<PAGE>
As filed with the Securities and Exchange Commission on June 24, 1996
Registration No. 333-3618
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
AMENDMENT NO. 2 TO
FORM SB-2
REGISTRATION STATEMENT
Under
The Securities Act of 1933
_____________________
PHYSICIANS INFORMATION EXCHANGE, INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
TEXAS 7373 72-1315594
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
1401 HUDSON LANE, SUITE 202
MONROE, LOUISIANA 71201
(318) 323-5000
</TABLE>
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
_____________________
<TABLE>
<CAPTION>
COPIES OF COMMUNICATIONS TO:
<S> <C>
PHYSICIANS INFORMATION RONALD J. FRAPPIER, ESQ.
EXCHANGE, INC. JENKENS & GILCHRIST, A PROFESSIONAL CORPORATION
1401 HUDSON LANE, SUITE 202 1445 ROSS AVENUE, SUITE 3200
MONROE, LOUISIANA 71201 DALLAS, TEXAS 75202
(318) 323-5000 (214) 855-4743
</TABLE>
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
____________________
Approximate date of commencement of proposed sale to the public:
From time to time after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [_]
_______________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
__________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
PHYSICIANS INFORMATION EXCHANGE, INC.
Cross-Reference Sheet
<TABLE>
<CAPTION>
ITEM
NO. CAPTION LOCATION IN PROSPECTUS
- ---- ------- ----------------------
<S> <C> <C>
1. Front of Registration Statement and Outside
Front Cover Page of Prospectus................. Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages Inside Front Cover Page and Outside Back Cover
of Prospectus.................................. Page of Prospectus
3. Summary Information and Risk Factors............ Prospectus Summary; Risk Factors
4. Use of Proceeds................................. Use of Proceeds
5. Determination of Offering Price................. Risk Factors; Plan of Distribution
6. Dilution........................................ Dilution
7. Selling Security Holders........................ Not Applicable
8. Plan of Distribution............................ Plan of Distribution
9. Legal Proceedings............................... Business
10. Directors, Executive Officers, Promoters and
Control Persons................................ Management
11. Security Ownership of Certain Beneficial Security Ownership of Management and
Owners and Management.......................... Principal Shareholders
12. Description of Securities....................... Description of Capital Stock
13. Interest of Named Experts and Counsel........... Not Applicable
14. Disclosure of Commission Position on
Indemnification of Securities Act Liabilities.. Description of Capital Stock
15. Organization Within Last Five Years............. Business
16. Description of Business......................... Business
17. Management's Discussion and Analysis or
Plan of Operation.............................. Plan of Operation
18. Description of Property......................... Business
19. Certain Relationships and Related Transactions.. Certain Transactions
20. Market for Common Equity and Related Stockholder Market for Common Equity and
Matters........................................ Related Stockholder Matters
21. Executive Compensation.......................... Management
22. Financial Statements............................ Financial Statements
23. Changes In And Disagreements With Accountants on
Accounting and Financial Disclosure............ Not Applicable
</TABLE>
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 24, 1996.
PHYSICIANS INFORMATION EXCHANGE, INC.
15,000,000 SHARES OF CLASS A COMMON STOCK
2,094 UNITS OF CLASS B COMMON STOCK
(EACH UNIT REPRESENTING 9,550 SHARES OF CLASS B COMMON STOCK)
This Prospectus relates to 15,000,000 shares of Class A Common Stock, par
value $.001 per share, being offered at $1.00 per share, and 2,094 Units of
Class B Common Stock, $.001 par value per share, being offered at $9,550.00 per
Unit, each Unit representing 9,550 shares of Class B Common Stock, of Physicians
Information Exchange, Inc., a Texas corporation ("PIE" or the "Company"), that
may be offered and sold at any time or from time to time by the Company.
The Company has two classes of common stock outstanding, Class A and Class
B (collectively, the "Common Stock"). The rights of holders of Class A Common
Stock and Class B Common Stock are essentially identical, except that holders of
Class A Common Stock are entitled to one vote per share and holders of Class B
Common Stock are entitled to 10 votes per share. In addition, the Class B Common
Stock can be owned only by licensed medical doctors and, upon transfer to other
than a permitted transferee, shall be converted automatically into an equivalent
number of shares of Class A Common Stock. Each share of Class B Common Stock is
convertible at any time at the option of the holder into one share of Class A
Common Stock. See "Description of Capital Stock." Upon completion of this
offering, assuming that all of the securities offered hereby are sold, the
Chairman of the Board and President of the Company, by virtue of his holdings of
Class B Common Stock, will own beneficially shares of Class B Common Stock
having 75.1% of the total voting power of the Company.
Prior to the offering, there has been no public market for the Class A and
Class B Common Stock or the Units, and it is not anticipated that a public
market will develop. Such securities will not be listed on a stock exchange or
quoted by the Nasdaq Stock Market and should be purchased only by persons with
no need for liquidity in their investment and who are able to risk the entire
loss of their investment. See "Plan of Distribution" for factors considered in
determining the initial offering price.
FOR A DISCUSSION OF CERTAIN RISKS OF AN INVESTMENT IN THE SECURITIES
OFFERED HEREBY, SEE "RISK FACTORS," BEGINNING ON PAGE 6.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO BROKER COMMISSIONS PROCEEDS
PUBLIC AND EXPENSES (1) TO COMPANY (2)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share of
Class A Common Stock $ 1.00 $ $
Per Unit 9,550 $ $
Total Minimum $ 300,000 $ $
Total Maximum $34,997,700 $ $
- -----------------------------------------------------------------------------------------------------------------
(1) In the sole discretion of management, the Company may pay commissions of up to 10% of sales made, as allowed by applicable
law. The Company will not pay sales commissions on the first $300,000 of securities sold hereby. See "Plan of Distribution."
(2) Before deduction of expenses of this offering, estimated at $170,000.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company is effecting this offering of securities on a "best efforts"
basis through its officers and employees without the use of an underwriter.
However, the securities offered hereby may be sold to underwriters, to or
through dealers, acting as principals for their own account or acting as agents,
or directly to other purchasers by or on behalf of the Company. In the sole
determination of management, the Company may pay the persons making this
offering, excluding its officers and employees, commissions of up to 10% of
sales made, as allowed by applicable law. The Company may indemnify such
underwriters, dealers and agents against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See "Plan of
Distribution." Investor funds will be held in escrow until a minimum of $300,000
in securities of the Company are sold pursuant to this offering (the "Minimum
Offering"). In the event the Minimum Offering is not sold on or before
______________, 1998, the offering will be terminated and the escrowed funds,
plus any interest earned thereon, will be promptly returned to the investors.
Upon the sale of the Minimum Offering, the escrowed funds will be released to
the Company. Any subsequent sales with respect to this offering will continue to
be held in the subscription escrow, but will be immediately available for use by
the Company upon the Company's request. In the event the Minimum Offering is
sold, the offering will be terminated on the earlier of the sale of all
securities registered hereby, the second anniversary of the date of this
Prospectus or at the Company's discretion if the Company believes that
additional selling efforts will be unsuccessful.
THE DATE OF THIS PROSPECTUS IS JUNE , 1996.
<PAGE>
PHYSICIANS INFORMATION EXCHANGE, INC.
CLINICAL INFORMATION EVOLUTION
Clinical Records Information System
Integrated Healthcare Information & Research
Healthcare Information Exchange Network
<TABLE>
<CAPTION>
(CRIS) (Exchange) (Knowledge Bank)
---------------- --------------------- -----------------------
<S> <C> <C> <C>
Primary Capture of and Access to Transportation of clinical and Integration of clinical
Purpose clinical and cost information cost information inventions, outcomes and
cost data
Means/ Sophisticated physician interface Private Telecommunication Regional and national clinical
Vehicle and computer-based patient- repositories
record software
Capabilities Real time patient specific Peer to peer physician transfer of Normalized comparison of
clinical data retrieval patient diagnostic information clinically derived data and
Access to clinical decision support Automatically gathers patient outcomes measures
Ability to analyze quality and anonymous clinical abstract Epidemiological research
cost of medical interventions data for research Disease management
Tools for analyzing performance
and negotiating with payors
Features Clinical flowcharts and guidelines Top secret government security "Best Practice" benchmarking
Multiple entry methodologies standards Geographically dispersed and
(voice, picklist & cursive) 24 hour access, minimum statistically significant
Mobile, intuitive interface downtime outcomes treatment processes
Location Physician clinics Virtual communication linkages Regional facilities
between physicians as well as
repositories
-------------------------------- ------------------------------------- ----------------------------------
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
The following information is qualified in its entirety by the more detailed
information, financial statements and related notes thereto included elsewhere
in this Prospectus.
THE COMPANY
Physicians Information Exchange, Inc. ("PIE" or the "Company") is a
development stage company that is controlled by physicians, as well as directed
and operated primarily by physicians. PIE was founded on the principle that
physicians desire to provide healthcare market leadership, strengthen the
physician/patient relationship and improve the quality of care while reducing
cost. The Company intends to help physicians accomplish this by leveraging
physician training and experience with current information technology to
transform clinical data into medical knowledge and knowledge of the healthcare
system. The products and services described below are currently being developed
by the Company; however, such products and services have not been completed and
are not commercially available.
PIE is focused on improving the quality and lowering the cost of healthcare
through the capture of clinical data at the point of care using the Company's
computer-based Clinical Record Information System ("CRIS") software or any
future compatible computer-based patient record ("CPR") system. Clinical data
will be collected by PIE in an anonymous and abstract format through a
computerized physician network (the "Exchange"). This clinical data will form
the basis of a national clinical data repository (the "Knowledge Bank") and
facilitate the widespread adoption of "evidenced-based medicine." (Evidence-
based medicine is regarded as a promising development for improving the practice
of medicine and the delivery of healthcare at lower costs). This practice of
medicine bases patient care protocols and other clinical policies on the
vigorous scientific analysis of patient outcomes.
Evidence-based medicine relies on the detailed analysis of a large
population of patient medical records and clinical data. To date, such analysis
has not been practical on a large scale since medical records are generally not
centrally located, under common control or in a standardized format. PIE intends
to help solve such problems by addressing the five integral components of
evidence-based medicine listed below with the corresponding PIE product, service
or methodology:
<TABLE>
<CAPTION>
EVIDENCE-BASED MEDICINE COMPONENT PIE, Product, Service or Methodology
--------------------------------- ------------------------------------
<S> <C>
. DATA. Clinical data must be recorded in a CRIS
standardized format using consistent collection
methods.
. DISCIPLINE. Physicians must submit clinical THE EXCHANGE'S automatic data collection
data, use the developed protocols (when
applicable) and contribute feedback to improve
the process.
. SOFTWARE AND SYSTEMS. The tools used to THE KNOWLEDGE BANK and CRIS
collect data must be efficient, user-friendly,
economical and reliable.
. PROCESS. The procedures used for data PIE's physician ADVISORY COUNCIL
management and analysis, as well as protocol,
treatment patterns and guideline development,
must be coordinated to support agreed upon
clinical objectives.
. GOVERNANCE. To be effective, this entire Physicians acting through their role as DIRECTORS and
process should be voluntary and under the SHAREHOLDERS of PIE
direction of a unified management structure
that is organized and respected by physicians.
</TABLE>
3
<PAGE>
CRIS. The Company is currently developing the CRIS software by
enhancing version 6.0 of the Matrix Plus computer-based patient record
product. The CRIS software will be licensed at no charge to each physician
who purchases at least one Unit in this offering and who executes an
agreement with PIE to provide clinical abstract data to the Company. This
allows PIE to normalize the interface and data elements among users and
thereby collect statistically significant quantities of data in an
economically and technologically feasible manner. (Only anonymous patient
and physician abstract data will be used to ensure that the confidentiality
of patient and physician information remains secure within the confines of
the physician clinic.) In return, the physicians participate in the
automated sharing of abstracted clinical information with PIE's information
repositories. This distribution method is designed to facilitate a rapid
rollout and begin creation of clinical information repositories as quickly
as the software is installed. Once installed, the physician-shareholder
base provides a clinical information source that is expected to be
continually expanded and enhanced. The Company will market, install and
service CRIS. It is the Company's current intention that the CRIS software
will not be sold or distributed except in conjunction with this offering.
Although, in certain situations in the future, the Company may determine to
provide the software without requiring the recipient to purchase securities
of the Company, as has been proposed for the beta test site described
below.
THE EXCHANGE. When completed, the Exchange will be a confidential and
secure interactive patient record exchange network for physicians. The
Exchange's services will be provided upon patient authorization to
referral, new or emergency physicians needing real-time access to a
patient's clinical history for diagnostic purposes. With authorization from
both the patient and physician, others such as pharmacies, labs and payers
may electronically access patient non-confidential clinical information or
update the record with clinical results. However, PIE does not presume to
"own" an individual patient's medical record. Rather, the Exchange will
provide services that facilitate the collection, analysis and secured
distribution of this information between physician offices.
THE KNOWLEDGE BANK. The Company is currently developing the
infrastructure of the Knowledge Bank. The Knowledge Bank services are
anticipated to provide the largest revenue and profits of the Company's
products and services. These services are derived from regional and
national data repositories fed by the automated sharing of abstracted
clinical data from PIE's physician customers/shareholders (using CRIS)
through the Exchange. Some of the Knowledge Bank services will be clinical
outcome studies (both diagnostic and wellness), normative profiles,
treatment therapies, disease management programs, clinical protocols,
epidemiological research studies, capitation projections, benchmark
analysis, market studies and cost/benefit analyses. It is expected that the
Company will derive a significant percentage of its future revenues
principally by the formatting, analysis and transfer of this information to
integrated delivery systems, payers, major providers, provider groups,
managed care organizations, bio/pharmaceutical companies, research
institutions and government agencies, as well as physicians and
organizations needing current, clinically derived, outcomes-based data and
cost information.
ADVISORY COUNCIL. To meet the needs of the physician on an on-going
basis, the Company's service and product offerings will be guided by an
Advisory Council consisting of nationally recognized physicians
representing all major specialties, including primary care.
DIRECTORS AND SHAREHOLDERS. The physicians will assume the
responsibility to oversee and direct the usage of the network and the
information repositories on behalf of their patients through the
physicians' votes as shareholders and in their capacity as directors of the
Company. The physicians will always make up a majority of the Board of
Directors and a majority of the shareholders' votes.
The demand for clinical information and medical knowledge is rapidly
increasing as a result of significant economic and competitive pressures on
healthcare providers to reduce costs while maintaining
4
<PAGE>
high-quality care. Clinical decision-support networks and healthcare information
repositories help providers achieve these objectives by providing clinical
information at the point-of-care as well as access to the latest clinical
knowledge and knowledge of the healthcare system. That knowledge can take many
forms, including specific protocols, treatment therapies, processes, disease
management programs as well as the corresponding outcomes, results and costs. In
addition, the availability of dispersed, clinically-derived, outcomes-based
information enhances the speed in which healthcare research is able to deliver
new and improved products and procedures to physicians and their patients. CRIS,
as well as the services of the Exchange and the Knowledge Bank are specifically
designed by physicians to expand physician clinical management and diagnostic
decision capabilities using evidence-based medicine. These services also provide
physicians, healthcare providers, research organizations and others with the
clinically-derived information necessary to expedite the healthcare improvement
process.
The Company has entered into an agreement to acquire the rights to the MR1
Clinical Record System software that was originally developed by Matrix Plus,
Inc., a company controlled by Dr. Rutherford, the Chairman, Chief Executive
Officer, President and a principal shareholder of the Company. See "Certain
Transactions - Transactions with Matrix Plus." This software product has been in
continuous use since 1985 and is currently operating in 19 clinical sites in the
United States and Canada. The MR1 software is designed to facilitate clinical
communication and form the basis for a computerized patient record. The Company
expects to consummate the purchase in June 1996, subject to the effectiveness of
this offering. The consummation is not conditioned upon the Company selling the
Minimum Offering. In anticipation thereof, PIE has been enhancing the MR1
software to create the ambulatory Clinical Record Information System described
in this Prospectus.
In April 1996, PIE entered into an oral agreement with the 190-physician
Physician Hospital Organization (the "PHO") of two northeast Louisiana
hospitals. The two hospitals are St. Francis Medical Center in Monroe,
Louisiana and Glenwood Medical Center in West Monroe, Louisiana. It is the
understanding of the parties that the PHO will serve as a beta test site for the
CRIS product, subject to the parties reaching a definitive agreement. Such
agreement is not subject to the effectiveness of the offering or the sale of the
Minimum Offering. See "Plan of Operation - Beta Test Site."
The Company was incorporated in Texas in November 1995 and its headquarters
are located at 1401 Hudson Lane, Suite 202, Monroe, Louisiana 71201. The
Company's telephone number at such address is (318) 323-5000.
RISK FACTORS
Prior to making an investment decision, prospective investors should
carefully consider all of the information set forth in this Prospectus and, in
particular, should evaluate the factors set forth in "Risk Factors."
THE OFFERING
This Prospectus relates to 15,000,000 shares of Class A Common Stock and
2,094 Units of Class B Common Stock (each Unit representing 9,550 shares of
Class B Common Stock) that may be offered and sold at any time or from time to
time on a best efforts basis by the Company. See "Plan of Distribution."
The proceeds from this offering will be used for the development of
products, services and technologies as well as general corporate purposes,
including the acquisition of additional businesses. See "Use of Proceeds."
SUMMARY FINANCIAL INFORMATION
5
<PAGE>
<TABLE>
<CAPTION>
FOR THE PERIOD FROM FOR THE THREE-
NOVEMBER 10, 1995 MONTH PERIOD
(DATE OF INCEPTION) ENDED
TO DECEMBER 31, 1995 MARCH 31, 1996
-------------------- --------------
<S> <C> <C>
General and administrative expenses....... $ 342,425 $ 208,815
Net loss.................................. $(342,425) $(208,815)
Net loss per common share................. $ (.00) $ (.00)
</TABLE>
RISK FACTORS
An investment in the Common Stock or Units of the Company involves certain
risks. Before purchasing any shares of Common Stock or Units offered by this
Prospectus, prospective investors should carefully consider the following
factors relating to the Company and this offering in addition to the other
information contained in this Prospectus in evaluating an investment in the
securities offered hereby. Except for the historical information contained
herein, the matters discussed in this Prospectus are forward-looking statements
that involve risks and uncertainties detailed below. The actual results that the
Company achieves may differ materially from any forward-looking projections due
to such risks and uncertainties.
NO HISTORY OF OPERATIONS
The Company was formed on November 10, 1995 and has no operating history.
The success of the Company will depend in part on the management of the
Company's business by the officers of the Company. Although the officers of the
Company have expertise and experience in the medical information industry, there
can be no assurance that they will be successful in managing and operating the
Company. See "Plan of Operation."
DEVELOPMENT STAGE COMPANY; UNCERTAINTY OF PRODUCT DEVELOPMENT AND MARKET
ACCEPTANCE
PIE is a development stage company, and no revenues have been generated
from service, product or information sales. To date, the Company's resources
have been dedicated primarily to the research and development of services based
on a product that the Company has an agreement to purchase from Matrix Plus,
Inc. Although the Company believes that it will be able to develop and
commercialize such services based on this product or similar products, any or
all of the Company's services and products may fail to be accepted. Once such
services and products become commercially available, there can be no assurance
that the Company will be able to gain satisfactory market acceptance for such
services and products. The failure of the Company's products to achieve such
market acceptance, or maintain such acceptance, if achieved, as a result of
competition, technological change or other factors, could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Services and Product Development."
HISTORY OF LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY
Due to its lack of operating history, the Company has not yet
commercialized any services or products. The Company expects to incur operating
losses during the next two years while it builds its national healthcare network
and regional data repositories. The amount of net losses and the time required
by the Company to reach profitability are uncertain. There can be no assurance
that the Company will ever be able to generate service or product revenue or
achieve profitability on a sustained basis. See "Plan of Operation."
FUTURE CAPITAL REQUIREMENTS AND UNCERTAINTY OF FUTURE FUNDING
The Company expects that its current cash and cash equivalents, together
with the maximum proceeds of this offering will be sufficient to fund the
Company's operations for approximately 36 months from the date of this
Prospectus. If only the Minimum Offering is achieved, the Company will have the
resources to satisfy its projected cash requirements for only the next nine
months. In which case, the use of proceeds from the offering will be used
primarily for product development expenses. However, the development and
6
<PAGE>
marketing of the Company's products will require the commitment of substantial
resources to conduct the time-consuming research and development necessary to
bring its services and products to market and to establish production, marketing
and sales capabilities. The Company may need to raise substantial additional
funds for these purposes. The Company may seek such additional funding through
collaborative arrangements and through public or private financing, including
equity financings. Any additional equity financing, if available, may be
dilutive to stockholders and any debt financing, if available, may restrict the
Company's ability to pay dividends on its capital stock or the manner in which
the Company conducts its business. The Company currently has no commitments for
any additional financings and there can be no assurance that any such financings
will be available to the Company or that adequate funds for the Company's
operations, whether from financial markets, collaborative or other arrangements
with corporate partners or from other sources, will be available when needed or
on terms attractive to the Company. The inability to obtain sufficient funds may
require the Company to delay, scale back or eliminate some or all of its
research and product development programs or to limit the marketing of its
services and products. See "Use of Proceeds," "Plan of Operation" and "Certain
Transactions."
SALE OF SMALL AMOUNT OF SECURITIES
The offering may be consummated by the Company with the sale of $300,000 in
securities of the Company. However, the Company intends to continue the offering
until the earlier of the sale of all securities relating to this Prospectus or
two years from the date of this Prospectus. If only a small portion of the
Maximum Offering amount of approximately $34.6 million is eventually sold by the
Company, the Company would scale back its research and development programs and
would limit the scope of the products and services it intends to offer. In such
an event, the growth of the Company and the development of CRIS, the Exchange
and the Knowledge Bank would be significantly slowed, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Plan of Operation."
ABSENCE OF SALES AND MARKETING EXPERIENCE
Although the Company's officers have previous experience in the medical
software industry, the Company itself has no history or experience in sales,
marketing or distribution. To market its products directly, the Company must
either establish a marketing and sales force with technical expertise and
distribution capability or obtain the assistance of a company with a
distribution system and sales force. There can be no assurance that the Company
will be able to establish sales and distribution capabilities or be successful
in gaining market acceptance for its services and products. See "Business -
Marketing and Sales."
DEPENDENCE ON AND NEED FOR ADDITIONAL KEY PERSONNEL
The success of the Company is dependent, in part, on its key management
personnel. In particular, the Company is highly dependent upon Dr. W. Ernest
Rutherford. The loss of the services of Dr. Rutherford could have a material
adverse effect on the Company. To minimize the potential damaging effect of the
loss of Dr. Rutherford's services, the Company has secured a key man life
insurance policy for one million dollars. In addition, the Company's
potentially rapid growth and expansion will increase burdens on the Company's
management, and its operational and financial resources. These demands are
expected to require a substantial increase in management and personnel as well
as the development of additional expertise by existing management personnel.
Recruiting and retaining management and qualified operational personnel to
perform research and development work in the future will be critical to the
Company's success. Although the Company believes that it will be successful in
attracting and retaining skilled and experienced management and operational
personnel, there can be no assurance that the Company will be able to attract
and retain such personnel on acceptable terms, considering the market
competition for such personnel. See "Business-Employees" and "Management."
INTELLECTUAL PROPERTY RIGHTS
The Company is highly dependant on its ability to protect its proprietary
technology. There can be no assurance that the Company's efforts to protect its
intellectual property rights will be successful. The Company
7
<PAGE>
relies on a combination of copyright, trademark and trade secret laws, non-
disclosure agreements and other contractual provisions to establish and maintain
its proprietary rights. The Company has not sought patent protection for its
services and products. Enforcement of the Company's intellectual property rights
may be difficult. Some of the Company's services and products are licensed under
"shrink wrap" license agreements that are not signed by licensees and therefore
may not be binding under the laws of certain jurisdictions. Despite the
precautions taken by the Company, it may be possible for unauthorized third
parties, including competitors, to copy certain portions of the Company's
services and products or to reverse engineer or obtain and use information that
the Company regards as proprietary. Also, there can be no assurance that the
Company's competitors will not independently develop technologies that are
substantially equivalent or superior to the Company's technologies.
Although the Company does not believe that its services and products
infringe on the rights of third parties, there can be no assurance that third
parties will not assert infringement claims against the Company in the future,
or that any such assertions will not result in costly litigation or require the
Company to obtain a license for the intellectual property rights of third
parties. There can be no assurance that such licenses will be available on
reasonable terms or at all. See "Business - Intellectual Property Rights."
ABSENCE OF PUBLIC MARKET
Prior to the offering, there has been no public market for the Common Stock
or the Units and none is likely to develop. The Company does not presently
intend to list these securities on any national securities exchange or to seek
the admission of such securities for quotation and trading in the National
Association of Securities Dealers Automated Quotation System. Although certain
broker/dealers may determine to make a market in the Common Stock and the Units,
there can be no assurance that a secondary market will develop. These securities
should be purchased only by persons who have no need for liquidity in their
investment. The offering price of the Common Stock and the Units has been
determined arbitrarily by the officers of the Company without arm's-length
negotiation. Although the Company believes the price is fair, there can be no
assurance that the offering price represents the current or future fair market
value of the Common Stock or the Units. The fair market value of shares of
Common Stock and Units may be significantly affected by such factors as quarter-
to-quarter variations in the Company's results of operations, news announcements
or changes in general market or industry conditions. See "Plan of Distribution"
for a discussion of factors that were considered in establishing the initial
public offering price.
RELATIONSHIP WITH FIRST CONSULTING GROUP
The Company is currently dependent upon First Consulting Group ("FCG") to
provide design and development support in selected technical areas as well as
implementation specialists to support the proposed national rollout of CRIS and
network infrastructure. FCG is the largest healthcare-oriented, project
management and technology consulting firm in the United States with 16 offices
nationwide and 430 employees as of May 30, 1996. The firm also possesses
significant experience with the type of products and services being created by
PIE. Currently, PIE does not have on its own the experience or expertise to
effectively manage and coordinate the design, development and implementation
requirements necessitated by the projected growth. FCG has accumulated
knowledge and experience from thousands of healthcare information technology
engagements. A number of these engagements were with companies whose products
and services were similar to PIE's in terms of technology and development
complexity. FCG is routinely involved in developing strategic information
technology plans for large healthcare industry providers and integrated
delivery networks as well as selecting vendors that are capable of executing
those plans. FCG has experience in continuous project management and quality
assurance in a broad spectrum of healthcare information technology product
development environments. Specific product development activities include
assessment, market research, service and technical architecture development,
design, prototype development, vendor selection, implementation and operations.
Although PIE has projected a rapid and aggressive ramp-up schedule of
management, financial, marketing and technological resources, it does not
foresee establishing the infrastructure and developing the capability necessary
to independently run an information technology company of the projected size for
a minimum of several years. Currently, PIE has a contract with FCG for
professional support services through March 31, 1997 for consideration in the
aggregate amount of $552,000. It is anticipated that this contract will be
expanded and extended, but there can be no
8
<PAGE>
assurance that it will be. Pursuant to the Company's current agreement with FCG,
FCG performs project management, implementation, training, market research and
coordination support for the Company's management. In addition, the Company has
granted to FCG a right of first refusal to perform any additional contractual
consulting assignments initiated by the Company during the term of the contract.
Because of FCG's integral understanding of the Company's products, strategies
and market, termination of FCG's relationship with the Company for any reason
would have a material adverse effect on the Company's business, financial
condition and results of operations. The Company is not aware of any imminent
termination of FCG's relationship with the Company. There can be no assurance
that future financial, strategic or other considerations experienced by FCG will
not have an adverse impact upon FCG's ability or willingness to meet the
Company's management support requirements, which would have a material adverse
effect on the Company's business, financial condition and results of operations
and would require the Company to make substantial investments to convert to an
alternative implementation approach. There can be no assurance that such
conversion, if required, could be accomplished in a cost-effective or timely
manner.
DIFFICULTY OF PLANNED EXPANSION; MANAGEMENT OF GROWTH
The Company's operating results will be adversely affected if net revenues
do not increase sufficiently to compensate for the increase in operating
expenses caused by the Company's growth and expansion. In addition, the
Company's planned expansion of operations may cause significant strain on the
Company's management, technical, financial and other resources. To manage its
growth effectively, the Company must continue to develop, improve and expand its
existing resources and management information systems and must attract, train
and motivate qualified managers and employees. There can be no assurance,
however, that the Company will be able to achieve these goals. If the Company is
unable to manage growth effectively, its operating results will be adversely
affected.
COMPETITION
The market for healthcare information products and services is intensely
competitive. Competitors vary in size and in the scope and breadth of products
as well as services offered. The Company competes with different companies in
each of its target markets. Many companies that now provide claims-based data
are trying to enter the clinically-derived data markets. The Company's
competitors have significantly greater financial, technical, product development
and marketing resources than the Company. Furthermore, other major information
companies not presently offering clinical healthcare information services may
enter the markets in which the Company competes. The Company's potential
competitors include specialty healthcare information companies, healthcare
information system and software vendors and large data processing and
information companies. Many of these competitors have substantial installed
customer bases in the healthcare industry and the ability to fund significant
product development and acquisition efforts. As a result, they may be able to
adapt more quickly to new or emerging technologies and changes in customer
requirements, or to devote greater resources to the promotion and sale of their
products than the Company.
The Company believes that the principal competitive factors in the
healthcare network and clinical information markets are the physician acceptance
of the point-of-care interface, access to point-of-care clinical data, price and
the effectiveness of marketing and sales efforts. In addition, the Company
believes that the speed with which information companies can anticipate and
respond to the evolving healthcare industry structure and identify unmet
information needs is an important competitive factor. The Company believes that
it compares well and will compete favorably with respect to each of these
factors. See "Business--Competition."
RISK OF NEW PRODUCT/SERVICE INTRODUCTIONS; RISK OF ERRORS OR FAILURES
The Company expects that the initial CRIS version will be commercially
available by the first quarter of 1997. The initial CRIS version is a
simplified version that will not include voice digitization, real time access to
historical outcome and cost information beyond their organization, electronic
signature, alerts, external industry standard interface outside of certain HL7
lab interfaces, e-mail or the ability to identify "protected" data at a level
more detailed than "all or none." The Company expects the final version of CRIS
to be commercially available in 1998. The Company is also developing the
Exchange and the Knowledge Bank, which the Company expects to be commercially
available during 1997. The key
9
<PAGE>
assumptions underlying the Company's timing for commercial availability are
based on (i) the completion of the prototype design and testing of CRIS, which
are anticipated to be completed August 1996 and January 1997, respectively and
(ii) the Company's ability to raise approximately $750,000 to complete the
initial CRIS version and an additional $1,250,000 to complete the Exchange and
the Knowledge Bank. To the extent the Company raises less than such amounts, the
commerical availability of the Company's products and services will be delayed
since the Company will have fewer resources to utilize. There can be no
assurance that the Company will be able to develop and introduce these new
products within the expected time frames or that such products will achieve
market acceptance or, if market acceptance is achieved, that the Company will be
able to maintain such acceptance for a significant period of time.
In addition, as the healthcare information industry continues to evolve,
the Company plans to develop and introduce new products and services to address
the changing needs of the evolving healthcare information market. There can be
no assurance that the Company will be able to develop new products and services
or that such products and services will achieve market acceptance or, if market
acceptance is achieved, that the Company will be able to maintain such
acceptance for a significant period of time. Any inability of the Company to
develop products and services on a timely basis that address changing customer
requirements may require the Company to substantially increase development
expenditures or may result in a loss of market share to a competitor. Moreover,
products and services as complex as those offered by the Company may contain
undetected errors when first introduced or when new versions are released. There
can be no assurance that, despite testing by the Company, errors will not occur
in new products and services, resulting in adverse publicity or in loss of or
delay in market acceptance, which could have a material adverse effect on the
Company's business, financial condition and results of operations.
UNAUTHORIZED ACCESS TO INFORMATION
Advances in techniques by individuals and entities seeking to gain
unauthorized access to networks of information could expose the Company's
existing products to new and unexpected attacks and require accelerated
development of new encryption or other security measures. There can be no
assurance that the Company will be able to keep pace with technological changes
implemented by persons seeking to breach network security, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
CONCENTRATION OF VOTING CONTROL IN MANAGEMENT
After completion of the offering, Dr. Rutherford, the Company's Chairman,
President and Chief Executive Officer will beneficially own an aggregate of
75.1% of the voting power of the Common Stock. Therefore, Dr. Rutherford will
be able to determine the outcome of the election of the Board of Directors and
all matters submitted to shareholders. Dr. Rutherford will also be able to
control the direction and future operations of the Company, including decisions
regarding the issuance of additional shares of Common Stock and other
securities. In addition, as long as Dr. Rutherford beneficially owns the
largest block of issued and outstanding Common Stock of the Company, it will be
impossible for third parties to obtain control of the Company through purchases
of Common Stock not beneficially owned by Dr. Rutherford. See "Security
Ownership of Management."
The Company's Board of Directors has the authority to issue shares of
Preferred Stock and to determine the price, rights, preferences, privileges and
restrictions of those shares without further vote or action by the shareholders.
The right of the holders of Common Stock will be subject to, and may be
adversely affected by, the rights of the holders of any Preferred Stock that may
be issued in the future. The issuance of Preferred Stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock of the
Company. The Company has no present plans to issue shares of Preferred Stock.
LACK OF PARTICIPATING BROKER/DEALERS
The Company intends to effect the offering on a "best efforts" basis
primarily through its officers and employees. As of the date of this Prospectus,
the Company has not chosen a broker/dealer to participate in the offering. The
failure of the Company to use broker/dealers in the offering may increase the
likelihood that less
10
<PAGE>
than all of the securities in this offering will be sold, which may have a
material adverse effect on the Company's business, financial condition and
results of operations. See "--Sale of Small Amount of Securities."
DILUTION
Based upon an offering price of $1.00 per share of Common Stock, purchasers
of the Class A Common Stock and Units offered hereby will suffer an immediate
and substantial dilution in the net tangible book value per share of the Common
Stock from the initial public offering price in the amount of $1.00 per share if
the Minimum Offering is sold and $.69 per share if all of the securities offered
hereby are sold. See "Dilution."
11
<PAGE>
USE OF PROCEEDS
The gross proceeds to the Company from the sale of the 15,000,000 shares of
Class A Common Stock and 2,094 Units of Class B Common Stock offered by the
Company hereby, are estimated to be $34,997,700 if the maximum amount of
securities are sold and $300,000 if the minimum amount of securities are sold.
The Company expects to use the net proceeds for the development of products,
services and technologies as well as general corporate purposes, including the
acquisition of additional businesses. While the Company continually evaluates
potential acquisitions, the Company has no present agreements or commitments
with respect to any significant acquisition, nor are any negotiations regarding
any significant acquisition currently ongoing. Pending such uses, the net
proceeds of this offering will be invested in short-term, interest-bearing,
investment-grade securities and deposit accounts.
The use of proceeds is set forth below in tabular form.
<TABLE>
<CAPTION>
MINIMUM MAXIMUM
($300,000)/(1)/ ($34,997,700)
-------- -----------
<S> <C> <C>
Offering Expenses/(1)/ 0 170,000
Selling Commissions/(2)/ 0 3,499,770
Product Development Expenses/(3)/ 210,000 24,498,390
General Corporate Purposes 90,000 6,829,540
</TABLE>
/(1)/ Dr. Rutherford has funded $189,358 of the offering and organizational
expenses for which the Company issued to Dr. Rutherford a promissory note,
which will be exchanged for 189,358 shares of Class B Common Stock after
the effectiveness of the offering. In addition, Dr. Rutherford has agreed
to personally fund any additional offering expenses in exchange for a non-
interest bearing promissory note of the Company. Dr. Rutherford and the
Company have agreed that in the event the Company sells less than
$1,000,000 of its securities through this offering, the new note will be
converted into Class B Common Stock, at a conversion price of $1.00 per
share. In the event the Company sells in excess of $1,000,000 of its
securities through this offering, Dr. Rutherford will have the option to
convert the new note into Class B Common Stock or accept a cash payment.
See "Certain Transactions-Transactions with Dr. Rutherford."
/(2)/ In the sole determination of management, the Company may pay the persons
making this offering, excluding its officers and employees, commissions of
up to 10% of sales made, as allowed by applicable law. The Company will
not pay sales commissions on the first $300,000 of securities sold hereby
and currently does not contemplate paying commissions on additional
securities. To the extent that the Company does not pay selling
commissions, such monies will be spent on general corporate purposes. The
Company has not identified any underwriters, broker/dealers or agents. See
"Plan of Distribution."
/(3)/ The key items included in "Product Development Expenses" are hardware and
software development expenses relating to CRIS, the Exchange and the
Knowledge Bank and consulting fees of FCG. If only the Minimum Offering is
sold, then, Dr. Rutherford has agreed to assume the financial obligations
of the Company under the contract with FCG in exchange for a non-interest
bearing promissory note of the Company having the same terms and
provisions as the new note described in footnote 1 above.
12
<PAGE>
CAPITALIZATION
The following table sets forth at March 31, 1996 (i) the capitalization of
the Company and (ii) the capitalization of the Company as adjusted to give
effect to the sale of the shares of Class A Common Stock and Units offered by
the Company hereby at an initial public offering price of $1.00 per share and
$9,550 per Unit and the application of the estimated net proceeds to the Company
therefrom as described under "Use of Proceeds."
<TABLE>
<CAPTION>
(MINIMUM OFFERING) (MAXIMUM OFFERING)
MARCH 31, 1996 MARCH 31, 1996
----------------------- --------------------------
AS AS
ACTUAL ADJUSTED ACTUAL ADJUSTED
---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
SHAREHOLDERS' EQUITY:
Preferred Stock, $.001 par value; 5,000,000
shares authorized; no shares outstanding.................. $ -- $ -- $ -- $ --
Class A Common Stock, $.001 par value; 250,000,000
shares authorized; 10,000 shares outstanding; 15,010,000
shares outstanding as adjusted............................. 10 10 10 15,010
Class B Common Stock, $.001 par value; 250,000,000
shares authorized; 75,260,000 shares outstanding;
95,257,700 shares outstanding as adjusted.................. 75,260 75,560 75,260 95,258
Additional paid-in capital................................. 259,730 529,430 259,730 31,506,474
Deficit accumulated during the development stage........... (578,240) (578,240) (578,240) (578,240)
--------- --------- --------- -----------
Total shareholders' equity (deficit)....................... (243,240) 26,760 (243,240) 31,038,502
========= ========= ========= ===========
Total capitalization....................................... $(243,240) $ 26,760 $(243,240) $31,038,502
========= ========= ========= ===========
</TABLE>
DIVIDEND POLICY
The Company has never paid, and has no present intention of paying, cash
dividends on its Common Stock. The Company currently intends to retain its
earnings to finance the growth and development of its business. Any
determination in the future to pay dividends will depend on the Company's
financial condition, capital requirements, results of operations, contractual
limitations and any other factors deemed relevant by the Board of Directors.
See "Plan of Operation."
DILUTION
The net tangible book value (deficit) of the Common Stock as of March 31,
1996 was ($290,378) or $.00 per share of Common Stock. Net tangible book value
(deficit) per share represents the amount of the Company's shareholders' equity,
less intangible assets, divided by the number of shares of Common Stock
outstanding. Dilution per share represents the difference between the amount per
share paid by purchasers of shares of Common Stock in the offering made hereby
and the pro forma net tangible book value per share of Common Stock immediately
after completion of the offering. After (i) giving effect to the sale of
15,000,000 of the shares of Class A Common Stock and 19,997,700 shares of Class
B Common Stock offered hereby by the Company at an initial public offering price
of $1.00 per share and (ii) deducting selling commissions, if any, pro forma net
tangible book value of the Company as of March 31, 1996, would have been
$31,037,552 or $.31 per share. This represents an immediate increase in pro
forma net tangible book value of $.31 per
13
<PAGE>
share to existing investors and an immediate dilution of $.69 per share to new
public investors purchasing Common Stock in the offering, as illustrated in the
following table:
TABLE 1
(MAXIMUM OFFERING)
<TABLE>
<S> <C> <C>
Initial public offering price per share.................................... $1.00
Net tangible book value per share before the offering.................... $.00
Increase in tangible book value per share attributable to new public
investors.............................................................. $.31
----
Pro Forma Net tangible book value per share after the offering............. .31
-----
Dilution per share to new public investors................................. $ .69
=====
</TABLE>
The following table sets forth on a pro forma basis as of March 31, 1996
the difference between existing shareholders and the purchasers of shares in the
offering with respect to the number of shares purchased from the Company, the
total consideration paid and the average price paid per share, at an initial
public offering price of $1.00 per share and prior to deduction of estimated
costs of the offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- -------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 75,270,000 68.3 $ 335,000 .9% $0.00
New public investors.... 34,997,700 31.7 34,997,700 99.1 1.00
----------- ----- ----------- ----- -----
Total.............. 110,267,700 100.0% $35,332,700 100.0% $0.32
=========== ===== =========== ===== =====
</TABLE>
Assuming the Minimum Offering is sold, after (i) giving effect to the sale
of 300,000 shares of Class B Common Stock offered hereby by the Company at an
initial public offering price of $1.00 per share and (ii) deducting selling
commissions, if any, pro forma net tangible book value of the Company as of
March 31, 1996, would have been $52,810 or $.00 per share. This represents an
immediate dilution of $1.00 per share to new public investors purchasing Common
Stock in the offering, as illustrated in the following table:
TABLE 2
(MINIMUM OFFERING)
<TABLE>
<S> <C> <C>
Initial public offering price per share................................ $1.00
Net tangible book value per share before the offering................ $.00
Increase in tangible book value per share attributable to new public
investors.......................................................... $.00
----
Pro Forma Net tangible book value per share after the offering......... .00
-----
Dilution per share to new public investors............................. $1.00
=====
</TABLE>
The following table sets forth on a pro forma basis as of March 31, 1996
the difference between existing shareholders and the purchasers of shares in the
offering with respect to the number of shares purchased from the Company, the
total consideration paid and the average price paid per share, at an initial
public offering price of $1.00 per share and prior to deduction of estimated
costs of the offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 75,270,000 99.6 $335,000 52.8% $0.01
New public investors.... 300,000 .4 300,000 47.2 1.00
---------- ---- -------- ---- -----
</TABLE>
14
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Total................... 75,570,000 100.0% $635,000 100.0% $0.01
========== ===== ======== ===== =====
</TABLE>
15
<PAGE>
PLAN OF OPERATION
SUFFICIENCY OF CASH RESERVES. If the Maximum Offering is achieved, the
Company will have the resources to satisfy its projected cash requirements for
approximately the next 36 months as a result of this offering. Management does
not expect the Company to generate significant revenues from Knowledge Bank or
Exchange services until the fiscal year 1998. Therefore, the offering is vital
to the continued operations of the Company. If only the Minimum Offering is
achieved, the Company will have the resources to satisfy its projected cash
requirements for only the next nine months, in which event, the Company will
have to raise additional capital. The Company intends to continue the offering
until the earlier of the sale of all securities relating to this Prospectus or
two years from the date of this Prospectus. If only a small portion of the
Maximum Offering amount of approximately $34.6 million is eventually sold by the
Company, the Company intends to scale back its research and development programs
and the scope of the products and services it intends to offer. Therefore, the
growth of the Company and the development of CRIS, the Exchange and the
Knowledge Bank would be significantly slowed. See "Risk Factors-Sale of Small
Amount of Securities."
The Company believes that it must have an installed base of at least 800
physician-shareholders utilizing CRIS in order to accumulate clinical abstract
data of sufficient volume to generate revenues from the sale thereof that will
support the operations of the Company.
RESEARCH AND DEVELOPMENT. The Company does not anticipate incurring
research and development costs in excess of 20% of the net proceeds to the
Company from the offering.
EMPLOYEE ADDITIONS. The Company has chosen to conduct its operations
utilizing independent contractors and thereby delay hiring employees until after
the effectiveness of the offering. However, within the span of the next 12
months, the Company anticipates hiring a Vice President, President, Systems
Analyst, Receptionist/Secretary, Trainer, Administrative Assistant, Quality
Director, Director of Support Services, Controller, Database Sales/Marketing
Director, Network Administrator, Database Administrator, Director of
Telecommunication, Data Architect, Testers and Maintenance Programmers.
Pursuant to the Company's current agreement with FCG, FCG does not perform
research and development functions. Rather, FCG performs project management,
implementation, training, market research and coordination support for the
Company's management. This includes quality assurance oversight of work done by
other independent contractors involved with the development of the Company's
products and services, including The Americas Group, Technology Consultants,
Inc., which performs certain software development functions. FCG will also help
the Company meet selected short-term labor needs until the Company hires full-
time employees.
BETA TEST SITE. In April 1996, PIE entered into an oral agreement with the
190-physician PHO of two northeast Louisiana hospitals. The two hospitals are
St. Francis Medical Center in Monroe, Louisiana and Glenwood Medical Center in
West Monroe, Louisiana. It is the understanding of the parties that the PHO will
serve as a beta test site for the CRIS product, subject to the parties reaching
a definitive agreement. Such agreement is not subject to the effectiveness of
the offering or the sale of the Minimum Offering. It is anticipated that the
Company will provide the software to the PHO at no charge and the PHO will be
responsible for the costs of installation and training.
MATRIX PLUS PURCHASE AGREEMENT. In November 1995, the Company entered into
an agreement with Matrix Plus, Inc., a company controlled by Dr. Rutherford, the
Chairman, Chief Executive Officer, President and a principal shareholder of PIE,
to purchase from Matrix the MR1 Clinical Record System software developed by
Matrix, in consideration for the issuance of 200,000 shares of Class A Common
Stock of PIE. The purchase price was determined by arm's-length negotiations
between Matrix and PIE, based, in large part, upon the software developer's
estimation of the value of the software (considering development costs and
expenses). The transaction was approved by a majority of the independent,
disinterested members of the Board of Directors of the Company on terms no less
favorable to the Company than could be obtained from unaffiliated parties. It is
anticipated that the Company will consummate the purchase upon the effectiveness
of the offering. See "Certain Transactions-Transactions with Matrix Plus.
16
<PAGE>
ACCOUNTING POLICIES. The following is an explanation of the Company's
principal revenue recognition policies relating to its products and services and
the Company's accounting treatment for software development.
REVENUE RECOGNITION.
CRIS -- CRIS will be provided to physician-shareholders without charge
(except for annual maintenance fees and third-party license fees as well as any
third-party royalty charges. See "Business-Distribution and Fees") in exchange
for the physician-shareholder agreeing to provide clinical data to the Company.
This fee will be recognized by accrual on a monthly basis as it is earned. No
accounting recognition will be given to the "without charge" aspect of
CRIS.
The Exchange -- Revenues from the Exchange will be recognized when earned
in accordance with a future pricing schedule.
The Knowledge Bank -- Revenues from the Knowledge Bank will be recognized
when earned in accordance with a future pricing schedule.
SOFTWARE DEVELOPMENT. The Company will account for development of software
in accordance with Statement of Financial Accounting Standard No. 86,
"Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise
Marketed" ("SFAS 86"). Under SFAS 86, costs incurred internally to create a
computer software product shall be charged to expense when incurred as research
and development until technological feasibility has been established for the
product. Technological feasibility is established upon completion of a detailed
program design or, in its absence, completion of a working model. Thereafter,
all software production cost shall be capitalized and subsequently reported at
the lower of unamortized cost or net realizable value. Capitalized costs are
amortized based on current and future revenue for each product with an annual
minimum equal to the straight-line amortization over the remaining estimated
economic life of the product.
17
<PAGE>
BUSINESS
GENERAL
PIE is a development stage company that is controlled by physicians, as
well as directed and operated primarily by physicians. PIE was founded on the
principle that physicians desire to provide healthcare market leadership,
strengthen the physician/patient relationship and improve the quality of care
while reducing cost. The Company intends to help physicians accomplish this by
leveraging physician training and experience with current information technology
to transform clinical data into medical knowledge and knowledge of the
healthcare system. The products and services described below are currently being
developed by the Company; however, such products and services have not been
completed and are not commercially available.
PIE is focused on improving the quality and lowering the cost of healthcare
through the capture of clinical data at the point of care using CRIS, the
Company's computer-based Clinical Record Information System software or any
future compatible CPR system. Clinical data will be collected by PIE in an
anonymous and abstract format through a computerized physician network. This
clinical data will form the basis of the Knowledge Bank's national clinical data
repositories and facilitate the widespread adoption of "evidenced-based
medicine." (Evidence-based medicine is regarded as a promising development for
improving the practice of medicine and the delivery of healthcare at lower
costs. This practice of medicine bases patient care protocols and other clinical
policies on the vigorous scientific analysis of patient outcomes.)
Evidence-based medicine relies on the detailed analysis of a large
population of patient medical records and clinical data. To date, such analysis
has not been practical on a large scale since medical records are generally not
centrally located, under common control or in a standardized format. PIE intends
to help solve such problems by addressing the five integral components of
evidence-based medicine listed below with the corresponding PIE product, service
or methodology:
<TABLE>
<CAPTION>
EVIDENCE-BASED MEDICINE COMPONENT PIE Product, Service or Methodology
--------------------------------- -----------------------------------
<S> <C>
. DATA. Clinical data must be recorded in CRIS
a standardized format using consistent
collection methods.
. DISCIPLINE. Physicians must submit THE EXCHANGE'S automatic data collection
clinical data, use the developed protocols
(when applicable) and contribute feedback
to improve the process.
. SOFTWARE AND SYSTEMS. The tools used THE KNOWLEDGE BANK and CRIS
to collect data must be efficient, user-
friendly, economical and reliable.
. PROCESS. The procedures used for data PIE's physician ADVISORY COUNCIL
management and analysis, as well as
protocol, treatment patterns and guideline
development, must be coordinated to
support agreed upon clinical objectives.
. GOVERNANCE. To be effective, this Physicians acting through their role as DIRECTORS
entire process should be voluntary and and SHAREHOLDERS of PIE
under the direction of a unified
management structure that is organized and
respected by physicians.
</TABLE>
18
<PAGE>
CRIS. The Company is currently developing the CRIS software by enhancing
version 6.0 of the Matrix Plus computer-based patient record product. The CRIS
software will be licensed at no charge to each physician who purchases at least
one Unit in this offering and who executes an agreement with PIE to provide
clinical abstract data to the Company. This allows PIE to normalize the
interface and data elements among users and thereby collect statistically
significant quantities of data in an economically and technologically feasible
manner. (Only anonymous patient and physician abstract data will be used to
ensure that the confidentiality of patient and physician information remains
secure within the confines of the physician clinic.) In return, the physicians
participate in the automated sharing of abstracted clinical information with
PIE's information repositories. This distribution method is designed to
facilitate a rapid rollout and begin creation of clinical information
repositories as quickly as the software is installed. Once installed, the
physician-shareholder base provides a clinical information source that is
expected to be continually expanded and enhanced. The Company will market,
install and service CRIS. It is the Company's current intention that the CRIS
software will not be sold or distributed except in conjunction with this
offering. Although, in certain situations in the future, it may provide software
without requiring the recipient to purchase securities of the Company, as has
been proposed for the beta test site. However, additional charges at normal
rates, such as for installation, training or maintenance fees would not
necessarily be waived. In addition, the Company may choose to require the
purchase of a minimum number of services if the securities purchase requirement
were waived.
CRIS will permit each physician to build and access computer-based patient
records automatically and save the physician time while providing real-time
diagnostic decision support, cost-basis and patient specific clinical
information at the "point-of-care." The physician will not need to change his or
her preferred practice style since the records are built as a by-product of
normal clinical operations. Physicians will be able to directly interact with
the system by using various data entry techniques to provide certain notations
and patient observations. CRIS will further provide a user-friendly technical
infrastructure supporting collegial communication among physicians regarding
their findings and experiences with respect to protocol outcomes, new treatments
and process improvements, for example. Other CRIS attributes will include easy-
to-use, physician-specific clinical outcomes and cost information from the
clinic's own data repository. This information when combined with regional and
national bench-mark information will help physician-shareholders to market,
negotiate and compete more effectively in the provider marketplace. The CRIS
physician interface will integrate the latest pen-based, hand-held, data
collection, character recognition, voice digitization and wireless data transfer
technologies with a vast knowledge database using self-organizing data. See "-
Products and Services."
THE EXCHANGE. It is anticipated that, when completed, the Exchange will be
a confidential and secure, interactive patient record exchange network for
physicians. The Exchange's services will be provided upon patient authorization
to referral, new or emergency physicians needing real-time access to a patient's
clinical history for diagnostic purposes. With authorization from both the
patient and physician, others such as pharmacies, labs and payers may
electronically access patient non-confidential clinical information or update
the record with clinical results. However, PIE does not presume to "own" an
individual patient's medical record. Rather, the Exchange will provide services
that facilitate the collection, analysis and secured distribution of this
information between physician offices.
THE KNOWLEDGE BANK. The Company is currently developing the infrastructure
of the Knowledge Bank. The Knowledge Bank services are anticipated to provide
the largest revenue and profits of the Company's products and services. These
services are derived from regional and national data repositories fed by the
automated sharing of abstracted clinical data from PIE's physician
customers/shareholders (using CRIS) through the Exchange. Some of the Knowledge
Bank services will be clinical outcome studies (both diagnostic and wellness),
normative profiles, treatment therapies, disease management programs, clinical
protocols, epidemiological research studies, capitation projections, benchmark
analysis, market studies and cost/benefit analyses. It is expected that the
Company will derive a significant percentage of its future revenues principally
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by the formatting, analysis and transfer of this information to integrated
delivery systems, payers, major providers, provider groups, managed care
organizations, bio/pharmaceutical companies, research institutions and
government agencies, as well as physicians and organizations needing current,
clinically derived, outcomes-based data and cost information. The Company
anticipates that the Knowledge Bank services will be provided by employees of
the Company; however, the Company may choose to additionally employ independent
contractors depending on market demand.
ADVISORY COUNCIL. To meet the needs of the physician on an on-going basis,
the Company's service and product offerings will be guided by an Advisory
Council consisting of nationally recognized physicians representing all major
specialties, including primary care.
DIRECTORS AND SHAREHOLDERS. Physicians, including Dr. Rutherford, will
always make up a majority of the Board of Directors and a majority of the
shareholders' votes.
CERTAIN AGREEMENTS
The Company has entered into an agreement to acquire the rights to the MR1
Clinical Record System software that was originally developed by Matrix Plus,
Inc., a company controlled by Dr. Rutherford, the Chairman, Chief Executive
Officer, President and principal shareholder of the Company. See "Certain
Transactions - Transactions with Matrix Plus." This software product has been in
continuous use since 1985 and is currently operating in 19 clinical sites in the
United States and Canada. The MR1 software is designed to facilitate clinical
communication and form the basis for a computerized patient record. The Company
expects to consummate the purchase in June 1996, subject to the effectiveness of
this offering. The consummation is not conditioned upon the Company selling the
Minimum Offering. In anticipation thereof, PIE has been enhancing the MR1
software to create the ambulatory Clinical Record Information System described
in this Prospectus.
In April 1996, PIE entered into an oral agreement with the 190-physician
PHO of two northeast Louisiana hospitals. The two hospitals are St. Francis
Medical Center in Monroe, Louisiana and Glenwood Medical Center in West Monroe,
Louisiana. The agreement provides for the PHO to be a beta test site for the
CRIS product.
INDUSTRY BACKGROUND
Market-driven efforts to contain rising healthcare costs have resulted in
an increasing demand for access to sophisticated clinical decision-support
information. The importance of clinical decision-support information is
increasing as a result of significant economic pressures within the healthcare
industry. Healthcare delivery costs have risen dramatically compared to the
overall rate of inflation. This rise has led to substantial pressure on
physicians and other healthcare providers to contain healthcare costs. At the
same time, increased competition has resulted in a greater focus on the
demonstrated quality of care delivered to patients. The ongoing pressure to
contain healthcare costs is also changing the structure of healthcare provider
organizations and their information requirements. Healthcare payers are
increasingly transferring the economic risk of healthcare delivery to providers
by shifting from the traditional fee-for-service reimbursement modes to managed
care reimbursement modes, the most evolved form of which is capitation. Under
capitation, physicians and other providers are paid a fixed fee to deliver all
required services per individual patient. This payment mechanism encourages
physicians and other healthcare providers to modify their emphasis from not only
treating illness, but also to maintaining wellness. Consequently, the movement
to managed care has increased the importance of comprehensive outcomes-based,
patient-centered healthcare information. Physicians and other
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healthcare providers use this information to more accurately measure the
clinical value of medical tests, procedures and clinical pathways.
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[THIS IS A CHART THAT DEPICTS THE FACT THAT ECONOMIC RISK TO
HEALTHCARE PROVIDERS INCREASES THE VALUE
OF OUTCOMES-BASED PATIENT-CENTERED HEALTHCARE INFORMATION.]
Efforts to control the clinical costs of healthcare historically have been
hampered by the complexity of healthcare delivery and the lack of "benchmark"
data required to study the appropriateness, efficiency and effectiveness of
healthcare delivery. Currently the only healthcare data available in large
volumes is claims-based data. However, only limited insights can be drawn from
claims-based data in the absence of corresponding clinical or outcomes data.
Only clinically-based data can demonstrate the efficacy of the care provided.
Further, physicians remain skeptical about information that fails to address
outcomes.
Currently, outcomes assessment is performed by physicians, payers,
pharmaceutical manufacturers and academic researchers combining forces to
measure and compare the clinical and cost-effectiveness of specific medical
diagnostic and treatment processes of care (such as immunization levels or
mammography screen rates). By inference, these processes should lead to good
results; however, it is hard to prove that the link between process and outcome
is valid. The cause and effect relationship between process and outcomes is
difficult to relate unless the processes are clearly defined, the outcomes
consistently measured and the results reflect the continuum of care. Claims-
based data cannot address these issues. However, outcomes assessment using the
Knowledge Bank's clinically-derived information and outcomes will permit such
analysis.
At present, the Company believes that most physicians practice in relative
isolation from their peers with considerable practice variability existing
between providers. The variability frequently follows consistent patterns but,
unfortunately, little information about care decisions is returned to the
physicians. The Company believes aggregating patient populations to examine
variation in physician decision making will yield valuable insights for
practitioners. Information is a crucial enabler in this process, allowing
physicians to engage in constructive discussions about practice pattern
variation. PIE believes that physician groups are in the best position to create
value and benefits from clinically-based information in the future because
physicians are the care providers and can best put new insights into practice.
However, to date, this has not happened because:
1. Clinically-based information has not been available.
2. Physician groups have been too fragmented to gain access to the
necessary capital. To create significant volumes of dispersed clinically
derived, outcomes-based information requires raising sufficient capital to build
the significant infrastructure required to assemble the data.
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STRATEGIC VISION
The Company's strategic vision is to facilitate physicians working together
to produce higher quality, lower cost healthcare while strengthening the
patient/physician relationship. The enabling aspect of this vision is
physicians, empowered by PIE, leveraging their training and experience with
current information technology. This combination will enable physicians to
exercise healthcare leadership by transforming clinical and cost information
into cost-effective medical knowledge. Physicians will achieve this
transformation by initiating and directing an electronic information exchange
network along with regional and national clinical abstract data repositories.
PHYSICIAN SOLUTION
PIE is owned, directed and operated by physicians. Its strategic initiative
is to build clinical decision support networks and healthcare information
repositories. To meet the needs of the physician community on an on-going basis,
the Company's service and product offerings will be guided by an Advisory
Council consisting of nationally recognized physicians representing all major
medical specialties. The physicians of PIE will assume their time honored
responsibility to oversee and direct the usage and confidentiality of the
information on behalf of their patients. PIE has no plans to become a software
company and is therefore committed to using the best clinical information
collection software available. The Company designed CRIS to be easily integrated
with numerous practice management, accounts receivable, CPR and acute care
systems that adhere to industry interface and open architecture standards. The
expansion of data will be handled by use of open architecture standards and
proven data storage technologies, such as WORM and CD-ROM . The Company intends
to cooperate with vendors and major telecommunications providers wishing to
develop integration interfaces with CRIS, the Exchange and the Knowledge Bank.
PRODUCTS AND SERVICES
PIE will offer CRIS, a computer-based patient record product, as well as
the services of the Exchange and the Knowledge Bank. PIE will acquire (data
collection), enhance (statistical analysis to convert data into information),
evaluate (form theories to learn and gain knowledge), store (through the
Knowledge Bank) and distribute (through the Exchange and other means) clinical
data, information and knowledge.
CLINICAL RECORD INFORMATION SYSTEM (CRIS)
CRIS is a patient record software program that will allow access to PIE's
network of fee-based services, the Exchange and the Knowledge Bank. The
development of CRIS has not yet been completed. CRIS is being designed to
complement the physician's existing practice patterns. The product's goal is to
enhance the physician's ability to provide higher quality care at lower cost.
CRIS will offer a wide variety of options for physicians to access and store
information. These options include transcription and hand-held, pen-based
interfaces as well as standard work stations.
Some of the immediate benefits that CRIS will allow are the ability to:
. Quickly access and store clinical patient records.
. Access the historical outcome and cost of a proposed medical
intervention in real time.
. Utilize an information-based continual quality improvement approach to
patient care rather than retrospective analysis of the outliers.
. Reduce paperwork.
. Increase the efficiency of physicians and office staff.
. Decrease errors and omissions by utilizing alerts and protocols at the
point of care.
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. Permit physicians to differentiate themselves in the market with
medically meaningful and clinically credible outcomes information.
. Protect patient medical record confidentiality.
Longer term benefits from the CRIS product are the ability to:
. Analyze and improve the profitability of managed care contracts
(including capitation contracts) for the physician-shareholders.
. Negotiate beneficial managed care contracts with payers by increasing
available information to physicians.
. Analyze costs and historical outcomes of various protocols and
treatment patterns at the point of care.
. Provide cost information on procedures, diagnosis and protocols that
is broken down into manageable components.
. Confidentially provide individual physicians the ability to compare
their quarterly practice outcomes with a national specialty composite
profile.
The following is a more detailed description of some of the CRIS benefits:
DISTRIBUTION AND FEES. CRIS software and documentation is offered to
physician-shareholders who purchase at least one unit in this offering and is
delivered without charge (other than annual maintenance fees and third-party
license fees as well as any third-party royalty charges). Training,
installation, separate interfaces, customization, out-of-pocket costs, hardware
and site preparation expenses, third-party database server software, each as
required, will necessitate additional charges.
CONFIDENTIALITY OF PHYSICIAN INFORMATION. All physician-specific
correspondence, results, reports and services will be provided directly and
solely to that individual physician-shareholder unless they instruct PIE
otherwise.
INTEGRATED SOLUTIONS. PIE is committed to providing integrated solutions
and services that meet the clinical information requirements of physicians.
Using standard application interface protocols such as Health Level Seven (HL7),
American Society for Testing and Materials (ASTM) and other industry interface
standards, CRIS's operating environment is designed to provide inter-operability
with leading software packages. This environment encourages integrated
interfaces with practice management, billing, scheduling, computer-based patient
records and hospital information systems that adhere to PIE's published open
architecture and system standards. The use of CRIS will not be a requirement for
gaining access to the Exchange or the Knowledge Bank. As market demand dictates,
CRIS may be augmented or superseded by other software products.
ADAPTABILITY TO PRACTICE STYLE. CRIS is integrating the latest user-
friendly data entry and access technology. In a single physician interface, the
user will be able to use or mix multiple technologies. These technologies
include pen-based, hand-held wireless communication, handwritten character
recognition and voice digitization. Access to these technologies allows
physicians to build patient records as a by-product of their normal clinical
operations.
FAMILIAR "LOOK AND FEEL." CRIS will present personalized patient
information and communication reminders to streamline physician work flow and
support flexible, personalized formats of clinical results. The systems'
intuitive, icon-based interface will be comfortable for clinicians to learn and
use. "Chart tabs" that are graphical representations of the tabs found in a
patient's paper medical record, will provide intuitive and easy navigation
through the patient's electronic medical record. Physicians and other clinicians
can analyze flow sheets of either scheduled patient care activities or global
results in personalized formats.
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EASE OF SYSTEM USE. The system incorporates uniform icon-based screens with
on-line help facilities. These Windows-based screens are being designed to
reduce user training requirements and increase the user's ability and
willingness to use the system. The flexibility of the CRIS data display will
permit individual users to view information differently. Electronic signature
capacity will be provided to facilitate the documentation process as well as for
medical record completion and attestation.
PROTOCOLS AND GUIDELINES. PIE believes that quality improvements and cost-
reduction can most efficiently be driven by the physician (supported with
information) at the point of care. Physicians will have access to on-line, at
the point of care, specialty specific protocols (standardized plans for treating
specific conditions) and/or guidelines. They will also have the ability to add
customized or modified protocols that they commonly use. The clinic's cost of
each protocol or treatment pattern can be displayed, detailed by procedure
components. (PIE's cost reporting modules require specific initial accounting
input from the clinic's accountant or CPA.) Protocols and guidelines help to
reduce variance by standardizing the steps; however, the physician will always
have the option to deviate from the pathway at any point. The system will also
allow the addition of free-form narrative entry through the transcription or
keyboard functions.
CONTRACT NEGOTIATION INFORMATION SUPPORT. The emergence of managed care
(capitation in particular) has increased the need for clinical and financial
patient information. CRIS will allow physicians to analyze the profitability of
their managed care contracts, including capitation. More importantly, it will
provide information to the physician that assists in negotiating a rate with
payers that more closely reflects the physician's activities and regional
epidemiological data.
RESULTS REPORTING. CRIS will provide on-line review of results, including
laboratory and radiology. The system also provides on-line review of narrative
results such as transcriptions, discharge summaries and medication profiles.
Results will be stored permanently as part of the patient's electronic medical
record.
COSTS/OUTCOMES/ANALYSIS/MANAGEMENT. CRIS's database of clinical and financial
information will enable physicians to measure and analyze the quality and cost
effectiveness of care provided. Specifically, CRIS will give physicians the
ability to:
. Evaluate the historical quality, as well as the cost, of alternative
medical interventions at the point of care.
. Confidentially provide individual physicians the ability to compare their
quarterly practice outcomes with a national specialty composite profile.
. Access full absorption costing data for each procedure, diagnosis or
treatment pattern. Cost components are broken down into manageable size
with line item detail. (PIE's cost reporting modules require specific
initial accounting input from the clinic's accountant or CPA.)
. Access on-line their clinic and research database to monitor, manage and
report detailed clinical information on their medical procedures,
diseases, protocols and patient outcomes.
. Reengineer medical interventions by using the above cost and outcome
information.
ALERTS. CRIS will alert physicians when a potentially unsuitable medication
is ordered. This would include reminder alerts for drug interactions and
allergies. PIE will also be expanding CRIS to include protocol reminders using
decision support algorithms to aid clinical decisions. CRIS will also be
enhanced to allow physicians the ability to select ranges for abnormal test
result alerts.
MEDICATION MANAGEMENT. CRIS will enable clinicians to prescribe new
medications to a patient as well as renew medications existing in a patient's
history. This system will also provide patients with educational material as
part of the care delivery process and will allow the clinician to print, fax or
transmit a prescription.
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LIFETIME PATIENT RECORD. CRIS will incorporate an on-line record of patient
specific prior services, diagnosis, therapies and outcomes. It is being
designed to (i) enable improved efficiency and reduced uncertainty during the
care giving process, (ii) reduce the potential for adverse medical decisions
(such as prescribing drugs to which the patient is known to be allergic) and
(iii) reduce administrative burden. PIE believes that these benefits will
result in reduced healthcare delivery costs, improved outcomes and a higher
quality of care, as well as provide complete and easily accessible information
for reimbursement documentation. The system will allow providers to track
patients' status over time, which is particularly beneficial for following
patients with chronic conditions such as diabetes, instage renal disease and
congestive heart failure.
PHYSICIANS' ON-LINE RESOURCE. CRIS is being designed to meet the clinical and
diagnostic information needs of physicians. In addition to patient data, CRIS
will provide access to the most current medical reference materials and
bibliographic databases available, including MEDLINE, medical specialty practice
knowledge banks as well as other information sources. Physicians will be able
to communicate with each other through the CRIS E-mail system, as well as with
their affiliated institutions and organizations.
OPEN SYSTEM ARCHITECTURE. PIE is committed to open system architecture. PIE
adheres to standards at all levels of implementation from software standards,
such as Windows development tools (including ODBC database interfaces) to data
standards similar to the X.12 electronic form layout for EDI documents. These
standards create interfaces to a host of industry standard hardware and software
products as well as databases that give the user a familiar look and feel. Open
system architecture allows PIE's products and services to maintain the
flexibility required in an ever-changing healthcare industry. CRIS currently
interfaces with automated third-party laboratory systems to ac cess laboratory
test results.
CURRENT TECHNOLOGY. PIE will operate in the Microsoft Windows (3.1, 95 and
NT) environment. This environment features an easy to use, intuitive, Graphical
User Interface (GUI) point-and-click presentation. PIE utilizes the current
client/server (Services Model) architecture to deliver high performance access
to vast amounts of clinical data that can be distributed to multiple platforms
and locations. Programs are being developed using rapid development, object-
oriented development tools, such as Visual Basic, SQL and C++. PIE supports
mission critical hardware designs that insure minimum "down time." In addition,
PIE supports the use of standard interfaces and components that include OLE
servers, automation servers and custom controls.
CRIS builds on true client-server architecture and state-of-the-art
technology. It uses available developer tool kits extensively. PIE will also
license third-party databases and specialized software components, such as drug
pricing and interactions. CRIS will use HL-7 and other industry standards to
import laboratory, radiology and transcription data electronically.
INTEGRATION CAPABILITY. The CRIS system can be accessed simultaneously at
different locations within the healthcare delivery system by doctors, nurses and
technicians using distributed deployment of LAN and WAN technology. CRIS's
distributed architecture will allow for the transparent communication and
interaction with other products from different vendors. The utilization of
industry standard software supports integration of voice, data, video and
imaging. This creates effective network solutions for ambulatory practitioners.
PATIENT ACCOUNTING. CRIS will collect and organize patient and clinical
information, which may be used in the physician's current billing system.
SECURITY. Application security is designed to use standard controls of user
names and passwords. A permanent audit trail will be provided for complete
tracking of all additions, changes or deletions. See "--Confidentiality of
Clinical Information."
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HEALTHCARE INFORMATION EXCHANGE NETWORK (EXCHANGE) SERVICES
The Company believes that the Exchange is an important component of PIE's
strategy. It is anticipated that, when completed, the Exchange will be a
national communication network that allows physicians to transfer patient
information within and between regional clinical information networks. Access
to the Exchange will be provided through CRIS or through the physician's
compatible ambulatory computer-based patient record software. hysicians in
locally defined geographic areas will be provided access to their own regional
communications network and information repository. The Exchange will use this
network to provide access designed to enhance the physician's skills and
experience by providing real-time delivery of critical clinical information. The
Exchange is being designed to put vital information into the hands of an
attending healthcare professional at the time of decision. It will make medical
diagnostic information available even if the data resides in another PIE
physician's clinic hundreds of miles away. This network will help physicians to
provide higher quality care at lower cost by providing the necessary information
at decision time, thereby eliminating unnecessary analysis and testing.
The following describes the Exchange in more detail:
EASE OF USE. The Exchange will be an electronic network that is fast and
efficient, yet simple for the physician and staff to use (featuring a menu-
driven GUI). The Exchange will enable critical clinical data to be transmitted
or accessed by physicians 24 hours a day. Downtime at regional and national data
centers will be minimized through network redundancy provided by major network
providers and data storage technologies such as WORM and CD-ROM. Duplicate
backup hardware will be maintained at regional and national sites insuring
minimal downtime. Initially, a single regional data repository and a national
data repository will be located at the same location. To protect data from being
damaged by fire or other events, the Company will use onsite duplicate hardware
and offsite backups. As the volume of data increases, the number of regional
data repositories will increase. Each repository will be connected using high-
speed data links that will also permit each repository to act as a backup for
the other repositories.
The Exchange will also enable physicians and their staffs to operate their
existing software applications (such as patient billing software) on their
computers, while records and messages are automatically and unintrusively
received in the background. Since the network does not interfere with other
computer application programs, recipients will be able to choose to review the
message immediately or continue their current computer activity and process the
message at their convenience.
SECURITY. All communications on the Exchange will comply with C2 Level
Federal Government security standards (i.e., "Top Secret" Security). This level
of security increases patient confidentiality. See "--Confidentiality of
Clinical Information."
BENEFITS. The Exchange will improve management of patient service from
physician to physician. The Exchange will also enable delivery of a number of
automatic electronic services to physicians (See description of CRIS and the
Knowledge Bank). The physician and staff will be able to decrease telephone
calls by using the Exchange to electronically receive lab reports as well as
other results reports and patients charts. In addition, the Exchange will
improve the ease of communications between physicians in resolving complex
diagnosis.
PHYSICIAN ROYALTY PAYMENT. The Company will incent physicians to participate
in the Exchange by paying royalties to physicians who transfer clinical data
automatically to requesting physicians through the Exchange's electronic
network. These royalties will be paid from the fees charged requesting
physicians or other authorized users of clinical data.
INTEGRATED HEALTHCARE INFORMATION AND RESEARCH (KNOWLEDGE BANK) SERVICES
The Knowledge Bank will be PIE's data warehouse of healthcare information and
knowledge. This knowledge and information will be mined from the Company's
integrated network of regional healthcare information repositories. Each
regional information repository will be created by the automated collection of
clinical information from physicians in that region. The Knowledge Bank will
enable healthcare professionals to increase the quality of healthcare while
managing and reducing resource consumption through research,
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benchmarking and comparative analysis. The Knowledge Bank will also allow the
active integration of clinical data with outcomes and cost information and does
not rely upon retrospective claims-based data. The Knowledge Bank will be a
comprehensive clinical data warehouse consisting of clinically rich,
statistically representative and geographically distributed clinical information
housed in secure data repositories. The Knowledge Bank will contain the latest
clinical outcomes and costs abstract data (encrypted to ensure patient
confidentiality). As the Knowledge Bank continually expands and is enhanced,
this healthcare information will serve as a resource for education, research,
prevention, epidemiology and clinical process improvement. It is anticipated
that the Knowledge Bank services will be commercially available by the third
quarter of 1997; however, there can be no assurance that such timing will be
achieved by the company.
SERVICES. The Knowledge Bank will allow physicians to compare their results
against relevant regional and national specialty benchmarks. This database will
also be used as a foundation to perform many types of research and retrospective
analysis, some examples are:
. Cost and outcome specialty benchmarks by diagnosis, procedure and
treatment on a regional as well as national basis.
. Interactive data analysis to identify specific patient groups for
intensive care and/or disease management.
. Patient cohort classification with patterns of care.
. Identification of areas with high resource consumption.
. Patient-centered measures of outcomes and satisfaction, including
preventative screening and the ability to return to work.
. Retrospective analysis on process of care delivery (protocols and
guidelines) organized by:
. Chronic disease groups.
. Patient health-risk behaviors.
. High volume procedures.
. Resource intensive procedures.
. Best demonstrated practice for outcomes.
. Low cost protocols and treatment patterns.
. Detailed cost and outcome variance analysis using normative
comparisons by principal procedure, diagnosis, disease, and treatment
pattern.
. Longitudinal analysis across the care continuum.
. Measuring the relative effectiveness of treatment and mode of intervention
results (e.g., pill, shot or patch; telemedicine, phone call or visit).
. Applied clinical research on outcomes and costs of treatment for chronic
diseases.
. Statistical analysis, models and simulations.
NO CHARGE SERVICES TO CRIS PHYSICIANS. The Knowledge Bank will identify and
update the list of specialty-specific, point of care protocols and corresponding
historical outcome measures. It will also be used to produce confidential
physician practice outcome profiles. These standard profile reports will
document a physician's outcomes relative to an appropriate national peer group.
A copy of this profile will be provided quarterly to each physician without
charge after a statistically significant amount of data has been collected.
KNOWLEDGE ENGINEERING. Medical data, by its very nature, is extremely complex
and difficult to normalize. PIE will use the standardized data of the CRIS
system and other compatible systems along with advanced knowledge engineering
skills to build integrated clinical databases. These databases will be designed
to be unbiased, while preserving the quality and integrity of the data. The
data will be organized in rigorously structured formats to permit multiple
logical views of data including longitudinal, encounter, episodic and context
dependent. The latest scientific and clinical methodologies and models will be
used to normalize and link clinical outcomes and cost data with patient care
episodes across the continuum of care.
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STANDARD RESEARCH STUDIES AND REPORTS. The Knowledge Bank will produce general
distribution publications and standardized reports that target all major markets
for clinically-based healthcare information. These products may often be the
initial product purchased by a non-physician customer. The products will be
developed from specific portions of the Company's data warehouse and feature
particular views or niches (e.g., national or regional views by a specialty for
outcomes, costs for procedure, disease/diagnosis group or protocol). "Best
Demonstrated Practice" studies will report outcome measures and intervention
costs for various diagnosis/disease groups per specialty. These studies consist
of evidence-based, rigorous scientific identification of best practices as
demonstrated from clinical results.
Most standardized reports will be sold as annual renewable subscriptions or on
a multi-year contract. Products intended for general distribution will be
available in a variety of standardized formats that should appeal to broad
audiences. These products will range from structured statistical reports to
more complex analyses.
STRATEGIC RELATIONSHIPS. The Company intends to enter into strategic
relationships with organizations of providers, managed care and integrated
delivery networks, whereby the Company will build a database for such
organizations and provide services to the organizations and their members.
These organizations could include state medical societies, medical specialty
associations and various healthcare provider organizations.
SUPPLIER SERVICES. The distribution system for medical products is rapidly
realigning as a result of industry changes (such as the use of pharmacy benefits
managers and consolidation of hospital group purchasing organizations). These
entities select and purchase a medical product based not only on the product's
ability to resolve medical conditions, but also on its demonstrated ability to
minimize total treatment costs. As a result, PIE believes its benefit/cost and
outcomes analysis can be a vital tool for the successful marketing of drugs,
medical devices and supplies in the future.
Information used to provide supplier services will be derived from PIE's
database and will support pharmaceutical, medical supply and device companies as
well as biotechnology companies in market analysis, product positioning,
benefit/cost analyses and outcomes analyses.
CONSULTING SERVICES. Consulting clinicians, knowledge engineers and technicians
will provide the expertise to prepare the customized analysis, as well as
perform research, data mining and customer reporting. These clinicians,
engineers and technicians will also support customers in their use of the
Company's decision support tools. PIE personnel will provide expertise and
knowledge in resolving issues such as stratification and granularity of data or
exploratory and confirmatory data analysis as well as how to account for
confounding and colinearity. It is anticipated that the bulk of the consultants'
time will be spent on original custom research for PIE's clients.
BENEFITS. The Company believes that some of the benefits of the Knowledge Bank
are:
. Normalized information on outcome measures and full absorption costs to
support the active management of chronic disease processes across the
continuum of care.
. Utilization management information that captures resource consumption for
disease groups rather than measuring departmental productivity.
. Outcomes assessment data focusing on treatment and patient outcome
measures rather than indirect links to outcomes through process
measurements (e.g., immunization levels or mammography screen rates).
. Healthcare research data that captures diagnosis, severity of condition,
functional status after treatment, recovery time and treatment paths
rather than billing information.
. Information to facilitate healthcare resource management using the tools
of process re-engineering, protocol and guideline assessment as well as
trend analysis.
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. Ability to identify the "Best Demonstrated Practice" across the country
that produce the best outcomes and cost effectiveness per disease group.
. Access to the "Best Demonstrated Practice" protocols; their associated
therapeutic resources (e.g., therapy in lieu of surgery or vice versa)
and the intensity with which those resources are historically applied.
. Enabling of a physician-driven, experienced-based collaborative approach
to joint development of treatment protocols and guidelines.
. Normalized comparison of clinically-derived data and outcome measures that
enables insight into disease management by pharmaceutical companies,
medical device manufacturers and other industry participants.
. Early identification of emerging trends and changing patterns in
healthcare practices.
. Epidemiological analysis of trends as well as a retrospective research
resource for disease prevalence.
. Evidence-based, normalized outcome and cost data from which to conduct
healthcare policy and economic research.
. Communication of "Best Demonstrated Practices" in an educational manner
for collaborative process improvement as well as protocol development.
. Empowerment of physicians to practice the Continuous Quality Improvement
approach to outcomes using benchmark comparisons with the "Best
Demonstrated Practices" across the country.
. Provision of meaningful cohort analysis of patient populations by severity
and disease groupings.
CONFIDENTIALITY OF CLINICAL INFORMATION
PIE understands the public's patient-confidentiality concerns. Additionally,
PIE concurs with those who believe that the health professionals they engage can
be trusted to keep their records confidential and not misuse them. Given the
physician's practical experience regarding patient confidentiality, PIE has
taken the position that its security system will exceed the "trustee" system
requirements currently being proposed before the United States Congress. This
"trustee" system defines any one who comes into contact with individually
identifiable health information (i.e., "protected" health information) as a
health information "trustee." Proposed protection is afforded against
unauthorized disclosure via a deterrence structure of civil and criminal
penalties. While the Company supports this protection of patient privacy, it
does not believe that the "trustee" system is adequate.
The PIE Confidentiality Security System will function like a safety deposit
box in a bank. In other words, the contents (information) of the box can be
retrieved only with a combination of keys from the correct bank (PIE) and the
customer (physician/patient). Physicians and patients will be able to select the
information that will be unaccessible to others. The Company's security system
not only encourages authorized usage of clinical data, it mandates its
enforcement by designing the system to only access protected data through
physicians at their office. PIE employees and all other non-physician users of
PIE information are denied access to protected patient information unless a
specific use authorization for such information is provided by the patient.
PIE does not believe that non-physician groups (government or private) need to
access healthcare data that can be linked to an individual patient. PIE does
not intend to provide a source of data for unauthorized access and will not have
the capability to respond to court orders for individual patient healthcare
information. This information will continue to be accessible only through the
attending physician's office. Therefore, PIE has designed its security system
using one-way encryption that allows healthcare information identified with a
specific patient to be retrieved only in the physician's office, as it is today.
All patient information will receive maximum security status whereby all
information is completely protected (locked) from access without the patient's
specific approval. Consistent with current physician practice, PIE's security
system will require emergency, new or referral physicians to receive the
patient's authorization and social security number prior to the emergency, new
or referral physician receiving the patient's healthcare information. In
addition, the PIE security system requires a PIE physician to use his PIE-
physician password and request the patient information through his clinic's one-
way encryption device. Patients may elect even further security by requesting a
patient password that would be required to obtain the patient's medical records.
This password would be required of physicians in addition to PIE's other
security measures. PIE will also maintain audit trails of all requests for
patient information.
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<PAGE>
SERVICES AND PRODUCT DEVELOPMENT
The Company is investigating new technologies and engaging in product
development activities to enhance the ability of physicians and other providers
to provide higher quality healthcare at lower cost. The Company's goal is to
accomplish this by increasing access to CRIS, the Exchange and the Knowledge
Bank. Additional Company goals are to lower barriers to user acceptance,
improve reliability and enhance performance as well as expand access to current
decision-relevant clinical and cost information. Development activities will be
conducted in cooperation with and under the review of the Company's Advisory
Council, which provides medical specialty-specific requirements, product design
suggestions and beta test user sites. The Company is committed to a substantial
and sustained focus on product development in order to continuously improve the
knowledge base used by PIE's physician-shareholders and customers.
The Company's strategic development initiatives are to follow the "Best of
Breed" approach by leveraging the best available software to support clinical
data collection in the physician's clinic and at the hospital. The Company's
initial development efforts will focus on creating a national network of
regional data repositories. PIE will cooperate with other vendors to permit
integration with major practice management and accounts receivable systems.
The Company's product development project has three phases. The Company
expects phase one (the initial CRIS version) will be commercially available by
the first quarter of 1997. The subsequent two phases are expected to produce
clinical information exchange software and regional and national clinical
repositories that should be commercially available during 1997. PIE's phased
approach is predicated upon the data volume dynamics depicted in the graph
below:
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[THIS IS A CHART THAT DEPICTS THE FACT THAT ACCESSIBILITY TO LARGER VOLUMES
OF CLINICAL DATA FACILITATES HIGHER VALUE INFORMATION REPORTING USAGES.]
ASSET CREATION
PIE is creating a strategic relationship with physician-shareholders to
resolve the expensive proposition of collecting, enriching and distributing
significant quantities of clinically-derived information. PIE's solution is to
provide CRIS software to physician-shareholders without charge. (This allows
PIE to normalize the interface and data elements among users and thereby collect
statistically significant quantities of data in an economically and
technologically feasible manner.) In return, the physicians participate in the
automated sharing of abstracted clinical information with PIE's information
repositories. This distribution method is designed to facilitate a rapid
service rollout and begin creation of clinical information repositories as
quickly as the software is installed. Once installed, the physician-
shareholders provide a continually expanding clinical information base.
MAINTENANCE FEES
It is anticipated that annual physician maintenance fees for CRIS (without
regard to hardware costs) initially will be $850 per year per physician,
collected on an advance basis. However, the Company has no interest in retaining
any maintenance fee net income from its physician-shareholder customers.
Therefore, the Company has developed a formula to reallocate the "maintenance
fee net income," as defined below, to those physician-shareholders most
responsible for disseminating medical knowledge to their specialty. (The
Company anticipates that there will be approximately 50 specialty categories.)
Maintenance fee net income is equal to maintenance fee revenue less Company
expenses related to maintenance releases, help desk and software support,
documentation, expenses incurred by Advisory Council members in the normal
conduct of Company
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business, and related general and administrative expenses. Maintenance fee net
income will be allocated as follows:
. 40% Current Advisory Council members (40% of each specialty's maintenance
fee net income will be divided among that specialty's Advisory Council members)
. 30% Original Advisory Council members ("Founders") (30% of each specialty's
maintenance fee net income will be divided among that specialty's Founders for
the first five years of the Advisory Council)
. 15% Current Advisory Council members (15% of the total maintenance fee net
income from all specialties will be divided pro rata to the various Advisory
Council members in each specialty, based upon the number of physician-
shareholders in a specialty relative to the total physician base in that
specialty)
. 15% Non-Advisory Council Physician-shareholders (15% of each specialty's
maintenance fee net income will be divided pro rata among that specialty's
physician-shareholders who are not Advisory Council members and who make a good
faith effort, as determined by the Board of Directors, to make a medical
knowledge contribution during the year to their fellow specialists through PIE's
medical knowledge base (e.g., new or modified clinical protocol))
Any maintenance fee net income not allocated above, such as to Founders after
five years, will be allocated on a yearly basis by the Board of Directors to
Advisory Council members, physician shareholders making medical contributions to
PIE, or as dividends to physician shareholders. In addition, the Board of
Directors, in its discretion, may provide additional incentives to attract and
retain certain Advisory Council members, such as providing CRIS software at no
charge.
CUSTOMERS
PIE anticipates that its customers for the ambulatory care CRIS will be
physicians located throughout the United States. Anticipated customers for the
Exchange services will be physicians, integrated delivery systems and payers
located throughout the United States. The customers for the Knowledge Bank
services will include integrated delivery systems, payers, major providers,
provider groups, managed care organizations, bio/pharmaceutical companies,
research institutions and government agencies, as well as physicians and
organizations needing current, clinically derived, outcomes-based data and cost
information.
Healthcare suppliers, which include pharmaceutical, biotechnology, as well as
medical supply and device companies are a particularly strong customer market.
Historically, suppliers have marketed their products based on specific
attributes. However, given the increasing emphasis on cost and efficiency, and
in order to restrict physician choices, suppliers are increasingly required to
differentiate the clinical and economic utility of their products from the
alternatives. When the entire cost of treating an illness is considered, the
selection of a high per-unit cost therapy may be justified based on its lower
overall cost (with equivalent or better outcomes) for the treatment of that
illness. This "higher per unit cost" and lower overall cost is possible if the
higher per-unit cost therapy actually shortens the duration or intensity of the
illness.
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<PAGE>
SALES AND MARKETING
The Company's marketing efforts are organized into physician marketing,
general corporate marketing, customer communication programs and target
marketing. Physician marketing is designed using the "pull-through" or "add-on"
approach of offering CRIS without charge to all PIE physician-shareholders. The
physician-shareholder customer base will be further developed by PIE paying
royalties to physicians who transfer clinical data to other physicians and
authorized users in an electronic format through the Exchange. In return,
physician-shareholders will participate in the automated sharing of their
abstracted clinical data with PIE's information repositories. Medical
societies, specialty associations and a variety of other means will be used to
introduce the "no-charge" service opportunity to the physician community.
Introduction methods will include direct mail, seminars, telemarketing,
presentations at industry events and trade shows as well as speaking
engagements.
The general corporate marketing activities will include press releases,
customer testimonials, presentations at industry events and trade shows as well
as advertising. PIE intends to seek opportunities to create name recognition as
a leading provider of healthcare clinical and cost information. As part of this
strategy, the Company will attempt to be quoted widely in media and have its
senior officers frequently speak at conferences and serve on the editorial
boards of industry newsletters and publications. In addition, the Company
intends to seek opportunities to use its physician base of customers, network
and information to form strategic marketing relationships.
The Company's Advisory Council representatives will lead the customer
communications programs for their respective representative specialties. This
will entail interpreting and prioritizing annual customer satisfaction surveys,
providing reviews and critiques of proposed services, chairing their specialty
user groups, as well as being visible and available at industry events and trade
shows.
Utilizing target marketing, the Company will communicate directly with
targeted decision makers, consultants, researchers and policy makers in the
healthcare community using seminars, direct mail and telemarketing to sell
lower-priced general distribution and standardized reports. Many of these
products will be specifically designed to increase the visibility of the Company
as a industry-leading source of healthcare clinical information. This existing
customer base will then become the target of a direct sales approach for PIE's
more sophisticated and expensive customer research reports and analysis. The
Company's field sales force will be highly specialized with access to the
Company's Advisory Council as well as physicians, pharmacists and other
clinicians on staff.
COMPETITION
The market for healthcare information products and services is intensely
competitive. Competitors vary in size and in the scope and breadth of products
and services offered, and the Company competes with different companies in each
of its target markets. Many companies that now provide claims-based data are
trying to enter the clinically-derived data market. The Company's competitors
have significantly greater financial, technical, product development and
marketing resources than the Company. Furthermore, other major information
companies not presently offering clinical healthcare information services may
enter the markets in which the Company competes. The Company's potential
competitors include specialty healthcare information companies, healthcare
information system and software vendors and large data processing and
information companies. Many of these competitors have substantial installed
customer bases in the healthcare industry and the ability to fund significant
product development and acquisition efforts.
The Company believes that the principal competitive factors in the healthcare
network and clinical information markets are the physician acceptance of the
point-of-care interface, access to point-of-care clinical data, price and the
effectiveness of marketing and sales efforts. In addition, the Company believes
that the
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<PAGE>
speed with which information companies can anticipate and respond to the
evolving healthcare industry structure and identify unmet information needs is
an important competitive factor. The Company believes that it compares well and
will compete favorably with respect to each of these factors.
INTELLECTUAL PROPERTY
The Company will seek to protect its information through nondisclosure
agreements with its employees, contractors and vendors. The Company's policy is
to have employees enter into a nondisclosure agreement containing provisions
prohibiting the disclosure of confidential information to anyone outside the
Company, requiring disclosure to the Company of any new ideas, developments,
discoveries or inventions conceived during employment, and requiring assignment
to the Company of proprietary rights to such matters that are related to the
Company's business and technology. The Company also relies on a combination of
trade secret, copyright and trademark laws, contractual provisions and technical
measures to protect its rights in its tool and software technology. Due to the
nature of each, the Company believes that patent, trade secret and copyright
protection are less significant than the Company's ability to further develop,
enhance and modify its current services and products.
EMPLOYEES
The Company has chosen to contract its operations with independent contractors
and therefore delay hiring employees until after the effectiveness of the
offering.
LITIGATION
The Company is not a party to any litigation.
CORPORATE HEADQUARTERS
The Company's corporate headquarters are located at 1401 Hudson Lane,
Suite 202, Monroe, Louisiana 71201 and contain approximately 2,000 square feet
of office space. The Company believes that this space is adequate for its
current needs.
35
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the directors and
executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- --------------------------- --- ----------------------------
- ----------------------------------------------------------------
<S> <C> <C>
Dr. W. Ernest Rutherford 56 Chairman, Chief Executive
Officer and President
- ----------------------------------------------------------------
Ileta Rutherford 53 Vice President--Operations,
Secretary and Director
- ----------------------------------------------------------------
Philip A. Ratcliff 66 Vice President-Marketing
and
Director
- ----------------------------------------------------------------
Dr. Joan Blondin 58 Director
- ----------------------------------------------------------------
Robert L. Boyle, Jr. 52 Director
- ----------------------------------------------------------------
Dr. David Raines, Jr. 54 Director
- ----------------------------------------------------------------
- ----------------------------------------------------------------
</TABLE>
All officers are appointed by and serve at the discretion of the Board of
Directors. Directors serve for one-year terms or until their successor is duly
elected and qualified.
Dr. W. Ernest Rutherford - Dr. Rutherford - has served as Chairman, Chief
Executive Officer and President of the Company since its inception in December
1995. From 1990 to 1995, Dr. Rutherford served on the North Louisiana Hospital
Board of Directors (Columbia/HCA) and is currently a Clinical Associate
Professor at Louisiana State Medical Center and an Adjunct Professor at
Louisiana Tech University. In 1991, Dr. Rutherford began introducing the
Continuous Quality Improvement ("CQI") principles in his dialysis facilities,
which resulted in lower cost and higher quality (decreased mortality). As an
authority in the application of CQI to healthcare, he is frequently asked to
speak and is often quoted in the media. In 1990, Dr. Rutherford co-founded the
Northern Louisiana Healthcare Alliance, bringing hospitals, doctors, businesses
and insurance companies together to study the quality and cost issues in
healthcare. In 1985, Dr. Rutherford founded Matrix Plus, a computer software
company, and has served as President and a director since its inception. Since
1979, Dr. Rutherford has been a partner in Nephrology Consultants, a medical
consulting firm and was the head of the Renal Division of the Wash. U. Service
at St. Louis City Hospital, from 1973-1978, where he conducted independent
research funded with independent grants from the National Institute of Health.
During that time Dr. Rutherford authored 32 articles in international, peer-
reviewed scientific publications. In 1978, Dr. Rutherford entered private
practice in Monroe, Louisiana where he and his partners established five chronic
and two acute dialysis facilities serving all of northeast Louisiana.
Ileta Rutherford - Ms. Rutherford, the spouse of Dr. Rutherford, has served as
Vice President--Operations, Secretary and Director of the Company since December
1995. Since August 1993, Ms. Rutherford has held various positions at Matrix
Plus, including Chief Executive Officer, Secretary and Treasurer. Ms.
Rutherford is a licensed real estate agent with John Rea Reality and served on
the Board of Directors of the Louisiana Realtor Association from December 1991
to December 1995.
Phillip A. Ratcliff - Mr. Ratcliff has served as Vice President - Marketing of
the Company since May 1996 and as a Director of the Company since December 1995.
Since March 1994, Mr. Ratcliff has been an instructor at Webster Junior College
in Florida. Prior to retiring in April 1991, Mr. Ratcliff served as Chief
Executive Officer of AFCA Communications, Inc., an agency specializing in
marketing and investor public relations.
Dr. Joan Blondin - Dr. Blondin has served as a Director of the Company since
December 1995. Since 1978, Dr. Blondin has been a Partner in Nephrology
Consultants, a medical consulting firm. Dr. Blondin has served as a medical
director of the North Louisiana Dialysis Center, a medical service provider,
since 1992. Dr. Blondin has been an active staff member at North Monroe
Community
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<PAGE>
Hospital and St. Francis Medical Center, since 1984 and 1978,
respectively. From 1980 to 1992, Dr. Blondin was President of the Northern
Louisiana Dialysis Center, Inc., a medical service provider.
Robert L. Boyle, Jr. - Mr. Boyle has served as a Director of the Company since
April 1996. Since September 1995, Mr. Boyle has served as Chief Executive
Officer of Cardiovascular Provider Resources, Inc. Since 1994, Mr. Boyle has
served as Executive Vice President and Chief Operating Officer of Camino
Healthcare. Since 1989, Mr. Boyle has served as Vice President-Administration
of the Palo Alto Medical Foundation, a physician multi-specialty group practice.
In addition, Mr. Boyle is currently the President-elect of the Medical Group
Management Association ("MGMA").
Dr. David Raines, Jr. - Dr. Raines has served as a Director of the Company
since December 1995. Since 1978, Dr. Raines has been in private practice at the
Gastroenterology Clinic, Inc. In addition, Dr. Raines has served as an
Associate of Medicine at Louisiana State University since 1980.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant extent, on the Company's
Chairman, Chief Executive Officer and President, Dr. Rutherford. The loss of
the services of Dr. Rutherford could have a material adverse effect on the
Company. The Company's future success will also depend in part upon its ability
to attract and retain highly qualified personnel. There can be no assurance
that the Company will be successful in attracting and retaining such personnel.
In order to protect itself against the possibility of loss of Dr. Rutherford's
services, the Company has taken out a Key Man Insurance policy on Dr. Rutherford
in the amount of $1,000,000.
EXECUTIVE COMPENSATION
The following table sets forth, for fiscal 1996, the compensation to be
awarded to Dr. Rutherford, the Company's Chief Executive Officer (the "Named
Executive Officer"). No executive officer of the Company received any salary or
bonus for fiscal 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION Awards PAYOUTS
---------- -------
- -----------------------------------------------------------------------------------------------------------------------
(A) (B) (C) (D) (E) (F) (G) (H) (I)
- -----------------------------------------------------------------------------------------------------------------------
OTHER SECURITIES
NAME AND ANNUAL RESTRICTED UNDERLYING ALL OTHER
PRINCIPAL COMPEN- STOCK OPTIONS/ LTIP COMPEN-
POSITION YEAR SALARY($) BONUS($) SATION($) AWARD(S)($) SARS(#) PAYOUTS($) SATION ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dr. W. Ernest 1996 40,000/(1)/ -- -- -- -- -- --
Rutherford
CEO/COB
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
/(1)/ Dr. Rutherford's salary is anticipated to increase to $273,500 in 1997.
38
<PAGE>
DIRECTOR COMPENSATION
Directors who are also employees of the Company receive no additional
compensation for services as directors. Nonemployee directors receive no annual
fee, but are reimbursed for all expenses incident to their service on the Board
of Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established two standing committees: The
Compensation Committee and the Audit Committee. Dr. Joan Blondin, Mr. Robert L.
Boyle, Jr. and Dr. David Raines, Jr. serve on the Compensation Committee and the
Audit Committee. The Compensation Committee is responsible for recommending to
the Board of Directors the Company's executive compensation policies for senior
officers and administering the 1996 Employee Stock Option Plan. See "--Stock
Option Plan." The Audit Committee is responsible for recommending independent
auditors, reviewing the audit plan, the adequacy of internal controls, the audit
report and management letter, and performing such other duties as the Board of
Directors may from time to time prescribe.
EMPLOYMENT AGREEMENTS
The Company anticipates that it will enter into employment agreements with
its employees containing certain confidentiality and noncompetition provisions.
ADVISORY COUNCIL
The Company believes that the PIE Advisory Council concept will become an
integral part of the Company's future success. Ultimately to consist of two or
three nationally recognized physicians in each major specialty, PIE expects to
have up to 150 Advisory Council members. The Advisory Council is the Company's
direct communication link to the physicians and their needs in each specialty.
The Company is currently forming the Advisory Council.
Specifically, it is anticipated that the Advisory Council will contribute
in the following manners:
. Represent the physician-shareholders as their inside voice to the Company's
Board of Directors.
. Provide the initial clinical protocol information and overall specialty-
specific requirements for service development and implementation purposes (by
Founders).
. Keep PIE informed of their specialty's specific needs by making technical
and medical information-related recommendations to the Board. This would
include suggestions on available medical knowledge banks or sources of
information that need to be integrated or connected at the "point-of-care."
(Additional recommendations might include new practice patterns, reengineering
ideas and specific ways that PIE could empower physicians to raise their quality
of care and lower the cost).
. Initiate committees in their specialty societies to perform the research
and information gathering functions necessary to secure the technical and
medical information described above. Such committees would relieve those
specialty Advisory Council members of the information-gathering functions. The
Advisory Council members would then convey such committees' information, and new
protocols, for example to PIE's Board, Advisory Council and Company technical
committees. (An example technical committee could be a Protocol Review
Committee.)
. Represent the Company at specialty-specific meetings.
. Work together as a group to reconcile differences between the needs of
specialties and make unified recommendations to the Board of Directors.
Selected Advisory Council members will serve on the following committees:
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<PAGE>
. Physician Interface Committee (reviewing design specifications for user
friendliness)
. Data Usage Policy Committee (trustee function)
ADVISORY COUNCIL COMPENSATION
Each Advisory Council member and each future Advisory Council member will
enter into a "sharing" agreement with the Company, pursuant to which each
Advisory Council member will receive a predetermined percentage of the Company's
maintenance fee net income. See "Business-Maintenance Fees." The allocation of
maintenance fee net income will generally be dependent upon the physician's
relationship to the specialty group that generated the maintenance net income.
STOCK OPTION PLAN
In February 1996, the Board of Directors adopted the 1996 Employee Stock
Option Plan (the "1996 Employee Plan"). The 1996 Employee Plan was also
approved by the shareholders of the Company in February 1996. The purpose of
the 1996 Employee Plan is to advance the interests of the Company by providing
additional incentives to attract and retain qualified and competent employees
and consultants of the Company and directors of the Company's subsidiaries, upon
whose efforts and judgment the success of the Company is largely dependent.
Nonemployee directors of the Company are not eligible to participate in the 1996
Employee Plan.
A total of 6,000,000 shares of Class B Common Stock have been reserved for
sale upon exercise of Employee Options granted under the 1996 Employee Plan. To
date, no Employee Options have been granted. The 1996 Employee Plan is
currently administered by the Compensation Committee of the Board of Directors,
which consists of three members of the Board of Directors. The 1996 Employee
Plan provides for adjustments to the number of shares under which 1996 Employee
Options may be granted, to the number of shares subject to outstanding 1996
Employee Options and to the exercise price of such outstanding Employee Options
in the event of a declaration of a stock dividend or any recapitalization
resulting in a stock split-up, combination or exchange of shares of Common
Stock.
The 1996 Employee Plan authorizes the granting of incentive stock options
("Incentive Options") and nonqualified stock options ("Nonqualified Options") to
purchase Class B Common Stock. No Incentive Option may be granted with an
exercise price per share less than the fair market value at the date of grant,
which is determined in the judgment of the Board of Directors, if the Common
Stock is not listed or admitted for trading. Nonqualified Options may be
granted with any exercise price determined by the administrator of the 1996
Employee Plan, but shall not be less than 85% of the fair market value at the
date of grant. The exercise price of an Employee Option may be paid in cash, by
certified or cashier's check, by money order, by personal check or by delivery
of already owned shares of Common Stock having a fair market value equal to the
exercise price, or by delivery of a combination of cash and already owned shares
of Common Stock.
No Employee Option granted under the 1996 Employee Plan is assignable or
transferable, otherwise than by will or by laws of descent and distribution.
During the lifetime of an optionee, his Employee Option is exercisable only by
him or his guardian or legal representative. The expiration date of a Employee
Option is determined by the administrator at the time of the grant, but in no
event may a Employee Option be exercisable after the expiration of 10 years from
the date of grant of the Employee Option.
The administrator of the 1996 Employee Plan may limit an optionee's right
to exercise all or any portion of a Employee Option until one or more dates
subsequent to the date of grant. The administrator also has the right,
exercisable in its sole discretion, to accelerate the date on which all or any
portion of an Employee Option may be exercised. The 1996 Employee Plan also
provides that 30 days prior to certain major corporate events such as, among
other things, certain changes in control, mergers or sales of substantially all
of the assets of the Company
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<PAGE>
(a "Major Corporate Event"), each Employee Option shall immediately become
exercisable in full. In anticipation of a Major Corporate Event, however, the
administrator may, after notice to the optionee, cancel the optionee's Employee
Options on the consummation of the Major Corporate Event. The optionee, in any
event, will have the opportunity to exercise his Employee Options in full prior
to such Major Corporate Event.
If terminated for cause, all rights of an optionee under the 1996 Employee
Plan cease and the Employee Options granted to such optionee become null and
void for all purposes. The 1996 Employee Plan further provides that in most
instances an Employee Option must be exercised by the optionee prior to
termination of the consulting contract between such consultant and the Company
or termination of the optionee's employment with the Company, as the case may be
(for any reason other than termination for cause, mental or physical disability
or death), if and to the extent such Employee Option was exercisable on the date
of such termination. If the optionee is not otherwise employed by, or a
consultant to, the Company, his Employee Option must be exercised prior to the
date he ceases to be a director of a subsidiary of the Company. Generally, if
an optionee's employment or consulting contract is terminated due to mental or
physical disability, the optionee will have the right to exercise the Employee
Option (to the extent otherwise exercisable on the date of termination) for a
period of one year from the date on which the optionee suffers the mental or
physical disability. If an optionee dies while actively employed by, or
providing consulting services under a consulting contract to, the Company, the
Employee Option may be exercised (to the extent otherwise exercisable on the
date of death) within one year of the date of the optionee's death by the
optionee's legal representative or legatee.
NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
In February 1996, the Board of Directors adopted the 1996 Nonemployee
Director Stock Option Plan (the "1996 Director Plan"). The 1996 Director Plan
was also approved by the shareholders of the Company in February 1996. The
purpose of the 1996 Director Plan is to advance the interests of the Company by
providing an incentive to retain as independent directors persons of training,
experience and ability, to encourage a sense of proprietorship of such persons,
and to stimulate the active interest of such persons in the development and
financial success of the Company.
Options under the 1996 Director Plan ("Director Options") are granted only
to nonemployee directors of the Company. Director Options exercisable for
75,000 shares of Class B Common Stock are automatically granted to each
nonemployee director upon his initial election as a director. In the event a
non-physician is elected as a director of the Company, such shares of Class B
Common Stock will be converted to Class A Common Stock. Each Director Option
expires 10 years after its date of grant. An aggregate of one-third of the
total number of shares subject to such Director Option vest on each anniversary
date of the date of grant. Shares subject to a Director Option vest as to all
shares then subject to the Director Option upon the occurrence of a Major
Corporate Event. The 1996 Director Plan is, to the extent that discretion is
allowed pursuant to the terms of the 1996 Director Plan, administered by the
Board of Directors. For example, the Board of Directors may cancel outstanding
unexercised options granted under the 1996 Director Plan upon the consummation
of Major Corporate Events. In addition, the Board of Directors has certain
limited discretion in amending, modifying, suspending or discontinuing the 1996
Director Plan.
A total of 2,000,000 shares of Class B Common Stock have been reserved for
issuance upon exercise of Director Options granted under the 1996 Director Plan.
Director Options are granted with an exercise price per share equal to the fair
market value of such shares on the date of grant. The exercise price of a
Director Option may be paid in cash, by certified or cashier's check, by money
order, by personal check or by delivery of already owned shares of Common Stock
having a fair market value equal to the exercise price, or by delivery of a
combination of cash and already owned shares of Common Stock. The 1996 Director
Plan provides for adjustments to the number of shares under which Director
Options may be granted and to the exercise price of such outstanding Director
Options in the event of a declaration of a stock dividend or any
recapitalization resulting in a stock split-up, combination or exchange of
shares of Common Stock.
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<PAGE>
No Director Option granted under the 1996 Director Plan is assignable or
transferable, otherwise than by will or by laws of descent and distribution.
During the lifetime of an optionee, his Director Options are exercisable only by
him or his guardian or legal representative. In addition, no Director Option is
exercisable prior to the six-month anniversary of the date of grant for such
Director Option. The unexercised portion of a Director Option automatically and
without notice terminates and becomes null and void and is forfeited 10 years
after the date of grant of such Director Option.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Decisions concerning executive compensation for fiscal 1996 will be made by
the compensation committee of the Company. Descriptions of certain transactions
between the Company and members of its Board of Directors are set forth under
"Certain Relationships and Related Transactions." The Board of Directors of the
Company has established a Compensation Committee. See "--Committees of the
Board of Directors."
None of the executive officers of the Company currently serves on the
compensation committee of another entity or any other committee of the board of
directors of another entity performing similar functions.
CERTAIN TRANSACTIONS
TRANSACTIONS WITH MATRIX PLUS
In November 1995, the Company entered into an agreement with Matrix Plus,
Inc., a company controlled by Dr. Rutherford, the Chairman, Chief Executive
Officer, President and a principal shareholder of PIE, to purchase from Matrix
the MR1 Clinical Record System software developed by Matrix, in consideration
for the issuance of 200,000 shares of Class A Common Stock of PIE. The purchase
price was determined by arm's-length negotiations between Matrix and PIE, based,
in large part, upon the software developer's estimation of the value of the
software (considering development costs and expenses). The transaction was
approved by a majority of the independent, disinterested members of Board of
Directors of the Company on terms no less favorable to the Company than could be
obtained from unaffiliated parties. It is anticipated that the Company will
consummate the purchase upon the effectiveness of the offering. See "Plan of
Operation-Matrix Plus Purchase Agreement."
In addition, effective January 1996, the Company began leasing office space
on a month-to-month basis from Matrix for $585 per month.
ORGANIZATION OF THE COMPANY
The Company was formed in November 1995 by Dr. Rutherford, at which time
Dr. Rutherford was issued 75,000,000 shares of Class B Common Stock, in
consideration of his payment of approximately $75,000 in costs and expenses of
the Company.
TRANSACTIONS WITH DR. RUTHERFORD
In November 1995, the Company issued a promissory note in the aggregate
principal amount of $189,358 to Dr. Rutherford in consideration of certain
advances made by Dr. Rutherford to the Company. It is anticipated that after
the effectiveness of the offering, such note will be exchanged for 189,358
shares of Class B Common Stock.
In addition, Dr. Rutherford has agreed to personally fund any additional
offering expenses in exchange for a non-interest bearing promissory note of the
Company. Dr. Rutherford and the Company have agreed that in the event the
Company sells less than $1,000,000 of its securities through this offering, the
new note will be converted into Class B Common Stock at a conversion price of
$1.00 per share. In the event the Company sells in excess of $1,000,000 of its
securities through this offering, Dr. Rutherford will have the option to convert
the new note into Class B Common Stock or accept a cash payment.
POLICY REGARDING FUTURE TRANSACTIONS BETWEEN THE COMPANY AND RELATED PERSONS
All future transactions between the Company and its officers, directors and
principal shareholders or affiliates of any such persons must be on terms no
less favorable to the Company than could be obtained
42
<PAGE>
from unaffiliated parties, and such transactions must be approved by a majority
of the independent and disinterested directors of the Company.
43
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
AND PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of Class A and Class B Common Stock as of March 26, 1996, by each
person or group who owned, to the Company's knowledge, more than five percent of
the Common Stock, each of the Company's directors, the Company's Chief Executive
Officer, and all of the Company's directors and executive officers as a group.
<TABLE>
<CAPTION>
TITLE OF CLASS SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
NAME OF COMMON STOCK PRIOR TO THE OFFERING/(1)/ AFTER THE OFFERING/(1)/
- ------------------------------ ------------------ --------------------------- -------------------------
PERCENT PERCENT
NUMBER OF CLASS/(2)/ NUMBER OF CLASS/(3)/
--------------------------- -------------------------
<S> <C> <C> <C>
Dr. W. Ernest Rutherford/(4)/ Class A 200,000/(5)/ 87.0% 200,000/(5)/ 1.3%
Class B 75,189,358/(6)/ 99.7 75,189,358/(6)/ 78.8
Ileta Rutherford -- -- -- -- --
Dr. Joan Blondin -- -- -- -- --
Robert L. Boyle, Jr. -- -- -- -- --
Dr. David Raines, Jr. Class B 200,000 * 200,000 *
All directors and
executive officers as a group Class A 200,000 87.0 200,000 1.3
(5 persons) Class B 75,389,358(2) 99.9 75,389,358/(2)/ 79.0
</TABLE>
- ---------------
* Represents less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "Commission") and generally includes
voting or investment power with respect to the securities. Except as indicated
in the footnotes to this table and subject to applicable community property
laws, the persons named in the table have sole voting and investment power with
respect to all shares of Common Stock beneficially owned.
(2) Based on 230,000 shares of Class A Common Stock outstanding and 75,429,358
shares of Class B Common Stock. See footnote (6).
(3) Based on 15,230,000 shares of Class A Common Stock outstanding and
95,427,058 shares of Class B Common Stock. See footnote (6).
(4) Includes 74,875,882 shares of Common Stock that Dr. Rutherford has agreed to
hold in escrow pursuant to certain state blue-sky requirements. The escrow
agreement provides that the shares will be held in escrow until the earliest of
(i) the Company achieving in each of two consecutive fiscal years fully diluted
net earnings per share of at least $.10, (ii) the Company achieving during any
five consecutive fiscal years accumulated fully diluted net earnings per share
of at least $.30, (iii) the Company's Common Stock trading in a reliable public
market at a price per share of at least $1.75 for a period of at least 90
consecutive days after at least one year from the effective date of this
offering, (iv) subject to certain restrictions, a tender offer or offer to merge
or otherwise acquire the Company's Common Stock (occurring after the 18th month
anniversary of this offering) in which all stockholders of the Company receive
cash or publicly traded securities, or (v) the sixth anniversary of this
offering (and on each anniversary thereafter) at which time 20% of the escrowed
shares will be released.
(5) Includes 200,000 shares expected to be issued upon effectiveness of the
offering to Matrix Plus, Inc. See "Certain Transactions-Transactions with
Matrix Plus."
(6) Includes 189,358 shares expected to be issued after the effectiveness of the
offering in satisfaction of a $189,358 note issued by the Company for advances
made by Dr. Rutherford to the Company. See "Certain Transactions."
DESCRIPTION OF CAPITAL STOCK
The Company is a Texas corporation that is authorized to issue 505,000,000
shares of capital stock, of which 250,000,000 shares are Class A Common Stock,
$.001 par value per share, 250,000,000 shares are Class B Common Stock, $.001
par value per share, and 5,000,000 shares are Preferred Stock, $.001 par value
per share.
GENERAL
The following summary description is qualified in its entirety by reference
to the Company's Articles of Incorporation, which are filed as an exhibit to the
Registration Statement on Form SB-2 (the "Registration Statement") of which this
Prospectus is a part. Currently, there are five recordholders of the Common
Stock.
44
<PAGE>
PREFERRED STOCK
The Board of Directors is authorized to amend the Articles of
Incorporation, without further action by the Company's shareholders, to issue
Preferred Stock from time to time in one or more series and to fix, as to any
such series, the voting rights, if any, applicable to such series and such other
designations, preferences and special rights as the Board may determine,
including dividend, conversion, redemption and liquidation rights and
preferences. There are no shares of Preferred Stock outstanding.
CLASS A AND CLASS B COMMON STOCK
Voting Rights. With respect to all matters submitted to a vote of the
shareholders, the record holders of the Class A Common Stock are entitled to one
vote per share and the record holders of Class B Common Stock are entitled to 10
votes per share. Except as may otherwise be required by law or by the Articles
of Incorporation, the holders of the Class A and Class B Common Stock vote
together as a single class.
Dividend and Liquidation Rights. The record holders of shares of Class A
and Class B Common Stock shall be entitled to receive such dividends and
distributions as may be declared thereon by the Board of Directors out of the
Company's funds legally available therefor. However, no such dividends or
distributions may be paid unless the holders of both classes receive the same
per share dividend, as if such classes constituted a single class. In the case
of dividends payable in shares of Class A and Class B Common Stock, or stock
splits or subdivisions involving such stock, holders of each such class are
entitled to receive only shares of the class held by them.
Upon liquidation or dissolution of the Company, whether voluntary or
involuntary, all of the holders of Class A and Class B Common Stock are entitled
to share ratably in the assets available for distribution after payment of all
prior obligations of the Company, including a $1.00 per share liquidation
preference to holders of Class A Common Stock and any liquidation preferences
granted to any future holders of Preferred Stock.
Transferability and Convertibility. The Class A Common Stock is freely
transferable, subject to applicable securities laws. The Class B Common Stock
may be held only by licensed medical doctors (i.e., M.D.s and D.O.s) (each a
"qualified holder"). Consequently, the transfer of Class B Common Stock is
restricted by the Articles of Incorporation to transfers to a "Permitted
Transferee," as defined below.
If a holder of shares of Class B Common Stock transfers any such shares to
any person or entity other than a "Permitted Transferee," such transfer, without
any further action of the parties or the Company, shall automatically and
irrevocably convert such shares into an equal number of shares of Class A Common
Stock and the transferee shall be deemed a holder of such shares of Class A
Common Stock from the date of such transfer. The term "Permitted Transferee"
shall mean only:
(i) a qualified holder;
(ii) the trustee of a trust for the sole benefit of a qualified
holder;
(iii) a partnership (which may include a limited liability
partnership) made up exclusively of qualified holders or a corporation
(which may include a professional corporation or a limited liability
corporation) wholly owned by qualified holders or a professional
association made up of exclusively qualified holders; provided, however,
that as of the date that such partnership or corporation is no longer
comprised of or owned exclusively by qualified holders, such partnership or
corporation will no longer be a Permitted Transferee and any Class B Common
Stock held by it shall be automatically and irrevocably converted into
Class A Common Stock without any further action of the parties or the
Company; or
(iv) a pledgee of a qualified holder, provided that such pledgee
becomes a pledgee of a qualified holder by reason of the grant by such
qualified holder to the pledgee of a lien on or security interest in or
other similar encumbrance on any shares of Class B Common Stock or any
interest therein created for the purpose of securing the repayment of
borrowings extended by the pledgee to such qualified holder; provided,
further, however, as of the date that such pledgee (or any successor or
assign of such pledgee) forecloses upon such lien, security interest or
encumbrance or otherwise becomes the owner of such shares
45
<PAGE>
of Class B Common Stock or interest therein following a default upon such
borrowings or for any other reason, such pledgee will no longer be, and its
transferee(s) and/or assign(s), if any, shall not be, a Permitted
Transferee and any shares of Class B Common Stock held or transferred by it
or its assigns shall be automatically and irrevocably converted into Class
A Common Stock without any further action of the parties or the Company.
To provide liquidity to holders of Class B Common Stock, the Articles of
Incorporation provide that each share of Class B Common Stock is convertible at
any time at the option of the record holder into one share of Class A Common
Stock. A shareholder desiring to sell an equity interest represented by Class B
Common Stock could thereby convert and sell, subject to applicable securities
laws, shares of Class A Common Stock. Shares of Class B Common Stock will be
automatically converted into an equal number of shares of Class A Common Stock
upon transfer to any person other than a Permitted Transferee. Once converted,
shares of Class B Common Stock shall be canceled and not reissued.
Preemptive Rights. The holders of Class A and Class B Common Stock do not
have any preemptive, subscription, conversion (other than as described above) or
redemption rights, and are not subject to calls, assessments or rights of
redemption by the Company. The outstanding shares of Class A and Class B Common
Stock are, and the shares offered hereby will be, duly authorized and issued,
fully paid and non-assessable.
Effect of Subsequent Issuances and of Dual Classes. The Articles of
Incorporation authorize the issuance of 250,000,000 million shares of Class A
Common Stock, 250,000,000 shares of Class B Common Stock and five million shares
of Preferred Stock.
The authorized and unissued shares of Class A Common Stock, Class B Common
Stock and Preferred Stock may be utilized for various purposes, including
possible future acquisitions. The Company currently does not have plans to
issue any shares of Common Stock, Class B Common Stock or Preferred Stock, other
than the sale of the shares of Class A Common Stock and Units of Class B Common
Stock offered hereby, and pursuant to the Company's stock option plans.
One of the effects of the existence of authorized but unissued Class A and
Class B Common Stock and undesignated Preferred Stock may be to enable the Board
of Directors to make more difficult or to discourage an attempt to obtain
control of the Company by means of a merger, tender offer, proxy contest or
otherwise, and thereby to protect the continuity of the Company's management.
If, in the due exercise of its fiduciary obligations, the Board of Directors
were to determine that a takeover proposal was not in the Company's best
interest, such shares could be issued by the Board of Directors without
shareholder approval in one or more transactions that might prevent or render
more difficult or costly the completion of the takeover transaction by diluting
the voting or other rights of the proposed acquiror or insurgent shareholder
group, by putting a substantial voting block in institutional or other hands
that might undertake to support the position of the incumbent Board of
Directors, by effecting an acquisition that might complicate or preclude the
takeover, or otherwise.
Certain state securities laws restrict issuers with dual classes of common
stock from offering equity securities or restrict the secondary trading of
equity securities of such issuers. The Company does not believe that any such
state law restrictions will have a material adverse effect on the amount of
equity securities the Company will be able to offer or the price obtainable for
such securities by the Company or by shareholders in the secondary trading
market.
The Company's transfer agent and registrar for the Common Stock is KeyCorp
Shareholder Services, Inc.
INDEMNIFICATION PROVISIONS
The Company is a Texas corporation. Section 2.02-1 of the Texas Business
Corporation Act (the "Act") provides authority for broad indemnification of
officers, directors, employees and agents of a corporation. The Act also
permits a corporation to purchase and maintain liability insurance on behalf of
any such officer, director, employee or agent of a corporation.
46
<PAGE>
Article VIII of the Company's Articles of Incorporation provides that the
Company will indemnify its directors, officers, employees and agents to the
fullest extent currently allowed by the Act and will have the power to purchase
and maintain liability insurance on behalf of such persons. At the present
time, the Company is in the process of obtaining liability insurance. The
Company does not have indemnification agreements with any of its directors or
officers.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
PLAN OF DISTRIBUTION
The Company is effecting this offering of securities on a "best efforts"
basis through its officers and employees without the use of an underwriter,
broker or dealer. However, the Company may engage underwriters, broker/dealers
or securities dealers to assist in the offering. The Company may sell Class A
Common Stock or Units to or through underwriters, broker/dealers or a group of
such persons, directly to other purchasers, or through agents. The Company also
may, from time to time, authorize dealers, acting as the Company's agents, to
solicit offers to purchase the offered Class A Common Stock or Units upon the
terms and conditions set forth in this Prospectus or a supplement hereto.
Investor funds will be held in escrow until a minimum of $300,000 in securities
of the Company are sold pursuant to this offering. In the event the Minimum
Offering is not sold on or before ________________, 1998, the offering will be
terminated and the escrowed funds, plus any interest earned thereon, will be
promptly returned to the investors. Upon the sale of the Minimum Offering, the
escrowed funds will be released to the Company. Any subsequent sales with
respect to this offering will continue to be held in the subscription escrow,
but will be immediately available for use by the Company upon the Company's
request. Escrowed Funds will be invested in short-term, investment grade,
interest-bearing securities and deposit accounts.
In connection with the sales of Class A Common Stock or Units,
underwriters, broker/dealers or agents may receive compensation from the Company
or from purchasers of Class A Common Stock or Units for whom they may act as
agents, in the form of discounts, concessions or commissions. Underwriters,
broker/dealers and agents that participate in the distribution of Class A Common
Stock or Units may be deemed to be "underwriters," and any discounts or
commissions received by them and any profit on the resale of Class A Common
Stock or Units may be deemed to be underwriting discounts and commissions under
the Securities Act. Any such underwriter, broker/dealer or agent may be
entitled to indemnification by the Company against certain liabilities,
including liabilities under the Securities Act. In the sole determination of
management, the Company may pay the persons effecting the offering, excluding
its officers and employees, commissions of up to 10% of sales made, as allowed
by applicable law; provided, however, that the Company will not pay commissions
on the first $300,000 of securities sold hereby.
To purchase securities in this offering an investor must fully complete and
sign a subscription agreement and make payment for the amount of securities
subscribed for. The Company intends to accept in the order received properly
completed subscriptions and payments for subscription amounts from investors.
Upon achievement of the maximum subscription amount for the offering, any
subsequently received subscriptions will not be accepted by the Company and will
be promptly returned. Prior to the Company achieving the Minimum Offering, a
subscriber may revoke or cancel his subscription. However, once the Minimum
Offering is achieved, a subscriber may not revoke or cancel his subscription
without the prior written consent of the Company.
The Company reserves the right, in its absolute discretion, to reject any
subscriptions, in whole or in part, for the purchase of Class A Common Stock or
Units. In the case of subscriptions that are rejected or partially rejected, the
Company will promptly refund the amount of the subscription price that has not
been accepted, without interest.
Prior to the offering, there has been no public market for the Common Stock
or the Units and none is likely to develop. The offering price of the Common
Stock was determined arbitrarily by the officers of the Company without arm's-
length negotiation. In determining such price, the Company considered
prevailing market conditions, the revenue and earnings potential of the Company,
estimates of the business potential of the Company, the present state of the
Company's business operations, and other factors deemed relevant.
47
<PAGE>
RISK OF INSUFFICIENT FUNDS FROM THIS OFFERING
This offering may be consummated by the Company upon the sale of as little
as $300,000 of securities of the Company. In the event the Minimum Offering is
achieved, such funds will be available to the Company for the purposes described
in "Use of Proceeds." Therefore, once the Minimum Offering is sold by the
Company, all of the investors' funds become subject to risk of loss. Management
believes that such risk of loss increases if the Company is not able to raise
significantly more funds than the Minimum Offering. Management does not expect
the Company to generate significant revenues from the sale of clinical abstract
data until the fiscal year 1998. Therefore, this offering is vital to the
continued operations of the Company. See "Plan of Operations." In addition,
although the Company may engage underwriters, broker/dealers or securities
dealers to assist in this offering, no such persons have been engaged.
Consequently, the Company is relying solely on the selling efforts of Dr.
Rutherford and Philip A. Ratcliff, as registered agents of the issuer.
TAX CONSIDERATIONS
The following discussion is a summary of the principal federal income tax
consequences of providing the CRIS software to shareholders in the manner
described elsewhere in this prospectus. The following discussion is based upon
the Internal Revenue Code of 1986, as amended (the "Code"), existing and
proposed regulations thereunder, reports of congressional committees, judicial
decisions and current administrative rulings and practices. Any of these
authorities could be repealed, overruled or modified at any time after the date
hereof. Any such change could be retroactive and, accordingly, could modify the
tax consequences discussed herein. No ruling from the Internal Revenue Service
(the "IRS") with respect to the matters discussed herein has been requested and
there is no assurance that the IRS would agree with the conclusions set forth in
this discussion.
This discussion is for general information only and does not address the
federal income tax consequences that may be relevant to particular shareholders
who may be subject to special treatment under the federal income tax laws. This
discussion does not address any tax consequences under state, local or foreign
laws.
PIE's provision of the CRIS software to a shareholder in exchange for the
shareholder's providing data to PIE may be treated as a taxable exchange for
federal income tax purposes. In that event, PIE should be treated as recognizing
income equal to the fair rental value of the software. PIE also should be
treated as having paid a like amount for the data it receives from the
shareholders. The payment for this data would be capitalized for federal income
tax purposes as either the purchase or cost of the creation of an intangible
asset. If PIE can establish that this asset has a limited useful life that is
ascertainable with reasonable accuracy, PIE should be allowed to amortize this
asset over that limited useful life.
Also, a shareholder who receives the CRIS software should be treated for
federal income tax purposes as recognizing income measured by the fair rental
value of the software but, if the shareholder uses the CRIS software in his
trade or business, he should recognize an offsetting deduction for data
furnished for the use of the CRIS software.
SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS AS TO THE PARTICULAR
TAX CONSEQUENCES TO THEM OF THE CRIS SOFTWARE EXCHANGE FOR SHAREHOLDER DATA,
INCLUDING THE APPLICABILITY OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, CHANGES IN
APPLICABLE TAX LAWS AND ANY PENDING OR PROPOSED LEGISLATION.
LEGAL MATTERS
The validity of the securities being offered hereby and the statements
in this Prospectus under the caption "Tax Considerations" will be passed
upon for the Company by Jenkens & Gilchrist, a Professional Corporation, Dallas,
Texas.
EXPERTS
The financial statements of the Company at December 31, 1995, and for
the period then ended, included in this Prospectus, have been audited by Jackson
& Rhodes, P.C., independent auditors, as set forth in their report appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
As a result of the offering, the Company will become subject to the
informational requirements of the Exchange Act of 1934, as amended. The Company
has filed a Registration Statement under the Securities Act of 1933, as amended,
with the Commission with respect to the securities offered pursuant to this
Prospectus. This Prospectus, which forms a part of the Registration Statement,
does not contain all of the information included in the Registration Statement
and the exhibits thereto. For further information, reference is made to the
Registration Statement and amendments thereto and to the exhibits thereto, which
are available for inspection without charge at the office of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549. Copies of the Registration
Statement may be obtained from the Commission at prescribed rates.
48
<PAGE>
REPORTS TO SHAREHOLDERS
The Company intends to furnish to its shareholders annual reports of
the Company containing audited financial statements. The Company will also
furnish, upon request from any shareholder, copies of any quarterly report filed
with the Commission.
49
<PAGE>
PHYSICIANS INFORMATION EXCHANGE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report..................................... F-2
Balance Sheets at March 31, 1996 (unaudited)
and December 31, 1995....................................... F-3
Statements of Operations for the Three Months
Ended March 31, 1996 (unaudited) and
for the Period from November 10, 1995
(Date of Inception) to December 31, 1995.................... F-4
Statements of Changes in Stockholders' Equity
for the Three Months Ended March 31, 1996 (unaudited)
and for the Period from November 10, 1995
(Date of Inception) to December 31, 1995.................... F-5
Statements of Cash Flows for the Three Months
Ended March 31, 1996 (unaudited) and
for the Period from November 10, 1995
(Date of Inception) to December 31, 1995.................... F-6
Notes to Financial Statements.................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Physicians Information Exchange, Inc.
We have audited the accompanying balance sheet of Physicians Information
Exchange, Inc. (a development stage company) as of December 31, 1995 and the
related statements of operations, changes in stockholders' equity and cash flows
for the period from November 10, 1995 (date of inception) to December 31, 1995.
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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Physicians Information
Exchange, Inc. (a development stage company) as of December 31, 1995, and the
results of its operations and its cash flows for the period from November 10,
1995 (date of inception) to December 31, 1995 in conformity with generally
accepted accounting principles.
As discussed in Note 6 of Notes to the Financial Statements, management of the
Company has discovered, in May 1996, that certain costs, aggregating
approximately $152,000, incurred during the period ended December 31, 1995,
previously classified as an asset, deferred offering costs, should have been
expensed. Accordingly, the accompanying financial statements have been restated
to correct the error.
Jackson & Rhodes P.C.
Dallas, Texas
May 29, 1996
F-2
<PAGE>
PHYSICIANS INFORMATION EXCHANGE, INC.
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
1996 1995
------------- ----------------
(unaudited) (restated)
<S> <C> <C>
Current assets:
Cash $ 171,469 $ 100,000
------------ ----------
Deferred offering costs 46,188 18,933
Organization costs 950 1,000
------------ ----------
$ 218,607 $ 119,933
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable - stockholder $ 450,013 $ 189,358
Accounts payable - trade 11,834 -
------------ ----------
Total current liabilities 461,847 189,358
------------ ----------
Commitments and contingencies - -
Stockholders' equity (deficit) (Note 4):
Preferred stock, $.001 par; 5,000,000
shares authorized; none issued - -
Common stock:
Class A, $.001 par; 250,000,000 shares
authorized; 10,000 shares issued and
outstanding 10 10
Class B, $.001 par; 250,000,000 shares
authorized; 75,260,000 and 75,240,000
shares issued and outstanding 75,260 75,240
Additional paid-in capital 259,730 249,750
Stock subscriptions receivable - (25,000)
Deficit accumulated during the
development stage (578,240) (369,425)
------------ ----------
Total stockholders' equity (deficit) (243,240) (69,425)
------------ ----------
$ 218,607 $ 119,933
============ ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
PHYSICIANS INFORMATION EXCHANGE, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from Period from
November 10, 1995 November 10, 1995
Three months ended (Date of Inception) to (Date of Inception) to
March 31, 1996 December 31, 1995 March 31, 1996
------------------ ---------------------- ----------------------
(unaudited) (restated) (unaudited)
<S> <C> <C> <C>
General and administrative expenses $ 208,815 $ 369,425 $ 578,240
------------ ------------- -------------
Net loss $ (208,815) $ (369,425) $ (578,240)
============ ============= =============
Net loss per common share $ 0.00 $ 0.00
============ =============
Weighted average shares outstanding 75,270,000 75,250,000
============ =============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
PHYSICIANS INFORMATION EXCHANGE, INC.
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the Period from November 10, 1995 (Date of Inception)
to December 31, 1995 and the Three
Months Ended March 31, 1996
<TABLE>
<CAPTION>
Common Stock Deficit
-------------------------------------- Accumulated
Class A Class B Additional Stock During the
---------------- -------------------- Paid-in Subscriptions Development
Shares Amount Shares Amount Capital Receivable Stage Total
------ ------ -------- --------- ---------- ------------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock (Note 4):
For notes receivable and services 10,000 $10 40,000 $ 40 49,950 $(25,000) $ - $ 25,000
For payment of costs - - 75,000,000 75,000 - - - 75,000
For cash and services - - 200,000 200 199,800 - - 200,000
Net loss (restated) - - - - - - (369,425) (369,425)
------ --- ---------- ------- -------- -------- --------- ---------
Balance, December 31, 1995 10,000 10 75,240,000 75,240 249,750 (25,000) (369,425) (69,425)
Collection of stock subscription - - - - - 25,000 - 25,000
Sale of common stock - - 20,000 20 9,980 - - 10,000
Net loss (unaudited) - - - - - - (208,815) (208,815)
------ --- ---------- ------- -------- -------- --------- ---------
Balance, March 31, 1996 (unaudited) 10,000 $10 75,260,000 $75,260 $259,730 $ 0 $(578,240) $(243,240)
====== === ========== ======= ======== ======== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
PHYSICIANS INFORMATION EXCHANGE, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from Period from
November 10, 1995 November 10, 1995
Three Months Ended (Date of Inception) to (Date of Inception) to
March 31, 1996 December 31, 1995 March 31, 1996
------------------ ---------------------- ----------------------
(unaudited) (restated) (unaudited)
<S> <C> <C> <C>
Cash flows from developmental activities:
Net loss $(208,815) $(369,425) $(578,240)
Adjustments to reconcile net loss
to net cash used in developmental activities:
Amortization 50 - 50
Common stock issued for services - 125,000 125,000
Common stock issued for payment of costs - 75,000 75,000
Changes in assets and liabilities:
Organization costs - (1,000) (1,000)
Accounts payable - trade 11,834 - 11,834
--------- --------- ---------
Net cash used in developmental activities (196,931) (170,425) (367,356)
--------- --------- ---------
Cash flows from financing activities:
Sale of common stock 35,000 100,000 135,000
Deferred offering costs (27,255) (18,933) (46,188)
Accounts payable - stockholder 260,655 189,358 450,013
--------- --------- ---------
Net cash provided by financing activities 268,400 270,425 538,825
--------- --------- ---------
Net change in cash and cash equivalents 71,469 100,000 171,469
Cash and cash equivalents:
Beginning of period 100,000 - -
--------- --------- ---------
End of period $ 171,469 $ 100,000 $ 171,469
========= ========= =========
</TABLE>
Non-cash transactions:
The Company issued 10,000 shares of Class A common stock and 240,000 shares
of Class B common
stock for notes receivable of $25,000.
See Note 4 for other non-cash transactions.
See accompanying notes to financial statements.
F-6
<PAGE>
PHYSICIANS INFORMATION EXCHANGE, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1995 and March 31, 1996
1. DESCRIPTION OF BUSINESS AND SUBSEQUENT EVENTS
Organization
Physicians Information Exchange, Inc. ("the Company" or "PIE") was formed
November 10, 1995. The Company was formed to introduce a new technology
service that saves the physician time while collecting clinical information
at the "point of care". This clinical information will provide structured
outcomes and clinical data necessary to improve quality care and lower
treatment cost. This technology service integrates the latest pen-based,
handheld, data collection and wireless data transfer technologies with a
robust knowledge database.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates based on
management's knowledge and experience. Due to their prospective nature,
actual results could differ from those estimates.
Basis of Presentation
The Company's financial statements have been presented on the basis that it
is a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company
has reported a net loss of $578,240 since inception and net cash resources
were used in developmental activities. The Company's future is dependent on
raising additional capital.
The Company intends to raise equity funds in the public market by filing a
registration statement with the Securities and Exchange Commission in 1996.
The Company's principal shareholder has continued to fund the Company's
developmental activities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited Interim Information
The accompanying financial information as of March 31, 1996 and for the
three months then ended has been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission. The financial statements reflect all adjustments which, in the
opinion of management, are necessary to make the financial statements not
misleading.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash and certificates of deposit with original maturities of less than
three months.
Deferred Offering Costs
Costs incurred in connection with the Company's prospective public offering
are being deferred and will be offset against the proceeds.
F-7
<PAGE>
PHYSICIANS INFORMATION EXCHANGE, INC.
(A Development Stage Company)
Notes to Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Organization Costs
Costs incident to the creation of the corporation, including various
accounting and legal fees, have been capitalized and are being amortized
over a five-year period.
Net Loss Per Common Share
Net loss per common share has been computed using the weighted average
number of shares outstanding during the period. Weighted average shares
include all shares of common stock issued for the entire period (cheap
stock).
Income Taxes
The Company accounts for income taxes pursuant to Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). The
objective of this asset and liability method is to establish deferred tax
assets and liabilities for the temporary differences between the financial
reporting basis and the tax basis of the Company's assets and liabilities
at enacted tax rates expected to be in effect when such amounts are
realized or settled.
3. INCOME TAXES
The Company has recorded no income tax benefit for the period because it
has no ability to carry back its operating loss. For tax purposes, the
Company is required to defer its operating losses until it begins to
receive operating revenues. These operating losses for tax purposes
amounted to approximately $217,000 at December 31, 1995. A valuation
allowance has been recorded to offset the related deferred tax asset for
this temporary difference since the Company, in accordance with SFAS 109,
deems it more likely than not that the deferred tax asset will not be
realized.
4. STOCKHOLDERS' EQUITY
Common Stock
With respect to all matters submitted to a vote of the shareholders, the
record holders of the Class A common stock are entitled to one vote per
share and the record holders of Class B common stock are entitled to 10
votes per share. Except as may otherwise be required by law or by the
Articles of Incorporation, the holders of the Class A and Class B common
stock vote together as a single class. The Class B common stock may be held
only by licensed medical doctors.
F-8
<PAGE>
PHYSICIANS INFORMATION EXCHANGE, INC.
(A Development Stage Company)
Notes to Financial Statements
4. STOCKHOLDERS' EQUITY (CONTINUED)
Common Stock (Continued)
Upon its formation on November 10, 1995, the Company issued 75,000,000
shares of Class B common stock to its founder, Dr. Ernie Rutherford, and
recorded $189,358 in accounts payable to Dr. Rutherford in exchange for Dr.
Rutherford's payment of $264,358 in costs and expenses for the Company. The
payable to Dr. Rutherford will be satisfied with shares of common stock at
the public offering price upon the successful completion of its public
offering.
As of December 31, 1995, the Company issued 200,000 shares of Class B
common stock to a shareholder of Matrix Plus, Inc. ("Matrix"), a company
owned by Dr. Rutherford, for $100,000 in cash. The Company recorded
$100,000 in compensation for this transaction.
As of December 31, 1995, the Company issued 40,000 shares of Class B common
stock and 10,000 shares of Class A common stock to two shareholders of
Matrix for $25,000 in cash. The Company recorded $25,000 in compensation
for this transaction.
Stock Option Plans
In February 1996, the Board of Directors adopted the 1996 Employee Plan
(the "1996 Employee Plan"). The purpose of the 1996 Employee Plan is to
advance the interests of the Company by providing additional incentives to
attract and retain qualified and competent employees and consultants of the
Company and directors of the Company's subsidiaries, upon whose efforts and
judgment the success of the Company is largely dependent. Nonemployee
directors of the Company are not eligible to participate in the 1996
Employee Plan. A total of 6,000,000 shares of Class B Common Stock have
been reserved for sale upon exercise of Employee Options granted under the
1996 Employee Plan. To date, no Employee Options have been granted.
In February 1996, the Board of Directors adopted the 1996 Director Plan.
The purpose of the 1996 Director Plan is to advance the interests of the
Company by providing an incentive to retain as independent directors
persons of training, experience and ability, to encourage a sense of
proprietorship of such persons, and to stimulate the active interest of
such persons in the development and financial success of the Company.
Options under the 1996 Director Plan ("Director Options") are granted only
to nonemployee directors of the Company. Director Options are automatically
granted to each nonemployee director upon his election as a director. Each
person serving as a nonemployee director of the Company on the date of
adoption of the 1996 Director Plan received a Director Option under the
1996 Director Plan exercisable for 75,000 shares of Class B Common Stock at
an exercise price per share equal to the prospective initial public
offering price. Each Director Option expires ten years after its date of
grant. An aggregate of one-third of the total number of shares subject to
such Director Options vest on each anniversary date of the date of grant.
Shares subject to a Director Option vest as to all shares then subject to
the Director Option upon the occurrence of a Major Corporate Event. A total
of
F-9
<PAGE>
PHYSICIANS INFORMATION EXCHANGE, INC.
(A Development Stage Company)
Notes to Financial Statements
4. STOCKHOLDERS' EQUITY (CONTINUED)
Stock Option Plans (Continued)
2,000,000 shares of Common Stock have been reserved for issuance upon
exercise of Director Options granted under the 1996 Director Plan. Director
Options are granted with an exercise price per share equal to the fair
market value of such shares on the date of grant.
5. RELATED PARTY TRANSACTIONS
In November 1995, the Company entered into an agreement with Matrix Plus,
Inc. ("Matrix"), a company controlled by Dr. Rutherford, to purchase from
Matrix the MR1 Clinical Record System software developed by Matrix, in
consideration for the issuance of 200,000 shares of Class A common stock of
PIE. The agreement is contingent upon the success of the Company's proposed
public offering. The purchase price was determined by arm's-length
negotiations between Matrix and PIE, based, in large part, upon the
software developer's estimation of the value of the software (considering
development costs and expenses). The Company will record the MR1 Clinical
Record System at its appraised value of $150,000. Historical development
costs to Matrix amounted to approximately $250,000.
The Company also began leasing office space on a month-to-month basis from
Matrix for $585 per month. Rent expense amounted to $1,755 for the three
months ended March 31, 1996.
6. RESTATEMENT
Management of the Company has discovered, in May 1996, that certain costs,
aggregating approximately $152,000, incurred during the period ended
December 31, 1995, previously classified as an asset, deferred offering
costs, should have been expensed. Accordingly, the accompanying financial
statements have been restated to correct the error. The effect of the
restatement was to decrease assets and net loss and increase stockholders'
deficit by approximately $152,000.
F-10
<PAGE>
===============================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE ANY SECURITIES OTHER THAN THE
SHARES OF COMMON STOCK OFFERED HEREBY, IN ANY STATE OR JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CAPTION PAGE
- ------- ----
<S> <C>
Prospectus Summary................... 2
Risk Factors......................... 5
Use of Proceeds...................... 10
Capitalization....................... 11
Dividend Policy...................... 11
Dilution............................. 11
Plan of Operation.................... 13
Business............................. 15
Management........................... 32
Certain Transactions................. 37
Security Ownership of Management..... 38
Description of Capital Stock......... 38
Plan of Distribution................. 41
Tax Considerations................... 41
Legal Matters........................ 41
Experts.............................. 41
Available Information................ 41
Reports to Shareholders.............. 42
Index to Financial Statements........ F-1
</TABLE>
UNTIL , 1996 ( DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
===============================================================================
===============================================================================
15,000,000 SHARES OF
CLASS A COMMON STOCK
2,094 UNITS OF
CLASS B COMMON STOCK
PHYSICIANS
INFORMATION
EXCHANGE, INC.
--------------------------------------
PROSPECTUS
--------------------------------------
JUNE , 1996
==================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
-----------------------------------------
The Company is a Texas corporation. Section 2.02-1 of the Texas Business
Corporation Act (the "Act") provides authority for broad indemnification of
officers, directors, employees and agents of a corporation. The Act also
permits a corporation to purchase and maintain liability insurance on behalf of
any such officer, director, employee or agent of a corporation.
Article VIII of the Company's Articles of Incorporation provides that the
Company will have the power both to indemnify its directors, officers, employees
and agents to the fullest extent currently allowed by the Act and to purchase
and maintain liability insurance on behalf of such persons.
At the present time, the Company does not have any such liability
insurance, nor does the Company have indemnification agreements with any of its
directors, officers, employees or agents.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
-------------------------------------------
The estimated fees and expenses payable by the Company in connection with
the issuance and distribution of the Common Stock registered hereunder are as
follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee..... $ 12,069
Legal fees and expenses................................. 75,000*
Blue Sky fees and expenses (including legal fees)....... 25,000*
Printing and engraving expenses......................... 40,000*
Accounting fees and expenses............................ 6,000*
Transfer Agent and Registrar fees....................... 2,000*
Miscellaneous........................................... 9,931*
--------
TOTAL......................................... $170,000
========
</TABLE>
_____________
* Estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
---------------------------------------
The following sets forth information as of the date of this Prospectus
regarding all sales of unregistered securities of the Registrant since its
incorporation in November 1995. In connection with each of these transactions,
the shares were sold to a limited number of persons, such persons were provided
access to all relevant information regarding the Registrant and/or represented
to the Registrant that they were "sophisticated" investors, and such persons
represented to the registrant that the shares were purchased for investment
purposes only and not with a view toward distribution. The issuances described
below were not registered under the Securities Act of 1933, as amended, in
reliance on the exemption provided under Section 4(2) thereof.
On November 10, 1995, the Company issued 75,000,000 shares of Class B
Common Stock to its founder, Dr. W. Ernest Rutherford, in connection with the
formation of the Company, in consideration for Dr. Rutherford's payment of
$75,000 in costs and expenses of the Company.
II-1
<PAGE>
On December 31, 1995, the Company issued 200,000 shares of Class B Common
Stock to a shareholder of Matrix Plus, Inc. ("Matrix") for $100,000 in cash.
On December 31, 1995, the Company issued 40,000 shares of Class B Common
Stock and 10,000 shares of Class A common stock to two shareholders of Matrix
for $25,000 in cash.
On February 12, 1996, the Company issued 20,000 shares of Class A Common
Stock to a shareholder of Matrix for $10,000.
ITEM 27. EXHIBITS.
--------
(a) Exhibits:
<TABLE>
<S> <C>
*3.1 Articles of Incorporation of the Registrant and form of amendment
thereto.
++3.2 Bylaws of the Registrant.
++5 Opinion of Jenkens & Gilchrist, a Professional Corporation, with
respect to the legality of the securities' being registered.
+8 Opinion of Jenkens and Gilchrist, a Professional Corporation,
with respect to tax matters.
*10.1 Stock Option Plan of the Registrant.
*10.2 Non-Employee Director Stock Option Plan of the Registrant.
*10.3 Form of Stock Escrow Agreement betwen Dr. W. Ernest Rutherford
and ___________.
*10.4 Purchase Agreement between the Registrant and Matrix Plus, Inc.
*10.5 Form of Advisory Council Member Sharing Agreement.
+10.6 Form of Clinical Abstract Data Agreement between Physician-
shareholders and Registrant.
*10.7 Form of Escrow Agreement between the Registrant and _____, as
Escrow Agent.
++10.8 Form of Subscription Agreement.
++10.9 Letter of Engagement, dated February 26, 1996, between the
Registrant and First Consulting Group.
++11 Computation of Net Loss Per Common Share.
*23.1 Consent of Accountants.
++23.2 Consent of Jenkens & Gilchrist, a Professional Corporation
(contained in Exhibit 5).
+23.3 Consent of Jenkens and Gilchrist, a Professional Corporation
(contained in Exhibit 8).
++24 Power of Attorney (contained on page II-6 hereto).
</TABLE>
(b) Financial Statement Schedules:
None.
II-2
<PAGE>
____________________
+ To be filed by amendment.
* Filed herewith.
++ Previously Filed.
II-3
<PAGE>
ITEM 28. UNDERTAKINGS.
------------
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Securities Act or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Dallas,
State of Texas, on June 21, 1996.
PHYSICIANS INFORMATION EXCHANGE, INC.
By: /s/ W. Ernest Rutherford
----------------------------------------
W. Ernest Rutherford
President and
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ W. Ernest Rutherford President, Chief Executive Officer and June 21, 1996
- ------------------------------ Chairman of the Board (Principal
W. Ernest Rutherford Executive Officer)
/s/ Ileta Rutherford* Vice President Operations/Secretary June 21, 1996
- ------------------------------ and Director (Principal Financial and
Ileta Rutherford Accounting Officer)
/s/ Philip Ratcliff* Vice President-Marketing and June 21, 1996
- ------------------------------ Director
Philip Ratcliff
/s/ Joan Blondin* Director June 21, 1996
- ------------------------------
Joan Blondin
/s/ David Raines, Jr.* Director June 21, 1996
- ------------------------------
David Raines, Jr.
Director June __, 1996
- ------------------------------
Robert L. Boyle, Jr.
*By: /s/ W. Ernest Rutherford
--------------------------
W. Ernest Rutherford
Agent and Attorney-in-fact
</TABLE>
II-5
<PAGE>
EXHIBITS INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit No. Description Numbered Page
- ----------- ----------- -------------
<S> <C> <C>
*3.1 Articles of Incorporation of the Registrant and form of
amendment thereto.
++3.2 Bylaws of the Registrant.
++5 Opinion of Jenkens & Gilchrist, a Professional Corporation, with
respect to the legality of the securities' being registered.
+8 Opinion of Jenkens and Gilchrist, a Professional Corporation,
with respect to tax matters.
*10.1 Stock Option Plan of the Registrant.
*10.2 Non-Employee Director Stock Option Plan of the Registrant.
*10.3 Form of Stock Escrow Agreement between Dr. W. Ernest Rutherford and
_______________.
*10.4 Purchase Agreement between the Registrant and Matrix Plus, Inc.
*10.5 Form of Advisory Council Member Sharing Agreement.
+10.6 Form of Clinical Abstract Data Agreement between Physician-
shareholders and Registrant.
*10.7 Form of Escrow Agreement between the Registrant and _____, as
Escrow Agent.
++10.8 Form of Subscription Agreement.
++10.9 Letter of Engagement, dated February 26, 1996, between the
Registrant and First Consulting Group.
++11 Computation of Net Loss Per Common Share.
*23.1 Consent of Accountants.
++23.2 Consent of Jenkens & Gilchrist, a Professional Corporation (contained
in Exhibit 5).
+23.3 Consent of Jenkens and Gilchrist, a Professional Corporation
(contained in Exhibit 8)
++24 Power of Attorney (contained on page II-6 hereto).
</TABLE>
____________________
+ To be filed by amendment.
* Filed herewith.
++ Previously filed.
<PAGE>
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
PHYSICIANS INFORMATION EXCHANGE, INC.
I, the undersigned natural person of the age of eighteen (18) years or
more, acting as incorporator of a corporation under the Texas Business
Corporation Act (the "Act), do hereby adopt the following Articles of
Incorporation for the corporation.
ARTICLE I
---------
The name of the Corporation is Physicians Information Exchange, Inc. (the
"Corporation").
ARTICLE II
----------
The period of its duration is perpetual.
ARTICLE III
-----------
The Corporation is organized for the purpose of engaging in any lawful act,
activity and/or business for which corporations may be organized under the Act.
ARTICLE IV
----------
The aggregate number of shares that the Corporation shall have authority to
issue is Five Hundred and Five Million (505,000,000) shares of common capital
stock, of which 250,000,000 shares shall be Class A Common Stock, $.001 par
value per share, 250,000,000 shares shall be Class B Common Stock, $.001 par
value per share, and 5,000,000 shares shall be Preferred Stock, $.001 par value
per share.
<PAGE>
ARTICLE V
---------
The Corporation will not commence business until it has received for the
issuance of its shares consideration of the value of $1,000.00, consisting of
cash, services performed or property actually received.
ARTICLE VI
----------
The address of its initial registered office is 1445 Ross Avenue, Suite
3200, Dallas, Texas 75202, and the name of its initial registered agent at such
address is Ronald J. Frappier.
ARTICLE VII
-----------
The number of directors of the Corporation shall be not less than one (1)
nor more that fifteen (15), the exact number to be fixed from time to time in
the manner provided in the Bylaws of the Corporation. The number of directors
constituting the initial Board of Directors is two (2), and the name and address
of such persons who are to serve as directors until the first annual meeting of
the shareholders or until his/her successor is elected and qualified are:
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
William Ernest Rutherford 3500 Lake Desiard
Monroe, LA 71201
Ileta Rutherford 3500 Lake Desiard
Monroe, LA 71201
</TABLE>
Election of directors need not be by written ballot unless the Bylaws shall
so provide. No holders of capital stock of the Corporation shall have any
rights to cumulate votes in the election of directors.
<PAGE>
In furtherance of, and not in limitation of, the powers conferred by
statute, the Board of Directors is expressly authorized to adopt, amend or
repeal the Bylaws of the Corporation or adopt new Bylaws, without any action on
the part of the shareholders; provided, however, that no such adoption,
amendment, or repeal shall be valid with respect to Bylaw provisions that have
been adopted, amended or repealed by the shareholders; and further provided,
that Bylaws adopted or amended by the Board of Directors and any powers thereby
conferred may be amended, altered or repealed by the shareholders.
The name and address of the incorporator of the Corporation is:
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
Ronald J. Frappier 1445 Ross Avenue
Suite 3200
Dallas, Texas 75202
</TABLE>
ARTICLE VIII
------------
The Board of Directors of the Corporation shall, on behalf of the
Corporation, indemnify persons for whom indemnification is permitted by Article
2.02-1 of the Act, as amended, to the fullest extent permissible under Article
2.02-1 of the Act, as amended, and may purchase such liability, indemnification
and/or other similar insurance as the Board of Directors from time to time shall
deem necessary or appropriate, in its sole discretion.
The Corporation may purchase and maintain liability, indemnification and/or
other similar insurance on behalf of itself, and/or for any person who is or was
a director, officer, employee or agent of the Corporation or who is or was
serving at the request of the Corporation as a director, officer, trustee,
employee, agent or similar functionary of another foregoing or domestic
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other
3
<PAGE>
enterprise, against any liability asserted against and/or incurred by the
Corporation or person serving in such a capacity or arising out of his/her/its
status as such a person or entity, whether or not the Corporation would
otherwise have the power to indemnify such person against that liability.
The power to indemnify and/or obtain insurance provided in this Article
VIII shall be cumulative of any other power of the Board of Directors and/or any
rights to which such a person or entity may be entitled by law, the Articles of
Incorporation and/or Bylaws of the Corporation, contract, other agreement, vote
or otherwise.
ARTICLE IX
----------
The right to cumulate votes in the election of directors, and/or cumulative
voting by any shareholder is hereby expressly denied.
ARTICLE X
---------
Except as may otherwise be expressly required by the Act or this Article of
Incorporation, the holders of shares of Class A Common Stock shall vote together
with the holders of shares of Class B Common Stock as a single class; provided,
however, that, with respect to each matter properly brought before the
shareholders for their consideration and vote, each record holder of shares of
Class A Common Stock shall have one vote for each such share held of record in
his name on the stock transfer records of the Corporation and each record holder
of shares of Class B Common Stock shall have ten votes for each such share held
of record in his name on the stock transfer records of the Corporation.
In the case of each share of Class B Common Stock held of record by a bank,
voting trustee, broker, dealer, clearing agency, or any nominee thereof, or by
any other nominee of the
4
<PAGE>
beneficial owner of such share, the record holder shall be entitled to only one
vote; provided, however, that the record holder of any such shares will be
entitled, notwithstanding the foregoing limitation, to cast ten votes per share
if such holder shall establish to the satisfaction of the Corporation that each
such share has been beneficially owned continuously from the date of issuance by
the original beneficial owner (whose name and address must be specified to the
Corporation), or by a Permitted Transferee (as defined herein) of such original
beneficial owner. Any such record holder who wishes to cast ten votes per share
shall file with the transfer agent for the Class B Common Stock (which may be
either the Corporation or any third party retained by it for such purpose) a
certificate, on a form that will be mailed to such holder by such transfer agent
on request, certifying as to the information specified in the preceding sentence
and specifying the date on which he desires to exercise his voting rights (the
"Voting Date"). Any such certificate shall be deemed filed only if received by
the transfer agent not less than ten nor more than 30 days prior to the Voting
Date. If such certificate shall not establish to the satisfaction of the
Corporation that the record holder is entitled to cast ten votes per share,
then, within five business days after the receipt thereof by the transfer agent,
the Corporation shall mail to the person filing such certificate a notice that
describes the deficiency and, unless the Corporation determines that such person
has a reasonable opportunity to cure such deficiency prior to the Voting Date,
notifies him that he shall be entitled to only one vote per share on the Voting
Date.
Each share of Class B Common Stock shall be convertible at any time, at the
option of the record holder thereof, into one fully paid and nonassessable share
of Class A Common Stock of the Corporation.
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No fractional shares of Class A Common Stock shall be issued upon such
conversion, but in lieu thereof the Corporation shall pay to the holder an
amount in cash equal to the fair market value of such fractional share.
To convert shares of Class B Common Stock, the record holder thereof shall
surrender the certificate or certificates representing such shares, duly
endorsed to the Corporation or in blank (which endorsement shall correspond
exactly with the name or names of the record holder or holders set forth on the
fact of the certificates and on the stock transfer records of the Corporation),
at the office of the transfer agent for the shares of Class B Common Stock
(which may be either the Corporation or any third party retained by it for such
purpose), and shall give written notice to the transfer agent and the
Corporation that such holder elects to convert all or part of the shares
represented thereby, stating therein the name or names (with the address or
addresses) in which the certificate or certificates for shares of Class A Common
Stock are to be issued.
If the record shareholder fully complies with the above paragraph, the
Corporation shall, as soon as practicable thereafter, instruct the transfer
agent to deliver to such holder, or to such holder's nominee or nominees, a
certificate or certificates for the number of shares of Class A Common Stock to
which such holder shall be entitled, rounded to the nearest whole number of
shares, and a check for any amount payable hereunder in lieu of a fractional
share, along with a certificate representing any shares of Class B Common Stock
that the holder has not elected to convert hereunder but which constituted part
of the shares of Class B Common Stock represented by the certificate or
certificates surrendered.
6
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Shares of Class B Common Stock shall be deemed to have been converted as of
the close of business on the date of the due surrender of the certificates
representing the shares to be converted as provided above, and the person or
persons entitled to receive the shares of Class A Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Class A Common Stock at such time.
If the Corporation shall in any manner split or subdivide the outstanding
shares of Class A Common Stock or Class B Common Stock, the outstanding shares
of the other such class of stock shall be split or subdivided in the same
manner, proportionately and on the same basis per share.
When shares of Class B Common Stock have been converted pursuant to any
paragraph of this Article X, they shall be irrevocably canceled and not
reissued.
ARTICLE XI
----------
Shares of Class B Common Stock shall only be held by licensed medical
doctors (i.e. M.D.s and D.O.s) (each a "qualified holder"). No person or entity
holding any shares of Class B Common Stock shall transfer, and the Corporation
shall not register (nor permit the transfer agent for the Class B Common Stock
to register) the transfer of, any shares of Class B Common Stock or any interest
therein, whether by sale, assignment, gift, bequest, pledge, hypothecation,
encumbrance, or any other disposition, except to a "Permitted Transferee" of
such person (as defined below in this paragraph). If a holder of shares of Class
B Common Stock transfers any such shares to any person or entity other than a
"Permitted Transferee," such transfer, without any further action of the parties
or the Corporation, shall automatically and irrevocably convert such shares into
an equal number of shares of Class A Common Stock and the transferee shall be
7
<PAGE>
deemed a holder of such shares of Class A Common Stock from the date of such
transfer. The term "Permitted Transferee" shall mean only:
(A) a qualified holder;
(B) the trustee of a trust for the sole benefit of a qualified
holder;
(C) a partnership (which may include a limited liability partnership)
made up exclusively of qualified holders or a corporation (which may
include a professional corporation or a limited liability corporation)
wholly owned by qualified holders or a professional association made up of
exclusively qualified holders; provided, however, that as of the date that
such partnership or corporation is no longer comprised of or owned
exclusively by qualified holders, such partnership or corporation will no
longer be a Permitted Transferee and any Class B Common Stock held by it
shall be automatically and irrevocably converted into Class A Common Stock
without any further action of the parties or the Corporation; or
(D) a pledgee of a qualified holder, provided that such pledgee
becomes a pledgee of a qualified holder by reason of the grant by such
qualified holder to the pledgee of a lien on or security interest in or
other similar encumbrance on any shares of Class B Common Stock or any
interest therein created for the purpose of securing the repayment of
borrowings extended by the pledgee to such qualified holder; provided,
further, however, as of the date that such pledgee (or any successor or
assign of such pledgee) forecloses upon such lien, security interest or
encumbrance or otherwise becomes the owner of such shares of Class B Common
Stock or interest therein following a default upon such borrowings or for
any other reason, such pledgee will no longer be,
8
<PAGE>
transferee(s) and/or assign(s), if any, shall not be, a Permitted
Transferee and any shares of Class B Common Stock held or transferred by it
or its assigns shall be automatically and irrevocably converted into Class
A Common Stock without any further action of the parties or the
Corporation.
ARTICLE XII
-----------
The number of authorized shares of Class A Common Stock and Class B Common
Stock, respectively, may be increased or decreased (but not below the number of
shares thereof then outstanding) by the affirmative vote of the holders of a
majority of the voting power (as determined in accordance with this Article of
Incorporation) of the Class A Common Stock and the Class B Common Stock and any
other Stock of the Corporation entitled to vote, voting as one class,
irrespective of any other provision of law.
ARTICLE XIII
------------
No shareholder of this Corporation shall, by reason of his holding shares
of any class of stock of this Corporation, have any preemptive or preferential
right to purchase or subscribe for any shares of any class of stock of this
Corporation, now or hereafter to be authorized, or any notes, debentures, bonds
or other securities convertible into or carrying options, warrants or rights to
purchase shares of any class, nor or hereafter to be authorized, whether or not
the issuance of any such shares or such notes, debentures, bonds or other
securities would adversely affect the dividend or voting rights of any such
shareholder, other than such rights, if any, as the Board of Directors, at its
discretion, from time to time may grant, and at such price as the Board of
Directors at its discretion may fix; and the Board of Directors may issue shares
of any class of stock of this Corporation or any notes, debentures, bonds or
other securities convertible into or
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<PAGE>
carrying options, warrants or rights to purchase shares of any class without
offering any such shares of any class or such notes, debentures, bonds or other
securities either in whole or in part to the existing shareholders of any class.
ARTICLE XIV
-----------
No contract or other transaction between this Corporation and any person,
firm, association or corporation and no act of this Corporation, shall, in the
absence of fraud, be invalidated or in any way affected by the fact that any of
the directors of this Corporation is pecuniarily or otherwise interested,
directly or indirectly, in such contract, transaction or act, or is related to
or interested in such person, firm, association or corporation as a director,
shareholder, officer, employee, member or otherwise. Any director so interested
or related who is present at any meeting of the Board of Directors or committee
of directors at which action on any such contract, transaction or act is taken
may be counted in determining the presence of a quorum at such meeting and the
vote at such meeting of any such director may be counted in determining the
approval of any such contract, transaction or act. No director so interested or
related shall, because of such interest or relationship, be disqualified from
holding his office or be liable to the Corporation or to any shareholder or
creditor thereof for any loss incurred by this Corporation under or by reason of
such contract, transaction or act, or be accountable for any gains or profits he
may have realized therein.
10
<PAGE>
ARTICLE XV
----------
Pursuant to Article 1302-7.06, Texas Miscellaneous Corporation Laws Act, as
amended, no member of the Board of Directors of the Corporation shall be liable,
personally or otherwise, in any way to the Corporation or its shareholders for
monetary damages caused in any way by an act or omission occurring in the
director's capacity as a director of the Corporation, except as otherwise
expressly provided by Article 1302-7.06.B, as amended.
ARTICLE XVI
-----------
Any action required by the Act to be taken at any annual or special meeting
of the shareholders of the Corporation, and/or any action that may be taken at
any annual or special meeting of the shareholders of the Corporation, may be
taken without a meeting, without prior notice, and without a vote, if a consent
or consents in writing, setting forth the action so taken, shall be signed by
the holder or holders of shares having not less than the minimum number of votes
that would be necessary to take such action at a meeting at which the holders of
all shares entitled to vote on the action were present and voted. Such action
shall be taken in accordance with the provisions of Article 9.10.A of the Act,
as amended.
ARTICLE XVII
------------
Notwithstanding any provision of the Act now or hereafter in force
requiring for the approval of any action the affirmative vote of two-thirds, or
any other percentage greater than a majority, of the outstanding shares entitled
by law to vote thereon or of the outstanding shares of a class or series
entitled by law to vote separately as a class or series thereon, such action may
be authorized and taken by the affirmative vote of the holders of a majority of
such outstanding
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provision of these Articles of Incorporation or contractual rights granted by
the Board of Directors that expressly require greater than a majority or class
vote on certain corporate actions.
IN WITNESS WHEREOF, I have hereunto set my hand this ____ day of November,
1995.
/s/ Ronald J. Frappier
----------------------------------
Ronald J. Frappier
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202
DISCLAIMER
I, the undersigned, being the incorporator of Physicians Information, Inc.,
a corporation to be organized after these Articles of Incorporation are filed
with the Secretary of State of the State of Texas, do hereby disclaim any and
all interests in said corporation.
/s/ Ronald J. Frappier
----------------------------------
Ronald J. Frappier
<PAGE>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
PHYSICIANS INFORMATION EXCHANGE, INC.
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, the undersigned corporation announces the following Articles of
Amendment to its Articles of Incorporation:
ARTICLE I. The name of the corporation is Physicians Information Exchange,
Inc.
ARTICLE II. An amendment to the Articles of Incorporation attached hereto
as Exhibit A was adopted by the holders of the corporation's voting common stock
---------
on June __, 1996.
ARTICLE III. The number of shares of the corporation outstanding at the
time of such adoption was _____ shares of Class A Common Stock and ______ shares
of Class B Common Stock. The holders of Class A and Class B Common Stock were
entitled to vote on the amendments as a single class; provided, however, that
each record holder of Class A Common Stock had one vote for each share owned by
him and each record holder of Class B Common Stock had 10 votes for each shares
owned by him. No other class or series of capital stock of the corporation was
entitled to vote on the amendments.
ARTICLE IV. As required by the Texas Business Corporation Act, as amended,
the holders of all of the shares of voting common stock outstanding have signed
a consent in writing adopting such amendments.
DATED: June __, 1996.
PHYSICIANS INFORMATION EXCHANGE, INC.
By:__________________________________
Name:________________________________
Title:_______________________________
<PAGE>
EXHIBIT A
---------
Article X of the Articles of Incorporation is hereby amended by adding the
following paragraph after the last paragraph of Article X, and such additional
paragraph shall read in its entirety as follows:
"Upon liquidation or dissolution of the
Corporation, whether voluntary or involuntary,
the holders of Class A Common Stock shall be
entitled to receive out of the assets of the
corporation legally available therefor and
before any distribution or payment to the
holders of any shares of Class B Common Stock,
liquidation distributions in the amount of
$1.00 per share ("Liquidation Amount"), and
thereafter all holders of Class A and Class B
Common Stock are entitled to share ratably in
the assets available for distribution after
payment of all prior obligations of the
Corporation, including the Liquidation Amount
and any liquidation preferences granted to any
holders of Preferred Stock."
-2-
<PAGE>
EXHIBIT 10.1
1996 EMPLOYEE STOCK OPTION PLAN
FOR
PHYSICIANS INFORMATION EXCHANGE, INC.
SECTION 1. PURPOSE. This 1996 Employee Stock Option Plan of Physicians
Information Exchange, Inc. is intended as an additional incentive to attract and
retain qualified and competent employees and consultants for the Company and its
Subsidiaries, upon whose efforts and judgment the success of the Company is
largely dependent, through the encouragement of stock ownership in the Company
by such persons.
SECTION 2. DEFINITIONS. As used herein, the following terms shall have
the meaning indicated:
(a) "ACT" shall mean the Securities Exchange Act of 1934, as
amended.
(b) "BOARD" shall mean the Board of Directors of the Company.
(c) "BUSINESS DAY" shall mean (i) if the Shares trade on a national
exchange, any day that the national exchange on which the Shares trade is
open or (ii) if the Shares do not trade on a national exchange, any day
that commercial banks in the City of New York are open.
(d) "COMMISSION" shall mean the Securities and Exchange Commission.
(e) "COMMITTEE" shall mean the Compensation Committee of the Board
or other committee, if any, appointed by the Board pursuant to Section 14
hereof.
(f) "COMMON STOCK" shall mean the Company's Class B common stock,
$0.001 par value per share.
(g) "COMPANY" shall mean Physicians Information Exchange, Inc., a
Texas corporation.
(h) "DATE OF GRANT" shall mean the date on which an Option is
granted to an Eligible Person, to the Eligible Person of the grant pursuant
to Section 4 hereof.
(i) "DIRECTOR" shall mean a member of the Board.
(j) "DISINTERESTED PERSON" shall mean a person who, at the time he
acts on the granting of any Option, is not eligible, and within one year
prior thereto has not been eligible, to receive Shares or stock options or
other rights convertible into Shares under the Plan or any other plan of
the Company, except participations in other plans of the Company as allowed
pursuant to rule 16b-3(c)(i) that do not disqualify such person from being
a disinterested person.
<PAGE>
(k) "ELIGIBLE PERSON(S)" shall mean those persons who are (i) under
written contract (a "Consulting Contract") with the Company or a Subsidiary
to provide consulting services to the Company or a Subsidiary (a
"Consultant"), (ii) Employees or (iii) members of the Board of Directors of
any Subsidiary, but excluding Directors who are not Employees.
(l) "EMPLOYEE(S)" shall mean those persons who are employees of the
Company or who are employees of any Subsidiary.
(m) "FAIR MARKET VALUE" of a share on a particular date shall be
the closing price or Common Stock, which shall be (i) if the Common Stock
is listed for trading on any United States national securities exchange,
the last reported sale price of Common Stock on such exchange as reported
in any newspaper of general circulation, (ii) if the Common Stock is quoted
on NASDAQ or any similar system of automated dissemination of quotations of
securities prices in common use, the mean between the closing high bid and
low asked quotations for such day of the Common Stock on such system or
(iii) if neither clause (i) nor (ii) is applicable, a value determined by
any fair and reasonable means prescribed by the Board.
(n) "INCENTIVE STOCK OPTION" shall mean an option that is an
incentive stock option as defined in Section 422 of the Internal Revenue
Code.
(o) "INTERNAL REVENUE CODE" or "CODE" shall mean the Internal
Revenue Code of 1986, as it now exists or may be amended from time to time.
(p) "NONQUALIFIED STOCK OPTION" shall mean a stock option that is
not an incentive stock option as defined in Section 422A of the Internal
Revenue Code.
(q) "OPTION" (when capitalized) shall mean any option granted under
this Plan.
(r) "OPTIONEE" shall mean a person to whom an Option is granted
under this Plan or any successor to the rights of such person by reason of
the death of such person.
(s) "PLAN" shall mean this 1996 Employee Stock Option Plan for
Physicians Information Exchange, Inc..
(t) "SHARE(S)" shall mean a share or shares of the Common Stock.
(u) "SUBSIDIARY" shall mean any corporation (other than the
Company) in any unbroken chain of corporations beginning with the Company
if, at the time of the granting of the Option, each of the corporations
other than the last corporation in the unbroken chain owns stock possessing
50% or more of the total combined voting power of all classes of stock in
one of the other corporations in such chain.
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<PAGE>
SECTION 3. SHARES AND OPTIONS.
(a) The Company may grant to Eligible Persons from time to time Options
to purchase an aggregate of up to 6,000,000 Shares from Shares held in the
Company's treasury or from authorized and unissued Shares. If any Option granted
under the Plan shall terminate, expire, or be canceled or surrendered as to any
Shares, new Options may thereafter be granted covering such Shares. An Option
granted hereunder shall be either an Incentive Stock Option or a Nonqualified
Stock Option as determined by the Committee at the Date of Grant of such Option
and shall clearly state whether it is an Incentive Stock Option or a
Nonqualified Stock Option. Incentive Stock Options may only be granted to
persons who are Employees.
(b) The aggregate Fair Market Value (determined at the Date of Grant of
the Option) of the Shares with respect to which any Incentive Stock Option is
exercisable for the first time by an Optionee during any calendar year under the
Plan and all such plans of the Company and any parent and subsidiary of the
Company (as defined in Section 425 of the Code) shall not exceed $100,000.
SECTION 4. CONDITIONS FOR GRANT OF OPTIONS.
(a) Each Option shall be evidenced by an option agreement that may
contain any term deemed necessary or desirable by the Committee, provided such
terms are not inconsistent with this Plan or any applicable law. Optionees shall
be those persons selected by the Committee from Eligible Persons. Any person who
files with the Committee, in a form satisfactory to the Committee, a written
waiver of eligibility to receive any Option under this Plan shall not be
eligible to receive any Option under this Plan for the duration of such waiver.
(b) In granting Options, the Committee shall take into consideration the
contribution the person has made or may make to the success of the Company or
its Subsidiaries and such other factors as the Committee shall determine. The
Committee shall also have the authority to consult with and receive
recommendations from officers and other personnel of the Company and its
Subsidiaries with regard to these matters. The Committee may from time to time
in granting Options under the Plan prescribe such other terms and conditions
concerning such Options as it deems appropriate, including, without limitation,
relating an Option to achievement of specific goals established by the Committee
or the continued employment of the Optionee for a specified period of time,
provided that such terms and conditions are not more favorable to an Optionee
than those expressly permitted herein.
(c) The Committee in its sole discretion shall determine in each case
whether periods of military or government service shall constitute a
continuation of employment for the purposes of this Plan or any Option.
SECTION 5. EXERCISE PRICE. The exercise price per Share of any Option
shall be any price determined by the Committee; provided, however, that the
exercise price for any Incentive Stock Option shall not be less than one hundred
percent (100%) of the Fair Market Value per
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<PAGE>
Share on the Date of Grant and that the exercise price for any Nonqualified
Stock Option shall not be less than eighty-five percent (85%) of the Fair Market
Value per Share on the Date of Grant.
SECTION 6. EXERCISE OF OPTIONS. An Option shall be deemed exercised when
(i) the Company has received written notice of such exercise in accordance with
the terms of the Option, (ii) full payment of the aggregate exercise price of
the Shares as to which the Option is exercised has been made and (iii)
arrangements that are satisfactory to the Committee in its sole discretion have
been made for the Optionee's payment to the Company of the amount, if any, that
the Committee determines to be necessary for the Company or a Subsidiary to
withhold in accordance with applicable federal or state income tax withholding
requirements. Unless further limited by the Committee in any Option, the
exercise price of any Shares purchased shall be paid solely in cash, by
certified or cashier's check, by money order, by personal check or with Shares
(but with Shares only if permitted by an Option agreement or otherwise permitted
by the Committee in its sole discretion at the time of exercise and provided
that if the Optionee acquired such stock to be surrendered directly or
indirectly from the Company, he shall have owned such stock for six months prior
to using such stock to exercise an Option) or by a combination of the above. If
the exercise price is paid in whole or in part with Shares, the value of the
Shares surrendered shall be their Fair Market Value on the date received by the
Company.
SECTION 7. EXERCISABILITY OF OPTIONS.
(a) Any Option shall become exercisable in such amounts and at such
intervals as the Committee shall provide in any Option, except as otherwise
provided in this Section 7; provided in each case that the Option has not
expired on the date of exercise.
(b) The expiration date of an Option shall be determined by the
Committee at the Date of Grant, but in no event shall an Option be exercisable
after the expiration of ten (10) years from the Date of Grant.
(c) An Option shall not be exercisable prior to the six-month
anniversary of its Date of Grant.
(d) The Committee may in its sole discretion accelerate the date on
which any Option may be exercised.
(e) On the date thirty (30) days prior to any occurrence described in
Subsections (7)(e)(i), (ii) or (iii), but only where such anticipated occurrence
actually takes place, notwithstanding the exercise schedule in an Option, each
Option shall immediately become exercisable in full where there (i) is any
transaction (which shall include a series of transactions occurring within 60
days or occurring pursuant to a plan) that has the result that shareholders of
the Company immediately before such transaction cease to own at least 51% of (x)
the voting stock of the Company or (y) of any entity that results from the
participation of the Company in a reorganization, consolidation, merger,
liquidation or any other form of corporate transaction; (ii) is a merger,
consolidation, reorganization, liquidation or dissolution in which the Company
4
<PAGE>
does not survive; (iii) is a sale, lease, exchange or other disposition of all
or substantially all the property and assets of the Company.
(f) Notwithstanding any provisions hereof to the contrary, if any Option
is accelerated under Subsection 7(d) or (e), the portion of such Option that may
be exercised to acquire Shares that the Optionee would not be entitled to
acquire but for such acceleration (the "Acceleration Shares"), is limited to
that number of Acceleration Shares that can be acquired without causing the
Optionee to have an "excess parachute payment" as determined under Section 280G
of the Code, determined by taking into account all of the Optionee's "parachute
payments" determined under Section 280G of the Code. If as a result of this
Subsection 7(f), the Optionee may not acquire all of the Acceleration Shares,
then the Acceleration Shares that the Optionee may acquire shall be the last
shares that the Optionee would have been entitled to acquire had this Option not
been accelerated.
SECTION 8. TERMINATION OF OPTION PERIOD.
(a) Unless otherwise provided in any Option, the unexercised portion of
an Option shall automatically and without notice terminate and become null and
void at the time of the earliest to occur of the following:
(i) except as provided in Subsection 8(a)(iii), thirty (30)
days after the date that Optionee ceases to be employed by the Company or a
Subsidiary or ceases to be a Consultant to the Company or a Subsidiary, as
the case may be, regardless of the reason therefor other than as a result
of such termination by reason of (x) death, (y) mental or physical
disability of Optionee as determined by a medical doctor satisfactory to
the Committee or (z) termination of Optionee's employment or Consulting
Contract, as the case may be, with the Company or a Subsidiary for cause;
(ii) except as provided in Subsection 8(a)(iii), one (1) year
after the date on which the Optionee suffers a mental or physical
disability as determined by a medical doctor satisfactory to the Committee;
(iii) either (y) one (1) year after the date that Optionee
ceases to be a Consultant to or ceases to be employed by, as the case may
be, the Company or a Subsidiary, by reason of death of the Optionee, or (z)
six (6) months after the date on which the Optionee shall die, if the
Optionee's death shall occur during the thirty-day period described in
Subsection 8(a)(i) or the one-year period described in Subsection 8(a)(ii);
(iv) the date that Optionee ceases to be a Consultant to or
ceases to be employed by, as the case may be, the Company or a Subsidiary
as a result of a termination for cause;
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<PAGE>
(v) with respect to Options held by a person who is a member
of the Board of Directors of a Subsidiary who is not also an Employee or
Consultant, thirty (30) days after the date that Optionee ceases to be a
member of such Board of Directors; and
(vi) the tenth (10th) anniversary of the Date of Grant of the
Option.
(b) If provided in an Option, the Committee in its sole discretion may,
by giving written notice (a "Cancellation Notice") cancel, effective upon the
date of the consummation of any of the transactions described in Subsection
7(e), all or any portion of such Option that remains unexercised on such date.
Such Cancellation Notice shall be given a reasonable period of time (but not
less than 15 days) prior to the proposed date of such cancellation, and may be
given either before or after shareholder approval of such transaction.
SECTION 9. ADJUSTMENT OF SHARES.
(a) If at any time while the Plan is in effect or unexercised Options
are outstanding, there shall be any increase or decrease in the number of issued
and outstanding Shares through the declaration of a stock dividend or through
any recapitalization resulting in a stock split-up, combination or exchange of
Shares, then and in such event:
(i) appropriate adjustment shall be made in the maximum number
of Shares then subject to being optioned under the Plan, so that the same
proportion of the Company's issued and outstanding Shares shall continue to
be subject to being so optioned; and
(ii) appropriate adjustment shall be made in the number of
Shares and the exercise price per Share thereof then subject to outstanding
Options, so that the same proportion of the Company's issued and
outstanding Shares shall remain subject to purchase at the same aggregate
exercise price.
(b) The Committee may change the terms of Options outstanding under this
Plan, with respect to the exercise price or the number of Shares subject to the
Options, or both, when, in the Committee's sole discretion, such adjustments
become appropriate by reason of any corporate transaction.
(c) Except as otherwise expressly provided herein, the issuance by the
Company of shares of its capital stock of any class, or securities convertible
into shares of capital stock of any class, either in connection with direct sale
or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to the number of Shares reserved for issuance under the
Plan or the number of or exercise price of Shares then subject to outstanding
Options granted under the Plan.
(d) Without limiting the generality of the foregoing, the existence of
outstanding Options granted under the Plan shall not affect in any manner the
right or power of the Company
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<PAGE>
to make, authorize or consummate (1) any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business; (2) any merger or consolidation of the Company; (3) any issue by the
Company of debt securities, or preferred or preference stock that would rank
above the Shares subject to outstanding Options; (4) the dissolution or
liquidation of the Company; (5) any sale, transfer or assignment of all or any
part of the assets or business of the Company; or (6) any other corporate act or
proceeding, whether of a similar character or otherwise.
SECTION 10. TRANSFERABILITY OF OPTIONS. Each Option shall provide that
such Option shall not be transferrable by the Optionee otherwise than by will or
the laws of descent and distribution and that so long as an Optionee lives, only
such Optionee or his guardian or legal representative shall have the right to
exercise such Option.
SECTION 11. ISSUANCE OF SHARES. No person shall be, or have any of the
rights or privileges of, a shareholder of the Company with respect to any of the
Shares subject to an Option unless and until certificates representing such
Shares shall have been issued and delivered to such person. As a condition of
any transfer of the certificate for Shares, the Committee may obtain such
agreements or undertakings, if any, as it may deem necessary or advisable to
assure compliance with any provision of the Plan, the agreement evidencing the
Option or any law or regulation including, but not limited to, the following:
(i) A representation, warranty or agreement by the Optionee to
the Company at the time any Option is exercised that he or she is acquiring
the Shares to be issued to him or her for investment and not with a view
to, or for sale in connection with, the distribution of any such Shares;
and
(ii) A representation, warranty or agreement to be bound by any
legends that are, in the opinion of the Committee, necessary or appropriate
to comply with the provisions of any securities laws deemed by the
Committee to be applicable to the issuance of the Shares and are endorsed
upon the Share certificates.
SECTION 12. OPTIONS FOR 10% SHAREHOLDER. Notwithstanding any other
provisions of the Plan to the contrary, an Incentive Stock Option shall not be
granted to any person owning directly (or indirectly through attribution under
Section 425(d) of the Code) at the Date of Grant, stock possessing more than 10%
of the total combined voting power of all classes of stock of the Company (or of
its parent or subsidiary [as defined in Section 425 of the Internal Revenue
Code] at the Date of Grant) unless the exercise price of such Incentive Stock
Option is at least 110% of the Fair Market Value of the Shares subject to such
Incentive Stock Option on the Date of Grant, and the period during which the
Incentive Stock Option may be exercised does not exceed five (5) years from the
Date of Grant.
SECTION 13. NONQUALIFIED STOCK OPTIONS. Nonqualified Stock Options may be
granted hereunder and shall be subject to all terms and provisions hereof except
that each such Nonqualified Stock Option (i) must be clearly designated as a
Nonqualified Stock Option; (ii) may be granted for Shares in excess of the
limits contained in Subsection 3(b) of this Plan; and (iii)
7
<PAGE>
shall not be subject to Section 12 of this Plan. If both Incentive Stock Options
and Nonqualified Stock Options are granted to an Optionee, the right to
exercise, to the full extent thereof, Options of either type shall not be
contingent in whole or in part upon the exercise of, or failure to exercise,
Options of the other type.
SECTION 14. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by the Compensation Committee of the
Board or other committee thereof as appointed by the Board (herein called the
"Committee") consisting of not less than two (2) members of the Board all of
whom are Disinterested Persons. Except for the powers set forth in Section 17,
the Committee shall have all of the powers of the Board with respect to the
Plan. Any member of the Committee may be removed at any time, with or without
cause, by resolution of the Board and any vacancy occurring in the membership of
the Committee may be filled by appointment by the Board.
(b) The Committee, from time to time, may adopt rules and regulations
for carrying out the purposes of the Plan. The determinations and the
interpretation and construction of any provision of the Plan by the Committee
shall be final and conclusive.
(c) Any and all decisions or determinations of the Committee shall be
made either (i) by a majority vote of the members of the Committee at a meeting
or (ii) without a meeting by the written approval of a majority of the members
of the Committee.
(d) Subject to the express provisions of this Plan, the Committee shall
have the authority, in its sole and absolute discretion (i) to adopt, amend, and
rescind administrative and interpretive rules and regulations relating to this
Plan or any Option; (ii) to construe the terms of this Plan or any Option; (iii)
as provided in Subsection 9(a), upon certain events to make appropriate
adjustments to the exercise price and number of Shares subject to this Plan and
Option; and (iv) to make all other determinations and perform all other acts
necessary or advisable for administering this Plan, including the delegation of
such ministerial acts and responsibilities as the Committee deems appropriate.
The Committee may correct any defect or supply any omission or reconcile any
inconsistency in this Plan or any Option in the manner and to the extent it
shall deem expedient to carry it into effect, and it shall be the sole and final
judge of such expediency. The Committee shall have full discretion to make all
determinations on the matters referred to in this Subsection 14(d), and such
determinations shall be final, binding and conclusive.
SECTION 15. GOVERNMENT REGULATIONS. This Plan, Options and the obligations
of the Company to sell and deliver Shares under any Options, shall be subject to
all applicable laws, rules and regulations, and to such approvals by any
governmental agencies or national securities exchanges as may be required.
8
<PAGE>
SECTION 16. MISCELLANEOUS.
(a) The proceeds received by the Company from the sale of Shares
pursuant to an Option shall be used for general corporate purposes.
(b) The grant of an Option shall be in addition to any other
compensation paid to the Optionee or other stock option plans of the Company or
other benefits with respect to Optionee's position with the Company or its
Subsidiaries. The grant of an Option shall not confer upon the Optionee the
right to continue as an Employee or Consultant, or interfere in any way with the
rights of the Company to terminate his or her status as an Employee or
Consultant.
(c) Neither the members of the Board nor any member of the Committee
shall be liable for any act, omission, or determination taken or made in good
faith with respect to this Plan or any Option, and members of the Board and the
Committee shall, in addition to all other rights of indemnification and
reimbursement, be entitled to indemnification and reimbursement by the Company
in respect of any claim, loss, damage, or expense (including attorneys' fees,
the costs of settling any suit, provided such settlement is approved by
independent legal counsel selected by the Company, and amounts paid in
satisfaction of a judgment, except a judgment based on a finding of bad faith)
arising from such claim, loss, damage, or expense to the full extent permitted
by law and under any directors' and officers' liability or similar insurance
coverage that may from time to time be in effect.
(d) Any issuance or transfer of Shares to an Optionee, or to his legal
representative, heir, legatee, or distributee, in accordance with the provisions
of this Plan or the applicable Option, shall, to the extent thereof, be in full
satisfaction of all claims of such persons under the Plan. The Committee may
require any Optionee, legal representative, heir, legatee or distributee as a
condition precedent to such payment or issuance or transfer of Shares, to
execute a release and receipt for such payment or issuance or transfer of Shares
in such form as it shall determine.
(e) Neither the Committee nor the Company guarantees Shares from loss or
depreciation.
(f) All expenses incident to the administration, termination, or
protection of this Plan or any Option, including, but not limited to, legal and
accounting fees, shall be paid by the Company; provided, however, the Company
may recover any and all damages, fees, expenses and costs arising out of any
actions taken by the Company to enforce its rights under this Plan or any
Option.
(g) Records of the Company shall be conclusive for all purposes under
this Plan or any Option, unless determined by the Committee to be incorrect.
(h) The Company shall, upon request or as may be specifically required
under this Plan or any Option, furnish or cause to be furnished all of the
information or documentation that is necessary or required by the Committee to
perform its duties and functions under this Plan or any Option.
9
<PAGE>
(i) The Company assumes no liability to any Optionee or his legal
representatives, heirs, legatees or distributees for any act of, or failure to
act on the part of, the Committee.
(j) Any action required of the Company or the Committee relating to this
Plan or any Option shall be by resolution of its Board, the Committee or by a
person authorized to act by resolution of the Board or the Committee.
(k) If any provision of this Plan or any Option is held to be illegal or
invalid for any reason, the illegality or invalidity shall not affect the
remaining provisions of this Plan or any Option, but such provision shall be
fully severable, and the Plan or Option, as applicable, shall be construed and
enforced as if the illegal or invalid provision had never been included in the
Plan or Option, as applicable.
(l) Whenever any notice is required or permitted under this Plan, such
notice must be in writing and personally delivered or sent by mail or delivery
by a nationally recognized courier service. Any notice required or permitted to
be delivered under this Option shall be deemed to be delivered on the date on
which it is personally delivered, or, if mailed, whether actually received or
not, on the third Business Day after it is deposited in the United States mail,
certified or registered, postage prepaid, addressed to the person who is to
receive it at the address that such person has previously specified by written
notice delivered in accordance with this Subsection 16(l) or, if by courier,
seventy-two (72) hours after it is sent, addressed as described in this
Subsection 16(l). The Company or the Optionee may change, at any time and from
time to time, by written notice to the other, the address that it or he had
previously specified for receiving notices. Until changed in accordance with
this Option, the Company and the Optionee shall specify as its and his address
for receiving notices the address set forth in this Option pertaining to the
Shares to which such notice relates.
(m) Any person entitled to notice under this Plan may waive such notice.
(n) This Option shall be binding upon the Optionee, his legal
representatives, heirs, legatees and distributees upon the Company, its
successors, and assigns, and upon the Board, the Committee and its successors.
(o) The titles and headings of Sections are included for convenience of
reference only and are not to be considered in construction of this Plan's
provisions.
(p) All questions arising with respect to the provisions of this Plan
shall be determined by application of the laws of the State of Texas except to
the extent Texas law is preempted by federal law. The obligation of the Company
to sell and deliver Shares under this Plan is subject to applicable laws and to
the approval of any governmental authority required in connection with the
authorization, issuance, sale, or delivery of such Shares.
(q) Words used in the masculine shall apply to the feminine where
applicable, and wherever the context of this Option dictates, the plural shall
be read as the singular and the singular as the plural.
10
<PAGE>
SECTION 17. AMENDMENT AND DISCONTINUATION OF THE PLAN. For the purpose of
complying with changes in the Code or ERISA, the Committee may amend, modify,
suspend or terminate the Plan at any time. For the purpose of meeting or
addressing any other changes in legal requirements or any other purpose, the
Committee may amend, modify or suspend the Plan only once every six months.
Subject to changes in law or other legal requirements, including any change in
the provisions of Rule 16b-3 that would permit otherwise, the Plan may not be
amended to, without approval by the shareholders of the Company, (a) increase
the number of Shares reserved for Options or change the class of employees
eligible to receive Options, (b) permit the granting of Options that expire
beyond the maximum 10-year period described in Subsection 7(b), or (c) extend
the termination date of the Plan as set forth in Section 18; and provided,
further, that, except to the extent provided in Section 8, no amendment or
suspension of the Plan or any Option issued hereunder shall, except as
specifically permitted in any Option, substantially impair any Option previously
granted to any Optionee without the consent of such Optionee.
SECTION 18. EFFECTIVE DATE AND TERMINATION DATE. The effective date of the
Plan is the date set forth below, on which the date the Board adopted this Plan;
provided, however, if the Plan is not approved by the shareholders of the
Company within twelve (12) months after the effective date then, in such event,
the Plan and all Options granted pursuant to the Plan shall be null and void.
The Plan shall terminate on the tenth anniversary of the effective date.
ADOPTED BY THE BOARD: February 12, 1996
EFFECTIVE DATE: February 12, 1996
RATIFIED BY THE SHAREHOLDERS: February 12, 1996
Executed to evidence the 1996 Employee Stock Option Plan of Physicians
Information Exchange, Inc. adopted by the Board on February 12, 1996 and the
Shareholders on February 12, 1996.
PHYSICIANS INFORMATION EXCHANGE, INC.
By:_________________________________
Dr. W. Ernest Rutherford
Chairman, Chief Executive Officer
and President
11
<PAGE>
EXHIBIT 10.2
1996 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
FOR
PHYSICIANS INFORMATION EXCHANGE, INC.
SECTION 1. PURPOSE. This 1996 Nonemployee Director Stock Option Plan of
Physicians Information Exchange, Inc. is intended as an incentive to retain as
independent directors on the Board of the Company persons of training,
experience and ability, to encourage the sense of proprietorship of such
persons, and to stimulate the active interest of such persons in the development
and financial success of the Company.
SECTION 2. DEFINITIONS. As used herein, the following terms shall have
the meaning indicated:
(a) "BOARD" shall mean the Board of Directors of the Company.
(b) "COMMON STOCK" shall mean the Company's Class B common stock, $0.001
par value per share.
(c) "COMPANY" shall mean Physicians Information Exchange, Inc., a Texas
corporation.
(d) "DATE OF GRANT" shall mean the date on which an Option is granted to
an Eligible Person pursuant to Section 6(c) hereof.
(e) "DIRECTOR" shall mean a member of the Board.
(f) "ELIGIBLE PERSON(S)" shall mean those persons who are Directors of the
Company and are not Employees.
(g) "EMPLOYEE(S)" shall mean those persons who are full-time employees of
the Company, who are full-time employees of any Subsidiary or who are
consultants to the Company or any Subsidiary under terms pursuant to which such
person receives a specified fixed monthly retainer.
(h) "ERISA" shall mean the Employee Retirement Income Security Act, as
amended.
(i) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
(j) "FAIR MARKET VALUE" of a Share on a particular date shall be the
closing price of Common Stock, which shall be (i) if the Common Stock is listed
or admitted for trading on any United States national securities exchange, the
last reported sale price of Common Stock on such exchange as reported in any
newspaper of general circulation, (ii) if the Common Stock is quoted on NASDAQ
or any similar system of automated dissemination of quotations of securities
prices in common use, the mean between the closing high bid and low asked
quotations for such day of
<PAGE>
the Common Stock on such system or (iii) if neither clause (i) nor (ii) is
applicable, a value determined by any fair and reasonable means prescribed by
the Board.
(k) "INTERNAL REVENUE CODE" or "CODE" shall mean the Internal Revenue
Code of 1986, as it now exists or may be amended from time to time.
(l) "NONQUALIFIED STOCK OPTION" shall mean a stock option that is not an
incentive stock option as defined in Section 422 of the Internal Revenue Code.
(m) "OPTION" (when capitalized) shall mean any stock option granted under
this Plan.
(n) "OPTIONEE" shall mean a person to whom an Option is granted under this
Plan or any successor to the rights of such person under this Plan by reason of
the death of such person.
(o) "PLAN" shall mean this 1996 Nonemployee Director Stock Option Plan of
Physicians Information Exchange, Inc.
(p) "SHARE(S)" shall mean a share or shares of the Common Stock.
(q) "SUBSIDIARY" shall mean any corporation (other than the Company) in
any unbroken chain of corporations beginning with the Company if, at the time of
the granting of the Option, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
SECTION 3. TOTAL AGGREGATE SHARES. Subject to adjustments provided in
Section 13 hereof, a total of 2,000,000 Shares shall be subject to the Plan. The
Shares subject to the Plan shall consist of unissued Shares or previously issued
Shares reacquired and held by the Company, or any Subsidiary, and such number of
Shares shall be and hereby is reserved for sale for such purpose. Any of such
Shares that may remain unsold and that are not subject to outstanding Options at
the termination of the Plan shall cease to be reserved for the purpose of the
Plan, but until termination of the Plan the Company shall at all times reserve a
sufficient number of Shares to meet the requirements of the Plan. Should any
Option expire or be canceled prior to its exercise in full, the Shares
theretofore subject to such Option may again be subjected to an Option under the
Plan.
SECTION 4. RULE 16B-3 PLAN AND SHAREHOLDER APPROVAL. The Company intends
for this Plan to comply with the requirements of Rule 16b-3 promulgated by the
Securities and Exchange Commission pursuant to the Exchange Act. Accordingly,
this Plan and any Options shall terminate and become null and void unless this
Plan is approved at or before the next Annual Meeting of Shareholders of the
Company by shareholders of the Company owning a majority of the issued and
outstanding shares of Common Stock represented at such Annual Meeting.
SECTION 5. TYPE OF OPTIONS. An Option granted hereunder shall be a
Nonqualified Stock Option.
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<PAGE>
SECTION 6. AUTOMATIC GRANT OF OPTIONS.
(a) Options shall be granted only to Eligible Persons. Each Option shall
be evidenced by an option agreement, which shall contain terms that are not
inconsistent with this Plan or applicable laws.
(b) The Options granted to Directors under this Plan shall be in addition
to regular director's fees or other benefits with respect to the Director's
position with the Company or its Subsidiaries. Neither the Plan nor any Option
granted under the Plan shall confer upon any person any right to continue to
serve as a Director.
(c) An Option to purchase 75,000 Shares shall automatically be granted to
each Eligible Person upon first being elected to the Board.
(d) Except for the automatic grants of Options under subsection (c) of
this Section 6, no Options shall otherwise be granted hereunder, and the Board
shall not have any discretion with respect to the grant of Options within the
meaning of Rule 16b-3 promulgated under the Exchange Act, or any successor rule.
SECTION 7. EXERCISE PRICE. The exercise price of each Share placed under
Option pursuant to the Plan shall be the Fair Market Value of such Share on the
Date of Grant.
SECTION 8. VESTING SCHEDULE.
(a) Shares subject to an Option shall vest in accordance with the
subsections 8(b) hereof.
(b) Shares subject to an Option shall vest one-third of the total number
of shares initially subject to such Option (as adjusted pursuant to Section 13)
on the anniversary date of the Date of Grant of the Option.
(c) Notwithstanding the foregoing, Shares subject to an Option shall
vest as to all Shares then subject to the Option upon the occurrence of any of
the following events:
(1) a transaction (or series of transactions occurring within a 60-
day period or pursuant to a plan approved by the Board or
shareholders of the Company) occurs which has the result that
shareholders of the Company immediately before such transaction
cease to own directly or indirectly at least 51 % of the voting
stock of the Company or of any entity which results from the
participation of the Company, in a reorganization, consolidation,
merger, liquidation or any other forms of corporate transaction;
(2) all or substantially all of the assets of the Company shall be
sold or otherwise disposed of except that this Option shall not
vest as to all Shares then subject to this Option if after such
sale or disposition (i) the
3
<PAGE>
shareholders of the Company immediately prior to such transaction
continue to own at least 51 % of the voting stock of the entities
which acquired 50% or more in value of the assets of the Company
so sold or conveyed and (ii) the acquiring entity agrees to
assume the obligations of the Company under this Agreement; or
(3) the occurrence of a merger, consolidation or other reorganization
of the Company under the terms of which the surviving entity does
not assume the obligations of the Company under this Agreement.
SECTION 9. EXERCISE OF OPTIONS.
(a) An Option shall not be exercisable prior to the six-month anniversary
of the Date of Grant of such Option. After the six-month anniversary of the
Date of Grant of an Option such Option may be exercised at any time and from
time to time during the term of such Option, in whole or in part, with respect
to Shares which have vested in accordance with Section 8 hereof.
(b) Options may be exercised (i) during the Optionee's lifetime, solely by
the Optionee, or after Optionee's death, by the personal representative of the
Optionee's estate or the person or persons entitled thereto under his will or
under the laws of descent and distribution.
(c) This Option shall be deemed exercised when (i) the Company has
received written notice of such exercise delivered to the Company in accordance
with the notice provisions of the applicable option agreement, (ii) full payment
of the aggregate exercise price of the Shares as to which the Option is
exercised has been tendered to the Company and (iii) arrangements that are
satisfactory to the Board in its sole discretion have been made for the
Optionee's payment to the Company of the amount, if any, that the Company
determines to be necessary for the Company to withhold in accordance with the
applicable federal or state income tax withholding requirements.
(d) The exercise price of any Shares purchased shall be paid solely in
cash, by certified or cashier's check, by money order, by personal check (if
approved by the Board), or, at the option of the Optionee, in Common Stock
theretofore owned by such Optionee (or by a combination of the above). For
purposes of determining the amount, if any, of the exercise price satisfied by
payment in Common Stock, such Common Stock shall be valued at its Fair Market
Value on the date of exercise. Any Common Stock delivered in satisfaction of
all or a portion of the exercise price shall be appropriately endorsed for
transfer and assignment to the Company.
(e) The Optionee shall not be, nor have any of the rights or privileges
of, a shareholder of the Company with respect to any Shares purchasable upon the
exercise of any part of this Option unless and until certificates representing
such Shares shall have been issued by the Company to the Optionee.
4
<PAGE>
SECTION 10. TERMINATION OF OPTION PERIOD.
(a) The unexercised portion of an Option shall automatically and without
notice terminate and become null and void and be forfeited ten years after the
Date of Grant of such Option.
(b) The Board of Directors of the Company in its sole discretion may, by
giving written notice to an Optionee ("Cancellation Notice"), cancel, effective
upon the date of the consummation of any corporate transaction described in
subsection 8(d) hereof, any portion of this Option which remains unexercised on
such date. Such cancellation notice shall be given to Optionee at least ten
(10) days prior to the date of cancellation.
SECTION 11. TERMS OF OPTION. Each Option granted under this Plan shall
have a term of ten (10) years from the Date of Grant of such Option.
SECTION 12. ASSIGNABILITY. No Option shall be assignable or otherwise
transferable except by will, or the laws of descent and distribution.
SECTION 13. ADJUSTMENTS.
(a) If at any time while any unexercised portion of an Option is
outstanding there shall be an increase or decrease in the number of issued and
outstanding Shares through the declaration of a stock dividend or through any
recapitalization resulting in a stock split-up, combination or exchange of
Shares, then appropriate adjustment shall be made in the number of Shares and
the exercise price per Share subject to such outstanding portion of such Option,
so that the same proportion of the Company's issued and outstanding Shares shall
remain subject to purchase at the same aggregate exercise price.
(b) In the event of a merger, consolidation or other reorganization of the
Company under the terms of which the Company is not the surviving corporation,
but the surviving corporation elects to assume an Option, optionee shall be
entitled to receive, upon the exercise of such Option, with respect to each
Share (i) the number of shares of stock of the surviving corporation (or equity
interest in any other entity) and (ii) any other notes, evidences of
indebtedness or other property, that Optionee would have received in connection
with such merger, consolidation or other reorganization had he executed the
Option with respect to such Shares immediately prior to such merger,
consolidation or other reorganization.
(c) Except as otherwise expressly provided herein, the issuance by the
Company of shares of its capital stock of any class, or securities convertible
into shares of capital stock of any class, either in connection with direct sale
or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number of or exercise price of Shares then subject
to outstanding Options granted under the Plan.
5
<PAGE>
(d) Without limiting the generality of the foregoing, the existence of
outstanding Options granted under the Plan shall not affect in any manner the
right or power of the Company to make, authorize or consummate (i) any or all
adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business; (ii) any merger or consolidation of
the Company; (iii) any issuance by the Company of debt securities, or preferred
or preference stock which would rank above the Shares subject to outstanding
Options; (iv) the dissolution or liquidation of the Company; (v) any sale,
transfer or assignment of all or any part of the assets or business of the
Company; or (vi) any other corporate act or proceeding, whether of a similar
character or otherwise.
SECTION 14. PURCHASE FOR INVESTMENT. As a condition of an issuance of a
stock certificate for Shares, the Board may obtain such agreements or
undertakings, if any, as it may deem necessary or advisable to assure compliance
with any provision of this Option or any law or regulation, including, but not
limited to, the following:
(a) a representation and warranty by the Optionee to the Company, at the
time his Option is exercised, that he is acquiring the Shares to be issued to
him for investment and not with a view to, or for sale in connection with, the
distribution of any such Shares; and
(b) a representation, warranty or agreement to be bound by any legends
that are, in the opinion of the Board, necessary or appropriate to comply with
the provisions of any securities law deemed by the Board to be applicable to the
issuance of the Shares and are endorsed upon the certificates representing the
Shares.
SECTION 15. EFFECTIVE DATE AND TERMINATION OF PLAN. The Plan is effective
as of February 12, 1996. The adoption of the Plan, however, is conditioned upon
the approval by the holders of a majority of the Shares of Common Stock then
outstanding pursuant to Section 4. The Plan shall terminate February 12, 2006,
subject to early termination by the Board pursuant to Section 16 of the Plan.
SECTION 16. AMENDMENT, MODIFICATION, SUSPENSION OR DISCONTINUANCE OF THIS
PLAN. For the purpose of complying with changes in the Code or ERISA, the Board
may amend, modify, suspend or terminate the Plan anytime. For the purpose of
meeting or addressing any other changes in legal requirements or any other
purpose, the Board may amend, modify, suspend or terminate the Plan only once
every six months. Subject to changes in law or other legal requirements,
including any change in the provisions of Rule 16b-3 that would permit
otherwise, the Plan may not be amended without the consent of the holders of a
majority of the shares of Common Stock then outstanding, to (i) increase
materially the aggregate number of shares of Common Stock that may be issued
under the Plan (except for adjustments pursuant to Section 13 of the Plan), (ii)
increase materially the benefits accruing to Optionees under the Plan, or (iii)
modify materially the requirements as to eligibility for participation in the
Plan.
SECTION 17. GOVERNMENT REGULATIONS. This Plan, and the granting and
exercise of Options hereunder, and the obligation of the Company to sell and
deliver shares under such
6
<PAGE>
Options, shall be subject to all applicable laws, rules and regulations, and to
such approvals by any governmental agencies or national securities exchanges as
may be required.
SECTION 18. MISCELLANEOUS.
(a) If any provision of this Plan is held invalid for any reason, such
holding shall not affect the remaining provisions hereof, but instead this Plan
shall be construed and enforced as if such provision had never been included in
this Plan.
(b) THIS PLAN SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS.
(c) Headings contained in this Plan are for convenience only and shall in
no manner be construed as part of this Plan.
(d) Any reference to the masculine, feminine, or neuter gender shall be a
reference to such other gender as is appropriate.
PHYSICIANS INFORMATION EXCHANGE, INC.
By:____________________________________
Dr. W. Ernest Rutherford
Chairman, Chief Executive Officer
and President
7
<PAGE>
EXHIBIT 10.3
STOCK ESCROW AGREEMENT
----------------------
Physicians Information Exchange, Inc. (hereinafter called the "Company"),
_____________________ (hereinafter called the "Escrow Agent") and certain of the
SHAREHOLDERS of the Company (hereinafter called the "Shareholders"), whose names
are set forth in the attached Exhibit A (which is incorporated herein for all
purposes), have made and entered into this Stock Escrow Agreement (hereinafter
called the "Agreement").
WHEREAS, the Shareholders are the beneficial owners of shares of Common
Stock, $.001 par value of the Company and/or options or warrants or conversion
rights to acquire such shares of the Company as set forth in the attached
Exhibit A. All of the foregoing shares, options or warrants or conversion
- ---------
rights to acquire such shares of the Company are collectively referred to herein
as the "Common Stock"; and
WHEREAS, the Company desires to make a public offering of the Company
(hereinafter called the "Offering") of shares of its securities at $1.00 per
share pursuant to an application for registration filed with the State
Securities Commissioner of Texas (hereinafter called the "Commissioner") and
WHEREAS, as a condition of registration the Commissioner has required that
the Shareholders place in escrow those shares of Common Stock of the Company set
forth in Exhibit A; and
---------
WHEREAS, the Company, the Shareholders and the Escrow Agent desire to enter
into a Stock Escrow Agreement with respect to the escrow of such Common Stock of
the Company.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and the covenants herein
contained, it is agreed as follows:
1. The effective date of this Agreement shall be the date upon which the
offering is registered for sale in Texas by the Commissioner (hereinafter called
the "Effective Date") as contained in the Issuer's Permit to be issued by the
Commissioner. The public offering price referred to in this Agreement, for the
purposes of this Agreement is One Dollar ($1.00) per share of Common Stock
(hereinafter called the "Public Offering Price").
2. The securities subject to escrow under this Agreement shall include:
(a) all of those shares of Common Stock as set forth in the attached Exhibit A;
---------
(b) any stock or cash dividends that may be paid thereon during the term of this
Agreement; (c) any additional securities issued through, or by reason of, any
stock split, exchange of shares, merger, consolidation, recapitalization,
reorganization or similar business combination or subdivision in substitution
for, or in lieu of, any of the securities subject to this Agreement at the time;
and (d) any other dividends or distributions of any kind with respect to the
securities subject to escrow under this Agreement. All of the foregoing are
collectively referred to herein as the "Escrowed Securities".
Any dividends or distributions of any kind with respect to the Escrowed
Securities that may be paid during the term of this Agreement shall be paid to
the Escrow Agent and held pursuant to the terms hereof. Such dividends or
distributions of any kind with respect to the Escrowed Securities shall be
treated as assets of the Company available for distribution in accordance with
the provisions of Paragraph 11 hereof. The Escrow Agent shall place all cash
dividends in an interest-bearing account. The dividends and interest thereon
will be disbursed in proportion to the number of shares released from the escrow
in accordance with the terms of this Agreement,
2
<PAGE>
provided that such dividends and interest thereon are not first distributed in
accordance with Paragraph 11 hereof.
3. The Shareholders shall promptly deliver to the Escrow Agent
certificates of Common Stock in the Company evidencing the number of shares of
Common Stock or documents evidencing the right to acquire the shares which are
set forth opposite their names in Exhibit A, as well as any certificates
---------
evidencing any additional shares subject to escrow (including dividends or
distributions of any kind with respect to the Escrowed Securities) as set forth
in Paragraph 2 hereof, for deposit pursuant to the terms hereof. The Escrow
Agent shall furnish each depositing Shareholder a safekeeping receipt or other
similar instrument reflecting the name and address of the Shareholder, the
number of shares deposited and respective stock certificate number(s), list of
documents evidencing the right to acquire the shares, and the amount of any cash
distributions deposited in escrow. A copy of any such safekeeping receipt or
similar instrument reflecting such deposit shall be furnished by the Escrow
Agent to the Commissioner for his information at the same time such receipt or
instrument is furnished to the depositing shareholders. The Escrow Agent shall
have no obligation to solicit the delivery of any cash or distributions of any
kind with respect to the Escrowed Securities, or any certificates of stock
representing any such Escrowed Securities or any document evidencing the right
to acquire any such Escrowed Securities.
4. The escrow period shall begin on the Effective Date of this Agreement
and shall terminate as provided herein. The securities deposited in escrow
under this Agreement shall be held in such escrow until the earliest occurrence
of any one of the following:
(a) When the Company in each of any two consecutive fiscal years has
achieved fully diluted net earnings per share for each fiscal year,
computed under generally accepted accounting principles, at least
equal to 10% of the Public Offering Price
3
<PAGE>
per share. Such earnings shall include net income per share after
deducting provisions for any current and deferred income taxes for
such fiscal year and shall not take into consideration any
extraordinary items of income or expense, results of discontinued
operations or credit for tax-loss carryforward. The amount of the
fully diluted net earnings per share required for the termination of
the Escrow shall be adjusted proportionately to account for any stock
dividends, stock split, share combination, exchange of shares,
recapitalization, merger, consolidation, reorganization, liquidation
or similar combination or subdivision of the Common Stock of the
company. In the event of merger or consolidation the net income per
share will be computed upon earnings of the resulting entity for any
fiscal year subsequent to such merger or consolidation upon the basis
of the total shares of the resulting entity outstanding.
(b) When the Company during any five consecutive fiscal years has
accumulated fully diluted net earnings per share, computed under
generally accepted accounting principles, at least equal to 30% of the
Public Offering Price per share. Such earnings shall include net
income per share after deducting provisions for any current and
deferred income taxes for such fiscal year and shall not take into
consideration any extraordinary items of income or expense, results of
discontinued operations or credit for tax-loss carry-forward. The
amount of the fully diluted net earnings per share required for the
termination of the Escrow shall be adjusted proportionately to account
for any stock dividends, stock split, share combination, exchange of
shares, recapitalization, merger consolidation, reorganization,
liquidation or similar combination or subdivision of the Common Stock
of the Company. In the event of merger or consolidation the net
income per share will be computed upon earnings of the resulting
entity for any fiscal year subsequent to such merger or consolidation
upon the basis of the total shares of the resulting entity
outstanding.
(c) When the shares of the Company's Common Stock have traded in a
reliable public market (e.g., either the New York Stock Exchange, the
American Stock Exchange or the NASDAQ National Market System) at a
price per share of at least one hundred seventy-five percent (175%) of
the Public Offering Price per share of Common Stock for a period of at
least ninety (90) consecutive trading days after at least one year
from the Effective Date.
(d) (i) When a tender offer or an offer to merge or otherwise acquire the
Company's Common Stock is made pursuant to which all public
shareholders of the Company will receive either cash in the amount of
at least two times the Public Offering Price per share of Common
Stock, or securities listed or to be listed, or qualified in all
respects for listing, on the New York Stock Exchange, the American
Stock Exchange, or the National Market System of the National
Association of Security Dealers Automated Quotation System (NASDAQ),
and
4
<PAGE>
having a market value at the effective date of the tender offer,
merger, or other acquisition of at least two times the Public Offering
Price per share of Common Stock, if the tender offer, merger, or other
acquisition is made and accepted not less than eighteen months nor
more than two years after the Effective Date; or (ii) in the event
such tender offer, merger, or other acquisition is made and accepted
more than two years after the Effective Date, the public shareholders
of the Company shall be entitled to receive either cash in the amount
of, or such securities equal in value to, at least one and one-half
times the Public Offering Price per share of Common Stock.
(e) If not sooner released pursuant to paragraphs (a), (b), (c) or (d) of
this Section 4, then twenty percent (20%) of the total Escrowed
securities owned by each Shareholder (or by any Permitted Transferees
as hereinafter defined) and deposited in escrow under this Agreement
shall be released by the Escrow Agent to each respective Shareholder
(or Permitted Transferees) each year, commencing on the sixth
anniversary of the Effective Date of this Agreement and on each
anniversary thereafter, with the final twenty percent (20%) of the
Escrowed Securities remaining in escrow to be released to each
respective Shareholder (or Permitted Transferees) on the tenth
anniversary of the Effective Date.
Upon receipt by the Escrow Agent of appropriate proof (pursuant to
Paragraph 5 below) of the occurrence of any one of the events referred to in
subparagraphs (a), (b), (c) or (d) of this Paragraph 4, this Agreement shall
automatically terminate and the Escrowed Securities shall be released
immediately by the Escrow Agent and delivered to the respective Shareholders (or
their Permitted Transferees). Upon such delivery to the Shareholders (or
Permitted Transferees), the Escrow Agent shall be relieved of all responsibility
hereunder.
5. (a) For purposes of this Agreement, the Company shall be deemed to
have satisfied the earnings requirements of subparagraph (a) of Paragraph 4 at
such time as an independent certified public accountant certifies the Company's
Statements of operations which show the required 10% fully diluted earnings per
share of Common Stock of the Company in any two consecutive fiscal years, as
described in said subparagraph. Upon receipt by the Escrow Agent of a copy of
such certified Statements of Operations, the Escrow Agent shall release the
5
<PAGE>
Escrowed Securities to the respective Shareholders (or their Permitted
Transferees). A copy of such certified Statements of operations shall be
furnished to the Commissioner for his information at the same time they are
furnished to the Escrow Agent.
(b) For purposes of this Agreement, the Company shall be deemed to have
satisfied the earnings requirements of subparagraph (b) of Paragraph 4 above at
such time as an independent certified public accountant certifies the Company's
Statements of operations which show the required 30% accumulated fully diluted
net earnings per share of outstanding Common Stock of the Company in any five
consecutive fiscal years as described in said subparagraph. Upon receipt by the
Escrow Agent of copies of such certified Statements of Operations, the Escrow
Agent shall release the Escrowed Securities to the respective Shareholders (or
their Permitted Transferees). A copy of such certified Statements of Operations
shall be furnished to the Commissioner for his information at the same time they
are furnished to the Escrow Agent.
(c) For purposes of this Agreement, the Company's Common Stock shall be
deemed to have satisfied the trading price requirement of subparagraph (c) of
Paragraph 4 at such time as the Escrow Agent shall have received an affidavit of
an executive officer of the Company stating that such requirement has been met,
and including with such affidavit, a copy of the relevant trading statistics.
Upon receipt of such proof, the Escrow Agent shall release the Escrowed
Securities to the respective Shareholders (or their Permitted Transferees). A
copy of any document or documents constituting proof that such trading
requirements have been met shall be furnished to the Commissioner for his
information at the same time they are furnished to the Escrow Agent.
6
<PAGE>
(d) For purposes of this Agreement, the Company's Common Stock shall be
deemed to have satisfied the tender offer/acquisition price requirement of
subparagraph (d) of Paragraph 4 at such time as the Escrow Agent shall be
received an affidavit of an executive officer of the Company stating that such
requirement has been met. Upon receipt of such proof, the Escrow Agent shall
release the Escrowed Securities to the respective Shareholders (or their
Permitted Transferees). A copy of any document or documents constituting proof
that such price requirements have been met shall be furnished to the
Commissioner for his information at the same time they are furnished to the
Escrow Agent.
6. During the existence of this Agreement, the Shareholders and all
Permitted Transferees agree that the securities subject to escrow, or any
interest therein, may not in any way be offered for sale, sold, pledged,
hypothecated, transferred, assigned or in any other manner disposed of (except
by laws of inheritance or by will) by or for the account of any of the
Shareholders or Permitted Transferees except as otherwise provided in this
Agreement.
7. The Shareholders may transfer any Escrowed Securities among themselves
or among related individuals (as hereinafter defined), with or without
consideration. Any securities so transferred under this Paragraph 7 shall
remain subject to all of the terms and provisions of this Agreement. As a
condition precedent to any such transfer, any transferee not previously a party
to this Agreement shall execute in duplicate a declaration in the form attached
hereto as Exhibit B and deliver one copy to the Escrow Agent and one copy to the
Commissioner at the time of such transfer. For the proposes of this Paragraph
7, the term "related individual" means the spouse, brothers, sisters ancestors,
lineal descendants, or spouses of lineal descendants of any Shareholders
7
<PAGE>
who are parties to this Agreement, including a trustee or trustees under a
written agreement for the benefit of any such related individuals.
8. This Agreement shall inure to the benefit of and shall be binding upon
the Company, and its successors and assigns, and the Shareholders and their
respective heirs, personal representatives and assigns.
9. If, during the term of this Agreement, there is any merger,
consolidation, reorganization, or similar exchange of shares by the Company, the
Escrow Agent shall, upon receipt of written instructions from the company,
transfer the Escrowed Securities to the designee named in such instruction
letter in exchange for stock certificates evidencing the new securities issued
in lieu thereof. The new securities shall remain in escrow under this Agreement
and shall be accorded the same treatment under this Agreement as the securities
surrendered, and all earnings and value tests provided in this Agreement shall
be adjusted to conform to the exchange ratio of the new securities for the
surrendered securities.
10. During the term of this Agreement, each Shareholder and Permitted
Transferee shall retain their right to vote (in person, by proxy or otherwise)
their respective securities deposited in escrow, to the same extent as if such
securities were not escrowed.
11. During the existence of this Agreement, the Shareholders and Permitted
Transferees agree that in the event of dissolution or liquidation of the
Company, either voluntary or involuntary, their right to receive any dividends
or distribution of assets in liquidation with respect to the Escrowed Securities
shall be subordinated, and that no payments in liquidation shall be made on the
Escrowed Securities until such time as the holders of the shares sold in the
offering shall have received an amount at lest equal to at least one hundred
percent (100%) of the Public
8
<PAGE>
Offering Price per share, adjusted for any subsequent stock dividends, stock
splits or combinations.
12. During the term of this Agreement, the Company shall cause a summary
of the terms of this Agreement to be set out in any registration statement,
annual report, prospectus, proxy statement or other similar materials used by
shareholders or investors in making informed decisions concerning the Company
and in order to provide full disclosure.
13. The Escrow Agent is authorized to act in reliance upon the
sufficiency, correctness, genuineness or validity of any instrument or document
or other writing submitted to it hereunder and shall have no liability with
respect to said matters. The Escrow Agent shall not be responsible for the
marketability of any title. The Escrow Agent shall not be liable for any error
in judgment or for any act done or omitted by it in good faith.
14. The Shareholders, jointly and severally, agree to indemnify and hold
harmless the Escrow Agent from any costs, damages, expenses, losses or claims,
including reasonable attorney's fees, which the Escrow Agent may incur or
sustain as a result of or arising out of this Agreement or the Escrow Agent's
duties relating thereto, except as caused by the Escrow Agent's gross negligence
or willful misconduct, and the Shareholders, jointly and severally, agree to pay
such costs, damages, expenses, losses or claims to the Escrow Agent on demand.
15. In the event of any disagreement or the presentation of adverse claims
or demands in connection with the Escrowed Securities or any other funds or
documents held hereunder, the Escrow Agent shall, at its option, be entitled to
refuse to comply with any such claims or demands during the continuance of such
disagreement and may refrain from delivering any item affected thereby, and in
so doing, the Escrow Agent shall not become liable to the Shareholders or their
9
<PAGE>
Permitted Transferees, or to any other person, due to its failure to comply with
any such adverse claim or demand. The Escrow Agent shall be entitled to
continue, without liability, to refrain and refuse to act:
(a) Until all the rights of the adverse claimants have been finally
adjudicated by a court having jurisdiction of the parties and the items affected
thereby, after which time the Escrow Agent shall be entitled to act in
conformity with such adjudication; or
(b) Until all differences shall have been adjusted by agreement and the
Escrow Agent shall have been notified thereof and shall have been directed in
writing signed jointly or in counterpart by the Shareholders and/or their
Permitted Transferees and by all persons making adverse claims or demands, at
which time the Escrow Agent shall be protected in acting in compliance
therewith.
16. The Shareholders, jointly and severally, agree to pay any and all fees
and expenses, including reasonable attorney's fees, incurred by the Escrow Agent
as a result of the escrow of the Escrowed Securities subject to this Agreement,
including, but not limited to, the Escrow Agent's annual fee for the performance
of its duties hereunder. The Company may not pay any fees or expenses
associated with the escrow under this Agreement.
17. The Escrow Agent agrees to administer this Agreement in strict
compliance with all of the terms and conditions contained herein; the Company
agrees to provide the Escrow Agent with all information necessary to facilitate
the administration of the Agreement.
18. The Escrow Agent may, upon not less than sixty days' prior written
notice to the Company, to each of the Shareholders, and to the State Securities
Commissioner of Texas ("Commissioner"), resign as Escrow Agent hereunder. In
such event, the Company and the
10
<PAGE>
Shareholders shall, before the effective date of such resignation, enter into a
new escrow agreement, in form and substance identical to this Agreement, with a
substitute escrow agent. Any successor escrow agent must be satisfactory to the
Commissioner. If the Company and the Shareholders fail to enter into such a new
escrow agreement and appoint a successor escrow agent within sixty days after
the Escrow Agent has given notice of its resignation, the Escrow Agent then
serving under this Agreement shall be under no obligation to turn over the
Escrowed Securities until such new escrow agreement has been executed and a
successor escrow agent has been appointed, nor shall the Escrow Agent be liable
to the Shareholders for not so turning over the Escrowed Securities.
19. A legend in substantially the following form has been or will be
placed on any certificate or other documents evidencing the Escrowed Securities:
The securities evidenced by this certificate are subject to restrictions on
their sale, pledge or other transfer as set forth in the Stock Escrow
Agreement dated __________________, 1996, by and among the Company,
________________ (the Escrow Agent) and various shareholders of the
Company. The Company will furnish to the record owner of this certificate
a copy of said Agreement without charge upon written request to the Company
at its principal place of business or registered office. The rights of the
holder of this certificate are subject to all of the terms and conditions
of said Agreement, by which the holder, by acceptance of this certificate,
agrees to be bound.
Stop transfer instructions to the Company's transfer agent have been or will be
placed with respect to the Escrowed Securities so as to restrict their sale,
pledge or other transfer. The foregoing legend and stop transfer instructions
will be placed with respect to any new certificate(s) or other document(s)
issued upon presentment of any original certificates or other documents
evidencing the Escrowed Securities, as well as with respect to any other
securities which may be issued and constitute Escrowed Securities under this
Agreement.
11
<PAGE>
20. All notices, requests, demands and other communications required or
contemplated hereunder shall be in writing and shall be deemed to have been duly
give on the earlier of (i) when delivered to the party to whom addressed or (ii)
three business days after deposit in the U.S. mail, sent by registered or
certified mail, return receipt requested, prepaid and addressed to the parties,
their successors in interest, or their permitted assignees at the following
addresses, or at such other addresses as the parties may designate by written
notice in the foregoing manner:
To Company:
----------
Attn: Dr. W. Ernest Rutherford
Chairman of the Board
1401 Hudson Lane
Monroe, LA 71201
To Escrow Agent:
---------------
Attn:
Corporate Trust Officer
___________________________________
To Commissioner: Hon. Denise Voigt Crawford
--------------- State Securities Commissioner
State Securities Board
P.O. Box 13167
Austin, Texas 78711-3167
To Shareholders: In accordance with the addresses set forth on
--------------- the signature pages of this Agreement, or as
such addresses may be amended pursuant to
this subparagraph.
21. If for any reason the Offering does not become registered in Texas or
if the Offering is terminated for any reason and is not successfully completed,
this Agreement shall be void and of no effect and the Escrow Agent, upon notice
from the Company of such nonregistration, termination or unsuccessful
completion, shall promptly release any Escrowed
12
<PAGE>
Securities held under this Agreement to the respective Shareholders (or their
Permitted Transferees).
22. This Agreement shall be construed in accordance with and governed by
the laws of the State of Texas.
23. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
_______ day of _______________, 1996.
By:______________________________________
Title:___________________________________
ESCROW AGENT:
ATTEST: _________________________________________
By:______________________________________
___________________________ Title:___________________________________
SHAREHOLDERS: Address
-------
1401 Hudson Lane
___________________________
Dr. W. Ernest Rutherford Monroe, LA 71201
13
<PAGE>
EXHIBIT "A"
SECURITIES TO BE ESCROWED
-------------------------
<TABLE>
<CAPTION>
Name of Shareholder Certificate No.(s) Number of Shares
- ------------------- ------------------ ----------------
<S> <C> <C>
Dr. W. Ernest Rutherford
Total _____________________________
</TABLE>
14
<PAGE>
EXHIBIT "B"
Declaration of Transferees
--------------------------
WHEREAS, the undersigned has acquired ________ shares of Common Stock (the
"Shares") of Physicians Information Exchange, Inc. (the "Company") from
_________________, a shareholder of the Company; and
WHEREAS, such shares are subject to certain transfer and other restrictions
imposed by the attached Stock Escrow Agreement by and among the Company,
____________________ (Escrow Agent) and certain shareholders of the Company (the
"Agreement");
NOW, THEREFORE, the undersigned acknowledges and agrees:
(1) That the undersigned has received a copy of the Agreement;
(2) That in acquiring the above-described Shares the undersigned is a
party to the Agreement;
(3) That the Shares acquired will be subject to the Agreement while it
remains in force and will be held in escrow by the Escrow Agent named
therein; and
(4) That the undersigned will comply with the terms of the Agreement.
Dated this _______ day of ________________________, 19___.
_______________________________________
Signature
______________________________________
Name Typed or Printed
______________________________________
Stock Certificate Number(s)
______________________________________
Address
______________________________________
Telephone
15
<PAGE>
EXHIBIT 10.4
PURCHASE AGREEMENT
------------------
This Purchase Agreement (the "Agreement") is made and entered into as of
the 30th day of November, 1995 (the "Effective Date"), by and between the
following Parties:
PHYSICIANS INFORMATION EXCHANGE, INC., a Texas corporation, having a
principal place of business at 1401 Hudson Lane, Suite 202, Monroe,
Louisiana 71201 (hereinafter "Buyer"), and
MATRIX PLUS, INC., a Texas corporation, having a principal place of
business at 1401 Hudson Lane, Suite 202, Monroe, Louisiana 71201
(hereinafter "Seller").
In consideration of the mutual covenants contained 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 -- GENERAL
1.1 Seller has developed and owns a computer-based patient record software
product (the MR1 Software"), all source code and other documentation
relating thereto (the "MR1 System"), and all copyrights and intellectual
property rights therein (the "MR1 Intellectual Property").
1.2 Seller is in the business of marketing and selling the MR1 Software (the
"Business") and owns certain "Assets" related thereto as defined
hereinbelow.
1.3 Seller desires to sell or transfer its interest in and to the Assets to
Buyer, and Buyer desires to purchase Seller's interest in and to the
Assets.
ARTICLE II -- DEFINITIONS
2.1 "Assets" means the Technology, Technical Information, Business Information,
Intellectual Property and all other intangible assets associated with the
Business.
2.2 "Business Information" means any material in human or machine-readable form
used, compiled or produced by or for the Business such as, for example,
component supply and cost information, marketing plans, customer lists,
sales leads, competitor analyses, transaction files, financial data,
business plans, business contacts, books, records, papers and instruments.
2.3 "Copyright(s)" means all forms of proprietary rights granted by a
government with respect to an original work of authorship and fixed in any
tangible medium of oppression from which it can be perceived, reproduced,
or otherwise communicated relating to the Business.
<PAGE>
2.4 "Intellectual Property" means intellectual property rights including
Patents, Copyrights, Trade Secrets, Know-How, Trademarks or Trade Names,
including without limitation the MR1 Intellectual Property.
2.5 "Know-How" means all factual knowledge and information relating to the
Business not capable of precise, separate description but which, in an
accumulated form, after being acquired as a result of trial and error,
gives to the one acquiring it the ability to produce and market something
that one otherwise would not have known how to produce and market with the
same accuracy or precision necessary for commercial success; provided
however, that such knowledge and information is not in the public domain or
readily available to any third party other than a limited number of persons
who have agreed to keep that information secret.
2.6 "Party" means Seller and Buyer individually; "Parties" means both Seller
and Buyer. Reference to the Parties includes their respective permitted
assignees and successors in interest.
2.7 "Patent(s)" means all forms of proprietary rights granted by a government
with respect to a design or an invention of the Business, including patents
and certificates of addition, utility models, and enforceable patent
applications, i.e., those under which injunctive relief is available, as
well as, any continuation, division, extension, renewal, revival, or
reissue thereof or substitution therefor, as well as those unfiled
invention disclosures relating to the Business.
2.8 "Technical Information" means any material in human or machine-readable
form that embodies or describes the Technology, including without
limitation the MR1 System.
2.9 "Technology" means any and all compositions, articles of manufacture,
processes, apparatus, data, writings and works of authorship (including,
without limitation, software, protocols, program codes, audio-visual
effects created by program code, and documentation relating thereto),
drawings, mask works and other tangible items (including, without
limitation, materials, samples, components, tools, and operating devices,
e.g., board assemblies, prototypes, and engineering models) relating to the
Business, including without limitation the MR1 Software.
2.10 "Trade Name(s)" means any name used by the Seller to identify the Business.
2.11 "Trade Secrets" means any Technical Information and Business Information
that generally facilitates the sale of products, increases revenues, or
provides an advantage over the competition and is not generally known.
2.12 "Trademark(s)" means all forms of proprietary rights granted by a
government with respect to any word, name, symbol or device, or any
combination thereof, used to identify and distinguish goods of the
Business.
2
<PAGE>
ARTICLE III -- AGREEMENT OF PURCHASE AND SALE
---------------------------------------------
3.1 PURCHASE AND SALE OF ASSETS. Buyer agrees to purchase and Seller agrees to
---------------------------
sell and at Closing (as hereinafter defined) to transfer, assign and
deliver to Buyer good and indefeasible title, free and clear of any and all
liens and encumbrances, in and to the Assets.
3.2 DISCLOSURE OF INFORMATION AND NON-COMPETITION AGREEMENT. Within thirty
-------------------------------------------------------
(30) days after Closing, Seller shall provide the Technical Information and
Business Information to Buyer. For a period of two years following the
Effective Date of this Agreement (hereinafter the "Disclosure Period"),
Seller shall make available to Buyer by telephone or facsimile a competent
representative to respond to requests from Buyer for Technical Information
and Business Information. Any Technical Information and Business
Information shall be provided in the English language. The cost of
translation shall be borne by the Seller. Seller will use its best efforts
to fully disclose and describe the Technology to the Buyer.
(a) During the Disclosure Period, Seller shall, upon prior written
request of Buyer, permit a reasonable number of visits by designated
representatives of Buyer to the facilities of Seller to assure the complete
transfer of the Assets, and in particular the Technology, Technical
Information and Business Information.
(b) During the Disclosure Period, Seller shall provide the services of
certain employees who Seller represents as being familiar with the
Technology, Technical Information and Business Information for consultation
and advice concerning the Technology, Technical Information and Business
Information and Buyer's utilization of the Technology, Technical
Information and Business Information.
(c) Promptly after the Closing, Seller will disclose to Buyer all
information regarding the inventions covered by invention disclosures and
applications for Patent. Seller shall prepare and file all documents
necessary for the assignment of Patents relating to such inventions and
vigorously assist Buyer in the prosecution thereof at the Seller's own
expense. Seller further agrees to have executed by its appropriate staff
such documents as may be tendered to it by Buyer to obtain, maintain, or
perfect Buyer's title to such Patents.
(d) During the Disclosure Period, neither Seller nor any of its
shareholders will compete with Buyer with respect to the Business and in
the geographical areas where Seller conducts the Business.
3.3 CONSIDERATION. Buyer will issue to Seller, in consideration for the
-------------
transfer of the Assets to Buyer, 200,000 shares of Class A Common Stock of
Buyer.
3.4 LIMITATION OF LIABILITY. Buyer does not and will not assume or be
-----------------------
responsible for payment of any liability or obligation of Seller of any
kind whatsoever, including any
3
<PAGE>
liability or obligation for transfer or excise taxes or other charges or
expenses arising out of or in connection with the transfer of the Assets.
Seller agrees to remain solely liable for all liabilities of Seller and
shall indemnify and hold Buyer harmless from any and all claims, demands or
losses incurred as a result of such liabilities.
3.5 CLOSING. The Parties hereto agree that the closing (the "Closing") of the
-------
sale and purchase of the Assets contemplated by this Agreement is
conditioned upon and shall occur (the "Closing Date") concurrently with the
effectiveness, as declared by the Securities and Exchange Commission (the
"SEC"), of Buyer's public offering of securities pursuant to a Registration
Statement on Form SB-2 (the "Registration Statement").
3.6 DELIVERY OF DOCUMENTS AT CLOSING; FURTHER ASSURANCES:
----------------------------------------------------
(a) At Closing, Seller will deliver to Buyer the following documents
and instruments:
(1) Evidence reasonably satisfactory to Buyer of Seller's
authority to enter into and perform its obligations under this
Agreement;
(2) A Bill of Sale, Assignment and Assumption Agreement,
substantially in the form attached hereto as Exhibit A;
---------
(3) All of Seller's contracts, commitments, account records,
files and other business records relating to the Assets; and
(4) A materially complete and accurate list, including contact
names and addresses of all customers of Seller as of the Closing Date.
(b) At Closing, Buyer will deliver to Seller the following documents
and instruments:
(1) Evidence reasonably satisfactory to Seller of Buyer's
authority to enter into and perform its obligations under this
Agreement;
(2) A Bill of Sale, Assignment and Assumption Agreement,
substantially in the form attached hereto as Exhibit A; and
---------
(3) Stock, or evidence of Seller's ownership of Stock, in the
Buyer as described in Paragraph 3.3 above.
(c) At the Closing, and at all times thereafter as may be necessary,
Seller shall execute and deliver to Buyer such other instruments of
transfer as shall be reasonably necessary or appropriate to vest in Buyer
good and indefeasible title to the Assets and to comply with the purposes
and intent of this Agreement.
4
<PAGE>
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES OF SELLER
------------------------------------------------------
4.1 DUE ORGANIZATION AND AUTHORITY. Seller represents and warrants to Buyer
------------------------------
that Seller is a corporation organized, existing and in good standing under
the laws of Texas, and has all requisite power and authority to own and
operate the Business and the Assets and to enter into this Agreement and
comply with the terms hereof.
4.2 AUTHORITY FOR AGREEMENT. Seller represents and warrants to Buyer that all
-----------------------
necessary action has been taken to authorize and approve, or will, prior to
Closing, be taken to ratify, confirm and approve, the execution of this
Agreement and the performance hereof by Seller. This Agreement has been
duly executed by Seller and constitutes the valid and binding obligation of
Seller and is enforceable against Seller in accordance with its terms.
4.3 TITLE. Seller represents and warrants to Buyer that Seller has, and on the
-----
Closing Date will have, good and indefeasible title to the Assets, free and
clear of any mortgages, pledges, liens, security interests, or other
encumbrances of any character. Seller further represents and warrants to
Buyer that the Technology was developed internally by Seller or acquired by
Seller, and was not misappropriated from another.
4.4 CONDITION OF ASSETS. Seller represents and warrants to Buyer that all of
-------------------
the Inventory and other tangible Assets are being sold "as is/ where is".
All of such tangible Assets will be in the same operating condition and
repair on the Closing Date as on the date of this Agreement (normal wear
and tear excepted).
4.5 LEGAL COMPLIANCE. Seller represents and warrants to Buyer that except
----------------
where the noncompliance will not materially and adversely affect the
Business and Assets, to the knowledge of Sellers, Seller is in compliance
with all applicable laws relating to the Assets of the Business, and the
execution and performance of this Agreement will not result in a breach of,
or constitute a default or violation under, (a) any law, rule, governmental
regulation or any order or decree of any court; or (b) any of the terms or
provisions of any agreement, contract, instrument, lease, or other document
to which Seller is a party or by which Seller is bound or to which any of
the Assets are subject.
4.6 LITIGATION. Seller represents and warrants to Buyer that, to the knowledge
----------
of Seller, there are no actions, suits, investigations or proceedings
pending or threatened against or affecting Seller or the Assets at law or
in equity, or by or before any federal, state, municipal and other
governmental department, commission, board, agency or instrumentality,
domestic or foreign. Seller is not subject to any judgment, order or
decree entered in any lawsuit or proceeding that has had, or that can be
reasonably be expected to have, an adverse effect on the Business, the
Assets or on its ability to enter into this Agreement.
4.7 TAX RETURNS AND PAYMENTS. Seller represents and warrants to Buyer that all
------------------------
tax returns and reports of Seller required by law to have been filed have
been duly filed, and all Taxes due and owing with respect to the time
periods for such returns, have been paid in full.
5
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There are no liens for any Taxes upon any of the Assets. Seller is not a
party to any pending action or proceeding, and to Seller's knowledge, there
is no action or proceeding threatened by any government or authority that
subjects or might subject Seller, or any of the Assets, to any claim or
lien relating to the payment of Taxes. For the purposes of this Agreement,
"Taxes" shall mean all taxes, charges, fees, levies, penalties, imports,
duties, or other assessments, including, without limitation, income,
payroll, employment, withholding, social security, workers' compensation,
excise, property, sales, use and franchise taxes, imposed by the United
States, or any state, county, local or foreign government or a subdivision
or agency thereof, and including any interest, penalties or additions
attributable thereto.
4.8 DISCLOSURE. Seller represents and warrants to Buyer that no representation
----------
or warranty made by Seller in this Agreement contains any untrue statements
or a material fact or omits to state any material fact necessary to make
the statements herein not misleading.
4.9 INTELLECTUAL PROPERTY.
---------------------
(a) Seller represents and warrants to Buyer that Seller is unaware of
information that the Intellectual Property is invalid and not subsisting,
or has been canceled, abandoned or otherwise terminated.
(b) Seller represents and warrants to Buyer that Seller has no
knowledge of any claim that, or inquiry as to whether, any product,
activity or operation of Seller relating to the Business infringes upon or
involves, or has resulted in the infringement of, any proprietary right of
any other person, corporation or other entity, and no proceedings have been
instituted, are pending, or are threatened that challenge the rights of
Seller with respect thereto.
(c) Seller represents and warrants to Buyer that Seller has, where
permitted and appropriate, acquired common law rights in the Intellectual
Property.
ARTICLE V -- REPRESENTATIONS AND WARRANTIES OF BUYER
----------------------------------------------------
5.1 DUE ORGANIZATION AND AUTHORITY. Buyer represents and warrants to Seller
------------------------------
that Buyer is a corporation organized, existing and in good standing under
the laws of the State of Texas, and has all requisite power and authority
to acquire the Assets and to enter into this Agreement and comply with the
terms hereof.
5.2 AUTHORITY FOR AGREEMENT. Buyer represents and warrants to Seller that all
-----------------------
necessary action has been taken to authorize and approve, or will, prior to
Closing, be taken to ratify, confirm and approve, the execution of this
Agreement and the performance hereof of Buyer. This Agreement has been
duly executed by Buyer and constitutes the valid and binding obligation of
Buyer and is enforceable against Buyer in accordance with its terms.
6
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5.3 LEGAL COMPLIANCE. Buyer represents and warrants to Seller that to the
----------------
knowledge of Buyer, the execution and performance of this Agreement will
not result in a breach of, or constitute a default or violation under, (a)
any law, rule, governmental regulation or any order or decree of any court;
or (b) any of the terms or provisions of any agreement, contract,
instrument, lease, or other document to which Buyer is a party or by which
Buyer is bound.
5.4 LITIGATION. Buyer represents and warrants to Seller that Buyer is not
----------
subject to any judgment, order or decree entered in any lawsuit or
proceeding that has had, or that can reasonably be expected to have, an
adverse effect on its ability to enter into this Agreement.
5.5 DISCLOSURE. Buyer represents and warrants to Seller that no representation
----------
or warranty made by Buyer in this Agreement contains an untrue statement of
material fact or omits to state any material fact necessary to make the
statements not misleading.
ARTICLE VI -- SELLER'S COVENANTS
--------------------------------
6.1 CONDUCT OF BUSINESS. From the date of this Agreement until the completion
-------------------
of the Closing, Seller will conduct the Business only in the ordinary
course, will maintain its books and records in accordance with past
practices, will use reasonable efforts to preserve and protect the Assets,
the Business and goodwill of Seller, and will use reasonable efforts to
preserve and protect Seller's relationship with its customers and
suppliers.
6.2 MATERIAL CHANGE. Prior to the Closing, Seller shall promptly inform Buyer
---------------
in writing of any material adverse change in the condition of the Business
of Seller, including its relationship with its suppliers and/or customers.
Notwithstanding the disclosure to Buyer of any such material adverse
change, Seller shall not be relieved of any liability for the breach of any
representation or warranty of Seller contained in this Agreement.
ARTICLE VII -- BUYER'S COVENANTS
--------------------------------
ACCESS TO BOOKS AND RECORDS. Buyer agrees to provide Seller, its
---------------------------
accountants, counsel and other representatives during normal business hours and
upon reasonable notice, for a period of six (6) years after the Closing Date,
access to the books, records, tax returns, contracts and other underlying data
and documentation delivered from Seller to Buyer relating to the period prior to
the Closing Date for the purpose of enabling them to review any tax liabilities
for such period. Buyer agrees that, for such six (6) year period, it will
preserve and keep intact all such books and records.
7
<PAGE>
VIII -- CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PARTIES
----------------------------------------------------------
The obligation of Seller to sell the Assets, and of Buyer to purchase the
Assets in accordance with this Agreement, is subject to the fulfillment of each
of the following conditions precedent at or prior to the Closing Date:
8.1 CORRECTNESS OF REPRESENTATIONS. All representations and warranties of the
------------------------------
other party contained in this Agreement, or otherwise made in writing in
connection with the transactions contemplated hereby, will be true and
correct in all material respects at and as of the Closing Date with the
same force and effect as though made at and as of such time.
8.2 COMPLIANCE WITH OBLIGATIONS. Each party will have materially performed and
---------------------------
complied with all of the covenants, obligations, terms and conditions
required by this Agreement to be performed or complied with by such party
on or prior to the Closing Date, including, but not limited to the
effectiveness, as declared by the SEC of Buyer's public offering of
securities pursuant to the Registration Statement.
8.3 NO CHANGE. There will have been no material adverse change in the
---------
business, properties, operations or financial condition of Seller.
8.4 PROCEEDINGS. No action, proceedings or order by any court or governmental
-----------
body or agency shall have been threatened in writing, asserted, instituted
or entered which restrains or prohibits the carrying out of the
transactions contemplated by this Agreement.
ARTICLE IX -- MISCELLANEOUS
---------------------------
9.1 NOTICES. Any notice or communication must be in writing and given by (a)
-------
deposit in the United States mail, addressed to the party to be notified,
postage prepaid and registered or certified with return receipt requested,
(b) delivery in person or by Federal Express or similar courier service
providing evidence of delivery or (c) transmission by telegram, telecopy or
telex. Each notice or communication that is mailed, delivered, or
transmitted in the manner described above shall be deemed sufficiently
given, served, sent and received, in the case of mail notices, on the third
business day following the date on which it is mailed and, in the case of
notices delivered by hand, courier service, telegram, telecopy or telex, at
such time as it is delivered to the addressee (with the delivery receipt,
the affidavit of messenger or, with respect to a telecopy or telex, the
confirmation of transmission or answer back being deemed conclusive
evidence of such delivery) or at such time as delivery is refused by the
addressee upon presentation. For purposes of this notice, the addresses of
the Parties shall be:
SELLER: MATRIX PLUS, INC.
1401 Hudson Lane, Suite 202
Monroe, Louisiana 71201
8
<PAGE>
BUYER: PHYSICIANS INFORMATION EXCHANGE, INC.
1401 Hudson Lane, Suite 202
Monroe, Louisiana 71201
9.2 SURVIVAL. All covenants, agreements, undertakings, representations and
--------
warranties made in this Agreement will survive the Closing hereunder and,
except as otherwise indicated, will not be affected by any investigation
made by any party.
9.3 GOVERNING LAW. THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS (WITHOUT REGARD
-------------
TO ITS CHOICE OF LAW PRINCIPLES) WILL GOVERN THE VALIDITY, CONSTRUCTION,
ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT AND THE DOCUMENTS,
INSTRUMENTS OR AGREEMENTS EXECUTED AND DELIVERED PURSUANT TO THE TERMS
HEREOF, UNLESS OTHERWISE SPECIFIED HEREIN.
9.4 INVALID PROVISIONS. If any provision of this Agreement is held to be
------------------
illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision will be fully severable; this
Agreement will be construed and enforced as if such illegal, invalid or
unenforceable provisions had never comprised a part thereof. Furthermore,
in lieu of such illegal, invalid or unenforceable provision there will be
added automatically as a part of this Agreement a provision as similar in
terms to such illegal, invalid or unenforceable provision as may be
possible and be legal, valid and enforceable.
9.5 ENTIRETY AND AMENDMENTS. This Agreement, including the agreements attached
-----------------------
as exhibits hereto, embodies the entire agreement between the parties,
supersedes all prior agreements and understandings, if any, relating to the
subject matter hereof, and may be amended only by an instrument in writing
executed jointly by an authorized officer or agent of each of the parties
hereto, and supplemented only by documents delivered or to be delivered in
accordance with the express terms thereof.
9.6 RISK OF LOSS. Any loss from fire, explosion, earthquake, windstorm,
------------
accident, flood, act of God, war, seizure or activities of the armed
forces, or other casualty, reasonable wear and tear only excepted, until
the Closing Date hereunder, to the extent not covered by insurance, will be
the responsibility of the Seller. If such loss or damage destroys or
impairs a material portion of the Assets, Seller will immediately notify
Buyer of such destruction and impairment, and Buyer, at any time within
fifteen (15) days after such notice, may elect to either (a) accept the
proceeds of any insurance coverage and consummate the transactions
contemplated hereby, or (b) terminate this Agreement, in which event all
parties hereto will stand fully released and discharged of any and all
obligations.
9.7 EXPENSES. Whether or not the transactions contemplated by this Agreement
--------
are consummated, Seller agrees to bear all costs and expenses incurred by
it in connection with the negotiation, execution and performance of this
Agreement, and Buyer agrees to bear
9
<PAGE>
all costs and expenses incurred by it in connection with the negotiation,
execution and performance of this Agreement.
9.8 INDEMNIFICATION OF BUYER. Seller covenants and agrees to indemnify Buyer
------------------------
from and against, and to hold Buyer harmless from and against, any and all
losses, damages, costs and expenses, including court costs and attorneys'
fees, that Buyer may ever suffer or incur as the result of (a) the material
breach or inaccuracy of any material representation or warranty made herein
by Seller, (b) the failure or refusal of Seller to comply with any of its
obligations hereunder, or (c) any claim based upon or arising out of any
liability or obligation, contracted or otherwise, of Seller in connection
with the Assets.
9.9 INDEMNIFICATION OF SELLER. Buyer covenants and agrees to indemnify Seller
-------------------------
from and against, and to hold Seller harmless from and against, any and all
losses, damages, costs and expenses, including court costs and attorneys'
fees, that Seller may ever suffer or incur as the result of (a) the
material breach or inaccuracy of any material representation or warranty
made herein by Buyer, or (b) the failure or refusal of Buyer to comply with
any of its obligations hereunder.
9.10 CONFIDENTIALITY. Unless required by law or regulatory authority, Buyer and
---------------
Seller agree not to disclose to third parties (other than the parties'
financial and legal advisors) the terms or existence of this Agreement,
except as agreed by the parties.
IN WITNESS WHEREOF, the Parties have caused their respective corporate
names to be affixed hereto and this instrument to be signed by their duly
authorized officers, all as of the day and year first above written.
PHYSICIANS INFORMATION EXCHANGE, INC.
By: /s/ W. Ernest Rutherford
-----------------------------
Name: W. Ernest Rutherford
-------------------------
Title: President
---------------------------
MATRIX PLUS, INC.
By: /s/ Ileta Rutherford
-------------------------------
Name: Ileta Rutherford
-----------------------------
Title: Vice President
----------------------------
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<PAGE>
EXHIBIT 10.5
ADVISORY COUNCIL MEMBER SHARING AGREEMENT
This Advisory Council Member Sharing Agreement (this "Agreement"), dated as
of __________, 199__, between Physicians Information Exchange, Inc., a Texas
corporation ("PIE"), and ______________________ ("Member").
In consideration of the mutual covenants contained herein, PIE and Member
hereby agree as follows:
SECTION 1. MEMBER SERVICES
Member agrees to contribute in the following manners:
A. Represent the physician-shareholders as their inside voice to the PIE's
Board of Directors (the "Board").
B. Provide the initial clinical protocol information and overall
specialty-specific requirements for service development and implementation
purposes.
C. Keep PIE informed of the Member's specialty's specific needs by making
technical and medical information-related recommendations to the Board.
This would include suggestions on available medical knowledge banks or
sources of information that need to be integrated or connected at the
"point-of-care." (Additional recommendations might include new practice
patterns, reengineering ideas and specific ways that PIE could empower
physicians to raise their quality of care and lower the cost).
D. Initiate committees in the Member's specialty to perform the research
and information gathering functions necessary to secure the technical and
medical information described above. It is anticipated that such
committees would relieve those specialty Advisory Council members of the
information-gathering functions. The Advisory Council members will then
convey such committees' information and new protocols to the Board,
Advisory Council and PIE technical committees. (An example technical
committee could be a Protocol Review Committee.)
E. Represent the Company at specialty-specific meetings.
F. Work together as a group to reconcile differences between the needs of
specialties and make unified recommendations to the Board of Directors.
Selected Advisory Council members will be requested to serve on the following
committees:
A. Physician Interface Committee (reviewing design specifications for user
friendliness) or
B. Data Usage Policy Committee (trustee function).
<PAGE>
SECTION 2. COMPENSATION
PIE has developed a formula to reallocate the "maintenance fee net income,"
as defined below, to those physician-shareholders most responsible for
disseminating medical knowledge to their specialty. (PIE anticipates that there
will be approximately 50 specialty categories.) Maintenance fee net income is
equal to maintenance fee revenue less company expenses related to maintenance
releases, help desk and software support, documentation, expenses incurred by
Advisory Council members in the normal conduct of company business, and related
general and administrative expenses. Maintenance fee net income will be
allocated as follows:
. 40% Current Advisory Council members (40% of each specialty's
maintenance fee net income will be divided among that specialty's
Advisory Council members)
. 30% Original Advisory Council members ("Founders") (30% of each
specialty's maintenance fee net income will be divided among that
specialty's Founders for the first five years of the Advisory Council)
. 15% Current Advisory Council members (15% of the total maintenance fee
net income from all specialties will be divided pro rata to the various
Advisory Council members in each specialty, based upon the number of
physician-shareholders in a specialty relative to the total physician
base in that specialty)
. 15% Non-Advisory Council Physician-shareholders (15% of each
specialty's maintenance fee net income will be divided pro rata among
that specialty's physician-shareholders who are not Advisory Council
members and who make a good faith effort, as determined by the Board, to
make a medical knowledge contribution during the year to their fellow
specialists through PIE's medical knowledge base (e.g., new or modified
clinical protocol))
Any maintenance fee net income not allocated above (such as to Founders
after five years) will be allocated on a yearly basis by the Board to Advisory
Council members, physician shareholders making medical contributions to PIE, or
as dividends to physician shareholders. In addition, the Board, in its
discretion, may provide additional incentives to attract and retain certain
Advisory Council members, such as providing CRIS software at no charge. The
Board may in its sole discretion change the allocation of maintenance fee net
income without notice.
SECTION 3. TERM
The term of this Agreement will commence on the date hereof and, unless
otherwise terminated pursuant to Section 13, continue until revised, if
necessary, to the mutual satisfaction of the parties.
2
<PAGE>
SECTION 4. INDEPENDENT CONTRACTOR
Member will perform the Services as an independent contractor, and this
Agreement will not be construed to create a partnership, joint venture of
employment relationship between Member and PIE. Member will not be entitled to
workers' compensation, retirement, insurance or other benefits afforded to
employees of PIE.
SECTION 5. COMPLIANCE WITH LAWS
Member will (a) comply with all federal, state and local laws, ordinances,
regulations and orders with respect to its performance of the Services.
SECTION 6. OTHER AGREEMENTS
6.1 OTHER AGREEMENTS
Member's execution, delivery and performance of this Agreement will not
violate any other employment, nondisclosure, confidentiality, consulting or
other agreement to which Member is a party or by which it may be bound.
6.2 THIRD-PARTY CONFIDENTIAL INFORMATION
Member will not use, in the performance of the Services or the creation of
any Proprietary Materials, or disclose to PIE any confidential or proprietary
information of any other person if such use or disclosure would violate any
obligation or duty that Member owes to such other person. Member's compliance
with this Section 6.2 will not prohibit, restrict or impair Member's performance
of the Services and its other obligations and duties to PIE.
SECTION 7. PRIORITY; NONCOMPETITION
During the term of this Agreement, Member will not perform services for a
third party that, in PIE's reasonable opinion, would conflict with Member's
performance of the Services. Without limiting the foregoing, Member will not,
during the term of this Agreement by employed by, consult with or otherwise
perform services for, participate in the ownership, management, operation or
control of or in any manner be connected with any Competitor, without PIE's
prior written consent. As used in this Section 7, "Competitor" means any entity
that, directly or indirectly, competes with PIE.
SECTION 8. INDEMNIFICATION
8.1 MEMBER'S INDEMNIFICATION OF PIE
Member will indemnify, defend and hold PIE (and PIE's agents and employees)
harmless from all claims, damages, losses and expenses (including attorneys'
fees) arising out of or
3
<PAGE>
resulting from any claim, action or other proceeding (including any proceeding
by any of Member's employees, agents or contractors) that is based upon (a)
Member's breach of this Agreement, (b) the conduct of Member's business or (c)
any negligent act or omission of Member.
8.2 PIE'S INDEMNIFICATION OF MEMBER
PIE will indemnify, defend and hold Member (and Member's agents and
employees) harmless from all claims, damages, losses and expenses (including
attorneys' fees) arising out of or resulting from any claim, action or other
proceeding (including any proceeding by any of PIE's employees, agents or
contractors) that is based upon (a) the negligence or willful actions or
omissions of PIE, (b) violation of a third party's proprietary rights for any
material furnished to Member by PIE, (c) use or consumption of PIE's services or
products, or (d) breach by PIE of its obligations under this Agreement.
SECTION 9. TERMINATION
9.1 TERMINATION FOR CONVENIENCE
Either PIE or Member may terminate this Agreement at any time upon written
notice to the other party.
9.2 SURVIVAL
Sections 6, 8, and 9 (together with all other provisions of this Agreement
that may reasonably be interpreted or construed as surviving termination of the
Term) will survive the termination of the Term.
SECTION 10. ASSIGNMENT
Member may not assign this Agreement, in whole or in part, without PIE's
prior written consent. PIE may assign its rights hereunder to (a) any
corporation resulting from any merger, consolidation or other reorganization to
which PIE is a party, (b) any corporation, partnership, association or other
person to which PIE may transfer all or substantially all of the assets and
business of PIE existing at such time, or (c) any subsidiary of PIE. All the
terms and provisions of this Agreement will be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and permitted assigns.
SECTION 11. WAIVERS
No delay or failure by any party hereto in exercising or enforcing any of
its rights or remedies hereunder, and no course of dealing or performance with
respect thereto, will constitute a waiver thereof. The express waiver by a party
hereto of any right or remedy in a particular instance or will not constitute a
waiver thereof in any other instance. All rights and remedies will be cumulative
and not exclusive of any other rights or remedies.
4
<PAGE>
SECTION 12. AMENDMENTS
No amendment, waiver or discharge of any provision of this Agreement will
be effective unless made in writing that specifically identifies this Agreement
and the provision intended to be amended, waived or discharged and signed by PIE
and Member. Each such amendment, waiver or discharge will be effective only in
the specific instance and for the specific purpose for which given.
SECTION 13. APPLICABLE LAW
This Agreement will be governed in all respects by, and construed and
enforced in accordance with, the laws of the State of Texas, without regard to
any rules governing conflicts of laws.
SECTION 14. SEVERABILITY
If any provision of this Agreement is held invalid, illegal or
unenforceable in any jurisdiction, for any reason, then, to the full extent
permitted by law (a) all other provisions hereof will remain in full force and
effect in such jurisdiction and will be liberally construed in order to carry
out the intent of the parties hereto as nearly as may be possible, (b) such
invalidity, illegality or unenforceability will not affect the validity,
legality or enforceability of any other provision hereof, and (c) any court or
arbitrator having jurisdiction thereover will have the power to reform such
provision to the extent necessary for such provision to be enforceable under
applicable law.
SECTION 15. ENTIRE AGREEMENT
This Agreement and the Nondisclosure Agreement between the parties
constitute the entire agreement between PIE and Member with respect to their
subject matters, and all prior or contemporaneous oral or written
communications, understandings or agreements between PIE and Member with respect
to such subject matters are hereby superseded in their entireties.
5
<PAGE>
The parties have executed this Agreement as of the date first set forth above.
Physicians Information Exchange, Inc.
By:_____________________________________
Name:___________________________________
Title:__________________________________
________________________________________
By:_____________________________________
Name:___________________________________
Title:__________________________________
6
<PAGE>
EXHIBIT 10.7
PHYSICIANS INFORMATION EXCHANGE, INC.
SUBSCRIPTION ESCROW AGREEMENT
AGREEMENT made effective as of _____________________, 1996, between
Physicians Information Exchange, Inc., a Texas corporation (the "Company"), and
______________________ ("Agent").
WHEREAS, the Company is offering for subscription, up to $34,997,700 of its
capital stock (the "Securities") on the terms and conditions set forth in the
Prospectus (the "Prospectus") dated _______________, 1996, a copy of which has
been furnished to Agent; and
WHEREAS, the Company desires for Agent to perform the services of
depository and escrow agent with respect to subscriptions to the Company made by
prospective purchasers of the Securities (the "Investors").
NOW, THEREFORE, the parties hereto agree as follows:
1. Agent shall deposit all subscription checks and other payments for the
Securities by Investors that it receives into an escrow account maintained by
Agent (the "Escrow Fund").
2. The Company reserves the right to reject any subscription. The Company
shall promptly refund the subscription amount that has been rejected to the
Investor unless the subscription amount is on deposit with Agent, in which case
Agent, upon written direction of the Company, shall make such refund without
interest, if any, as soon as Agent has collected funds on such Investor's check.
3. Agent shall verify with the Company whether or not subscriptions for
at least $300,000 in Securities have been received.
4. If minimum subscriptions for at least $300,000 in Securities have been
received by Agent prior to the close of business on ___________, 1998, the
Company shall within five (5) business days advise Agent in writing that the
subscription was successful and that to the best of its knowledge and ability,
the Company has complied with all applicable federal and state securities laws.
Agent, upon receipt of collected funds representing the minimum subscription
amount of $300,000, shall continue to hold subscription funds in escrow but
thereafter shall remit the collected funds to the Company at the Company's
request and in the Company's sole discretion. Funds received by the Agent in the
form of checks shall be considered available for transfer to the Company when
collected. Funds received by Agent in the form of a wire transfer will be
considered collected funds on the day of receipt.
5. If collected funds representing the minimum subscription amount of
$300,000 have not been received prior to the close of business on
__________________ , 1998, and Agent has verified with the Company that such
minimum has not been met, then all collected amounts paid in respect to the
subscriptions received, plus interest, shall be returned by Agent to Investors.
To this end, the Company shall provide Agent written direction to so disburse
such amount, which written direction shall include the name and address of each
Investor and the amount to be paid.
<PAGE>
6. Agent shall have no authority or obligation to exercise discretion as
to the investment of the Escrow Fund, but will invest and reinvest the Escrow
Fund as directed by the Company; provided, however, that the Escrow Funds shall
be invested only in short-term, investment grade, interest-bearing securities
and deposit accounts.
7. Agent shall be under no duty or responsibility to enforce collection
of any checks delivered to Agent hereunder. Agent shall promptly notify and
return to the Company any check or instrument received from the Company or
Investor upon which payment is refused, together with the related documents that
were delivered to Agent. If any check or instrument delivered to Agent under
this Agreement is uncollectible and if Agent has distributed funds represented
by such item pursuant to the terms hereof or pursuant to the direction of the
Company, Agent shall notify the Company and shall deliver the returned check or
instrument to the Company and the Company shall immediately reimburse Agent for
the amount of funds uncollectible.
8. Agent shall provide all administrative and reporting services
contemplated by this Agreement to effect the purpose stated herein.
9. Agent is not a party to, nor is it bound by any agreement out of which
this Agreement may arise, including, but not limited to the Prospectus. Agent is
not charged with notice of the existence of any agreement out of which this
Agreement may arise, other than the Prospectus. Agent is not charged with notice
of the terms of the Prospectus (other than those recited herein).
10. Agent may resign by giving 10 days' prior written notice to the
Company hereto by registered or certified mail at the address hereinbelow set
forth and, until a successor Agent is named and accepts its appointment, Agent
shall have no duty, save to hold funds uninvested held pursuant hereto.
11. It is understood and agreed further that Agent shall:
(a) Be protected in acting upon any notice, request, certificate,
approval, consent or other paper believed by it to be genuine and to be signed
by the proper party or parties;
(b) Be authorized to, with prior notice to the Company and affording
the Company an opportunity to respond, in its discretion obey the order,
judgment, decree or levy of any court, whether with competent jurisdiction or of
any agency of the United States or any political subdivision thereof, or of any
agency of the State of Texas or of any political subdivision thereof, and Agent
is hereby authorized in its sole discretion to comply with and obey any such
orders, judgments, decrees or levies. If, however, Agent, in its sole discretion
and upon consultation with counsel, concludes in good faith that it need not
comply with or obey any such orders, judgments, decrees or levies, Agent need
not do so. In any event, Agent shall not be liable by reason of such action or
omission to act to the Company or to any other person, firm, association or
corporation, even if thereafter any such order, decree, judgment or levy be
reversed, modified, annulled, set aside or vacated.
(c) Be entitled to consult with Agent's counsel and, except for gross
negligence or willful misconduct, shall not be liable for any action taken or
omitted by Agent in accordance
<PAGE>
with the opinion and advice of such counsel whether such counsel is a member of
Agent's house counsel staff or independent counsel;
(d) Be indemnified by the Company against any claim or charge made
against Agent by reason of its acting or failure to act in connection with any
of the transactions contemplated hereby, and against any loss Agent may sustain
in carrying out the terms of this Agreement, except as a result of Agent's gross
negligence or willful misconduct; and
(c) Be entitled to compensation from the Company for acting hereunder
in accordance with the fee schedule attached as EXHIBIT A hereto, together with
Agent's reasonable costs and disbursements and the reasonable fees and
disbursements of Agent's counsel.
12. Each party to this Agreement shall be deemed conclusively to have
given and delivered any notice required to be given or delivered hereunder if
the same is in writing, signed by such party and mailed by registered and
certified mail, postage prepaid, addressed to the other party hereto, at the
address set forth below; provided, however, that the verification required of
Agent by paragraph 3 above, shall be given orally (by telephone or in person) by
contacting the party noted hereinbelow at (318) 323-5000, and then confirmed in
writing if the Company so requests. Any written notices required by this
Agreement shall be addressed as follows:
If to Agent: If to Company:
- ----------- -------------
_____________________ Physicians Information Exchange, Inc.
_____________________ 1401 Hudson Lane
_____________________ Suite 202
_____________________ Monroe, LA 71201
Attn: Dr. W. Ernest Rutherford
13. This Agreement expressly and exclusively sets forth the duties of
Agent with respect to any and all matters pertinent hereto and no implied duties
or obligations shall be read into this Agreement against Agent.
14. Unless and until the Investor's proceeds are delivered to the Company
under Paragraph 4, it is specifically recognized and agreed that the Company
shall not have any right, title or interest in such funds; it being the
intention of the parties hereto that the Escrow Fund shall not be subject to
claims against the Company or any of its affiliates, unless and until the
minimum subscription amount is achieved or fails to be achieved and delivery of
the funds thereof is made, as aforesaid, and the escrow account hereunder is
ended.
15. This Agreement is being made in and is intended to be construed
according to the laws of the State of Louisiana. It shall inure to and be
binding upon the parties hereto, their successors and assigns. The terms of this
Agreement shall commence with the date hereof and shall continue until the
offering of the minimum subscription amount is achieved or fails to be achieved
by ________, 1998, and the Escrow Fund is disposed of under Paragraphs 4 or 5.
16. Agent shall deposit all funds received in insured accounts such that
each Investor that deposits funds is insured to the maximum amount allowed under
FDIC regulations, irrespective of the aggregate amount of funds received from
all Investors.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by duly authorized representatives as of the date
first above written.
COMPANY:
-------
PHYSICIANS INFORMATION EXCHANGE, INC.
ATTEST:
___________________________ By:
-------------------------------------
Dr. W. Ernest Rutherford
Chairman, Chief Executive Officer
and President
AGENT:
-----
ATTEST:
___________________________ By:___________________________________
Name:_________________________________
Title:________________________________
<PAGE>
EXHIBIT 23.1
The Board of Directors
Physicians Information Exchange, Inc.
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus and the Registration
Statement on Form SB-2.
Jackson & Rhodes P.C.
Dallas, Texas
June 21, 1996