiscal year ended September 30, 1998
is hereby amended in full as follows:
COMPENSATION OF EXECUTIVE OFFICERS
The compensation paid to the Company's Chief Executive Officer and each of
the Company's other executive officers who received compensation in excess of
$100,000 for services in all capacities to the Company and its subsidiaries
during fiscal 1996, 1997 and 1998 (collectively, the "Named Executive
Officers"), is set forth below.
3
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SUMMARY COMPENSATION TABLE
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<CAPTION>
LONG TERM COMPENSATION AWARDS
ANNUAL COMPENSATION ------------------------------
--------------------------------------------------- RESTRICTED SECURITIES
OTHER ANNUAL STOCK AWARDS UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) ($) OPTIONS(#)
- ------------------------------------- --------- --------- ----------- ---------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
RUSSELL J. HARRISON.................. 1998 250,000 71,875 -- -- --
President and Chief Executive 1997 40,702 -- -- -- 350,000
Officer since August 1997
STEVEN L. MOORE...................... 1998 73,176 50,000 36,770(1) -- 60,000
Executive Vice President-- Chief
Financial Officer since April 1998
ROBERT D. ARCHIBALD.................. 1998 106,371 50,000 249,100(2) -- 75,000
Executive Vice President--
Operations since April 1998
LAURYN L. JONES...................... 1998 132,378 37,500 4,433 -- 66,000
Executive Vice President-- Sales
and Marketing since December 1997
<CAPTION>
ALL OTHER
COMPENSA-
NAME AND PRINCIPAL POSITION TION($)
- ------------------------------------- ---------------
<S> <C>
RUSSELL J. HARRISON.................. --
President and Chief Executive --
Officer since August 1997
STEVEN L. MOORE...................... --
Executive Vice President-- Chief
Financial Officer since April 1998
ROBERT D. ARCHIBALD.................. --
Executive Vice President--
Operations since April 1998
LAURYN L. JONES...................... --
Executive Vice President-- Sales
and Marketing since December 1997
</TABLE>
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(1) Represents amount paid to Mr. Moore in fiscal 1998 for consulting services
prior to his joining the Company in April 1998.
(2) Represents amount paid to Alta Associates in fiscal 1998 for consulting
services. See "Transactions with the Company" under item 13. below.
The following table sets forth certain information regarding stock options
granted during fiscal 1998 to the Named Executive Officers. None of the Named
Executive Officers received awards of stock appreciation rights during fiscal
1998.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------- VALUE AT ASSUMED ANNUAL
NUMBER OF RATES OF STOCK PRICE
SECURITIES PERCENT OF TOTAL APPRECIATION FOR OPTION
UNDERLYING OPTIONS GRANTED TO EXERCISE OR TERM(3)
OPTIONS EMPLOYEES IN FISCAL BASE PRICE EXPIRATION ------------------------
NAME GRANTED(#)(1) YEAR ($/SH)(2) DATE 5%($) 10%($)
- ------------------------------------ ------------- --------------------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Russell J. Harrison................. -- -- -- -- -- --
Steven L. Moore..................... 60,000 9% $ 7.656 5/5/2008 $ 748,249 $ 1,191,462
Robert D. Archibald................. 75,000 12% $ 7.656 5/5/2008 $ 935,311 $ 1,489,327
Lauryn L. Jones..................... 66,000 10% $ 7.375 2/9/2008 $ 792,864 $ 1,262,504
</TABLE>
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(1) All options granted in fiscal 1998 are subject to a five-year vesting
schedule commencing August 1998. Under the terms of the Company's 1996
Omnibus Equity Incentive Plan, the Compensation Committee retains
discretion, subject to plan limits, to modify the terms of outstanding
options.
(2) All options were granted at fair market value at date of grant.
4
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(3) Realizable values are reported net of the option exercise price. The dollar
amounts under these columns are the result of calculations at the 5% and 10%
rates (determined from the price at the date of grant, not the stock's
current market value) set by the Securities and Exchange Commission and
therefore are not intended to forecast possible future appreciation, if any,
of the Company's stock price. Actual gains, if any, on stock option
exercises are dependent on the future performance of the common stock as
well as the optionholder's continued employment through the vesting period.
The potential realizable value calculation assumes that the optionholder
waits until the end of the option term to exercise the option.
The following table sets forth certain information with respect to stock
option exercises during fiscal 1998 and stock options held by each of the
Company's Named Executive Officers as of September 30, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FY-END(#) IN-THE-
SHARES ACQUIRED ON EXERCISABLE/ MONEY OPTIONS AT FY-END($)
NAME EXERCISE (#) VALUE REALIZED($) UNEXERCISABLE EXERCISABLE/ UNEXERCISABLE
- -------------------------------- ----------------------- --------------------- --------------------- ---------------------------
<S> <C> <C> <C> <C>
Russell J. Harrison............. -- -- 87,500/262,500 -0-/-0-
Steven L. Moore................. -- -- -0-/60,000 -0-/-0-
Robert D. Archibald............. -- -- -0-/75,000 -0-/-0-
Lauryn L. Jones................. -- -- -0-/66,000 -0-/-0-
</TABLE>
COMPENSATION OF DIRECTORS
Directors other than Mr. Mackowski who are not employees of the Company are
paid directors fees consisting of $5,000 per year and $1,000 for each Board
meeting attended. Directors who attend meetings of the Audit Committee or
Compensation Committee receive an additional $1,000 for each meeting not held on
the same day as a Board meeting. In addition, under the Nonemployee Director
Stock Option Plan, each nonemployee director other than Mr. Mackowski will be
granted at the Annual Meeting and at each subsequent annual meeting of
stockholders at which such nonemployee director is elected to the Board, an
option to purchase 5,000 shares of Common Stock at an exercise price equal to
the fair market value on the date of grant. Mr. Auger, who was Executive
Director of Product Research of the Company until July 1998, serves as Chairman
of the Board, and received a salary of $100,000 during fiscal 1998. Subsequent
to July 1998, Mr. Auger remained an employee of the Company and received $15,987
during fiscal 1998 for such services. Ms. Roth, who was Executive Director of
Business Development of the Company until July 1998, received a salary of
$126,229 during fiscal 1998. Subsequent to July 1998, Ms. Roth remained an
employee of the Company and received $30,424 for such services. Mr. Auger and
Ms. Roth receive a fee of $125 per hour as an employee of the Company and it is
expected that they will continue to provide services to the Company in fiscal
1999.
Item 12 of the Annual Report filed pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the fiscal year ended September 30, 1997 is
hereby amended in full as follows:
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table indicates, as to (i) each person who is known by the
Company to own beneficially more than 5% of the outstanding shares of Common
Stock, (ii) each director, (iii) each Named Executive Officer and (iv) all
directors and executive officers as a group, the number of shares and percentage
of the Company's stock beneficially owned as of December 31, 1998.
5
<PAGE>
SHARES BENEFICIALLY OWNED AS OF DECEMBER 31, 1998
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<CAPTION>
EXECUTIVE OFFICER OR DIRECTOR NUMBER OF COMMON SHARES PERCENT
- ----------------------------------------------------------------------------- ------------------------- -----------
<S> <C> <C>
Richard C. Auger(1).......................................................... 1,566,800 23%
Catherine C. Roth(1)......................................................... 1,187,600(2) 18%
J. Matthew Mackowski(1)...................................................... 1,426,900(3) 21%
The D3 Family Fund, L.P(4)
19605 N.E. 8th Street Camas, Washington 98607.............................. 388,000 5.9%
Russell J. Harrison.......................................................... 105,000(5) 1.5%
Christopher J. Herron........................................................ 5,000(6) *
Arthur M. Southam, M.D....................................................... 10,300(7) *
Steven L. Moore.............................................................. 500 *
Robert D. Archibald.......................................................... -0- --
Lauryn L. Jones.............................................................. 13,200(8) *
All directors and executive officers as a group (ten persons)................ 4,317,400(9) 63%
</TABLE>
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(*) Less than 1%.
(1) The address of Mr. Auger, Ms. Roth and Mr. Mackowski is 1330 Broadway, Suite
1200, Oakland, California 94612. Each of these persons may be deemed to be a
"control person" of the Company within the meaning of the rules and
regulations of the Securities and Exchange Commission by reason of his stock
ownership and positions with the Company.
(2) Includes 248,000 shares of Common Stock held by Ms. Roth's children.
(3) Includes 18,000 shares issuable upon exercise of outstanding stock options
exercisable within 60 days as of December 31, 1998.
(4) Based on Schedule 13D filed with the Company reflecting beneficial ownership
as of June 23, 1997.
(5) Includes 105,000 shares issuable upon exercise of outstanding stock options
exercisable within 60 days as of December 31, 1998.
(6) Includes 5,000 shares issuable upon exercise of outstanding stock options
exercisable within 60 days as of December 31, 1998.
(7) Includes 10,000 shares issuable upon exercise of outstanding stock options
exercisable within 60 days as of December 31, 1998.
(8) Includes 13,200 shares issuable upon exercise of outstanding stock options
exercisable within 60 days as of December 31, 1998.
(9) Includes 153,300 shares issuable upon exercise of outstanding stock options
exercisable within 60 days as of December 31, 1998.
Item 13 of the Annual Report filed pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the fiscal year ended September 30, 1997 is
hereby amended in full as follows:
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
EMPLOYMENT CONTRACTS
In 1998, the Company entered into an employment contract with Russell J.
Harrison, pursuant to which Mr. Harrison serves as Chief Executive Officer of
the Company.
6
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EMPLOYMENT AGREEMENT
In 1998, the Company entered into an employment agreement with Russell J.
Harrison, pursuant to which Mr. Harrison serves as President and Chief Executive
Officer of the Company. The agreement expires on July 31, 2000. Pursuant to the
agreement, Mr. Harrison receives a base salary of $250,000 per year and is
eligible to receive an annual cash bonus based upon achieving certain
performance goals. The potential bonus level shall not be less than $150,000. In
addition, pursuant to the agreement, Mr. Harrison was granted options to
purchase 350,000 shares of the Company's common stock. If Mr. Harrison
terminates the agreement and such termination is for good reason (as defined in
the agreement) the Company is required to pay him, in a lump sum, the equivalent
of his base salary for 18 months and any pro-rated bonus. If the Company
terminates Mr. Harrison without cause it is required to pay him the same amounts
as if he had terminated the agreement for good reason. In addition, under the
agreement if there is a change in control of the Company (as defined in the
agreement) and Mr. Harrison's employment is terminated, the Company is required
to pay him the same amounts as if he had terminated the agreement for good
reason and, additionally, all unvested outstanding stock options shall vest as
of the date of termination.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are: J. Matthew Mackowski, Arthur
Southam, M.D. and Christopher Herron. Mackowski & Shepler, a private investment
partnership of which Mr. Mackowski is a partner and 50% owner, provided
financial and strategic advisory services to the Company under an arrangement
which commenced in November 1994. Under this arrangement, Mackowski & Shepler
received payments totaling $75,055 in fiscal 1998 and will continue to receive
$7,500 per month until May 1999.
TRANSACTIONS WITH THE COMPANY
During fiscal 1998, the Company paid $249,100 to Alta Associates for
consulting services provided by Alta Associates. Robert D. Archibald, the
Company's Executive Vice President-Operations, is an officer and stockholder of
Alta Associates. The Company continues to use the services of Alta Associates
from time to time.
See "Compensation Committee Interlocks and Insider Participation" above and
"Compensation of Directors" in Item 12. above for certain transactions between
the Company and its officers and directors.
7
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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.
<TABLE>
<S> <C> <C>
HEALTH SYSTEMS DESIGN CORPORATION
By: /s/ RUSSEL J. HARRISON
-----------------------------------------
Russell J. Harrison,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Date: January 28, 1999
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE NAME & TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
President and Chief
/s/ RUSSELL J. HARRISON Executive Officer
- ------------------------------ (principal executive 1/28/99
Russell J. Harrison officer)
/s/ RICHARD C. AUGER
- ------------------------------ Chairman of the Board of 1/28/99
Richard C. Auger Directors
/s/ STEVEN J. CORREIA Vice President--Controller
- ------------------------------ (principal accounting 1/28/99
Steven J. Correia officer)
Executive Vice President--
/s/ STEVEN L. MOORE Chief Financial Officer
- ------------------------------ (principal financial 1/28/99
Steven L. Moore officer)
/s/ CATHERINE C. ROTH
- ------------------------------ Director 1/28/99
Catherine C. Roth
/s/ J. MATTHEW MACKOWSKI
- ------------------------------ Director 1/28/99
J. Matthew Mackowski
/s/ ARTHUR M. SOUTHAM M.D.
- ------------------------------ Director 1/28/99
Arthur M. Southam M.D.
/s/ CHRISTOPHER HERRON
- ------------------------------ Director 1/28/99
Christopher Herron
</TABLE>
II-1
