<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 3, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
--------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
PATIENT INFOSYSTEMS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8090 16-1476509
(State of other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) Number)
</TABLE>
46 PRINCE STREET
ROCHESTER, NEW YORK 14607
(716) 242-7200
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
MR. DONALD A. CARLBERG
PRESIDENT AND CHIEF EXECUTIVE OFFICER
46 PRINCE STREET
ROCHESTER, NEW YORK 14607
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
Jeffrey A. Baumel, Esq. Frederick W. Kanner, Esq.
Crummy, Del Deo, Dolan, Dewey Ballantine
Griffinger & Vecchione 1301 Avenue of the Americas
One Riverfront Plaza New York, New York 10019-6092
Newark, New Jersey 07102 (212) 259-8000
(201) 596-4500
</TABLE>
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
AS SOON AS PRACTICABLE 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, as amended (the "Securities Act"), check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AMOUNT TO PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF BE OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED (1) PER SHARE (2) PRICE (2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share 2,875,000 $12.00 $34,500,000 $11,897
</TABLE>
(1) Includes 375,000 shares that may be purchased pursuant to the Underwriters'
over-allotment option.
(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457 under the Securities Act.
----------------
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>
PATIENT INFOSYSTEMS, INC.
CROSS-REFERENCE SHEET
REGISTRATION STATEMENT
ITEM AND HEADING LOCATION IN PROSPECTUS
------------------------------------
1. Forepart of the Registration
Statement and Outside Front Cover
Page of Prospectus................. Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus................ Inside Front Cover Page; Outside
Back Cover Page
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed
Charges............................ The Company; Prospectus Summary;
Risk Factors
4. Use of Proceeds..................... Use of Proceeds
5. Determination of Offering Price..... Outside Front Cover Page; Risk
Factors; Underwriting
6. Dilution............................ Risk Factors; Dilution
7. Selling Security Holders............ Not Applicable
8. Plan of Distribution................ Outside Front Cover Page;
Underwriting
9. Description of Securities to be
Registered......................... Description of Capital Stock
10. Interests of Named Experts and
Counsel............................ Not Applicable
11. Information with Respect to the
Registrant.........................
<TABLE>
<C> <S><C> <C>
a. Description of Business... Prospectus Summary; Risk Factors;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Note 1 of Notes
to Financial Statements
b. Description of Property... Business--Properties
c. Legal Proceedings......... Business--Legal Matters
d. Market Price of and
Dividends on Equity
Securities............... Outside Front Cover Page; Risk Factors;
Dividend Policy; Description of Capital
Stock
e. Financial Statements...... Financial Statements
f. Selected Financial Data... Prospectus Summary; Selected Financial
Data
g. Supplementary Financial
Information.............. Not Applicable
h. Management's Discussion
and Analysis of Financial
Condition and Results of
Operations............... Management's Discussion and Analysis of
Financial Condition and Results of
Operations
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
REGISTRATION STATEMENT
ITEM AND HEADING LOCATION IN PROSPECTUS
--------------------------
<C> <S><C> <C>
i. Changes in and
Disagreements with
Accountants on Accounting
and Financial
Disclosure............... Not Applicable
j. Directors and Executive
Officers................. Management; Principal Stockholders
k. Executive Compensation.... Management
1. Security Ownership of
Certain Beneficial Owners
and Management........... Principal Stockholders
m. Certain Relationships and
Related Transactions..... Certain Transactions
</TABLE>
<TABLE>
<C> <S><C> <C>
12. Disclosure of Commission
Position on
Indemnification for
Securities Act
Liabilities.............. Not Applicable
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 3, 1996
PROSPECTUS
2,500,000 SHARES
PATIENT INFOSYSTEMS, INC.
COMMON STOCK
---------
All of the shares of Common Stock offered hereby are being sold by Patient
Infosystems, Inc. (the "Company").
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently anticipated that the initial public offering
price will be approximately $12.00 per share. See "Underwriting" for information
relating to the factors to be considered in determining the initial public
offering price. Application has been made to have the Common Stock approved for
listing on the Nasdaq National Market under the symbol "PATI."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 5.
-------------
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>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
<S> <C> <C> <C>
Per Share $ $ $
Total(3) $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting estimated expenses of $ payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
375,000 additional shares of Common Stock solely to cover over-allotments,
if any. If the Underwriters exercise such option in full, the total Price
to Public, Underwriting Discounts and Commissions and Proceeds to Company
will be $ , $ and $ , respectively. See
"Underwriting."
--------------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
, 1996 at the offices of Smith Barney Inc., 333 West 34th Street, New
York, New York 10001.
--------------
SMITH BARNEY INC. NEEDHAM & COMPANY, INC.
, 1996
<PAGE>
[GRAPHICS TO COME]
--------------
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and quarterly reports for the first
three quarters of each fiscal year containing unaudited summary financial
information. This Prospectus includes trade names and trademarks of companies
other than the Company.
--------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMPANY'S
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE
IN THIS PROSPECTUS. SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS TO BE
CONSIDERED BY PROSPECTIVE INVESTORS.
THE COMPANY
Patient Infosystems, Inc. (the "Company") provides patient-centered health
care information systems that proactively collect and analyze information to
improve patient compliance with prescribed treatments. The Company's technology
platform integrates treatment compliance algorithms with an advanced voice
recognition telephone system, high speed data processing and analysis capability
and demand publishing and information distribution capabilities. The system
communicates directly with the patient at home in order to elicit relevant
patient-specific data, evaluate the data and automatically transmit computer
generated reports to health care payors, providers and patients tailored to the
specific needs of each recipient.
The Company markets its services to pharmaceutical manufacturers, pharmacy
benefit managers and health care payors and providers to collect data not
obtained in a clinic setting and enhance compliance by patients with prescribed
treatments. The Company's disease state management programs are designed to
provide the following benefits: (i) for patients, improved communication with
health care resources, enhanced self-care skills, increased treatment adherence
resulting in improved quality of care and reduced inconvenience, risk and
expense associated with unscheduled physician interventions; (ii) for health
care providers, more information on patient progress, quicker identification of
hard-to-manage patients, enhanced ability to make timely treatment
modifications, triage capability and expanded information for development of
improved treatment protocols; and (iii) for payors and program sponsors,
cost-effective management of the disease risk, improved patient compliance and
outcomes and enhanced patient and provider satisfaction.
According to the Federal government, national health expenditures have
increased from $540 billion in 1988 (11.1% of gross national product ("GNP")) to
a projected $1 trillion in 1995 (15.7% of projected GNP). One way to achieve
significant savings in health care costs is to change the way that health care
is delivered to patients by focusing on quality and cost efficient clinical
outcomes. Since a substantial portion of most treatment regimens is
self-administered, patient compliance is critical to achieving quality outcomes.
Estimates vary from disease to disease, but generally indicate that between 30%
and 60% of all patients fail to take medications as prescribed. The consequences
of patient non-compliance with prescribed treatment plans represent a
significant portion of health care expenditures. One third-party study indicated
that patient non-compliance results in $100 billion in health care and lost
productivity costs annually. Costs associated with treating patients with
chronic diseases who fail to adhere to prescribed regimens have been
particularly difficult to control. When long-term treatments for chronic disease
have been prescribed, as many as 80% of all patients fail to carry out correctly
at least one element of the disease treatment regimen. Most health care
information systems in use today gather information in the hospital or at the
clinician's office and do not monitor adequately patient condition away from the
point of care. The Company believes that by coupling effective treatment
protocols with the ability to monitor patient condition and treatment regimen
compliance between physician interventions, health care providers and payors can
significantly enhance clinical outcomes while reducing costs.
The Company's strategy is to capitalize on its information technology
platform to become the leading provider of patient-centered health care
information programs. The key elements of this strategy are to: (i) introduce
information system programs for specific diseases on a customized basis for
client-specified disease targets and on a standardized basis for diseases
selected by the Company and marketed to multiple clients; (ii) implement
marketing and awareness programs to establish and demonstrate the expected
clinical benefits and cost-effectiveness of the Company's systems through
clinical studies, protocol development and research publications; (iii) analyze
collected outcomes data with advanced computational intelligence, including
neural networks, fuzzy logic and genetic algorithms, to develop improved
clinical protocols; (iv) develop or acquire additional technologies that enhance
its ability to gather information and interact with patients while the patient
is away from the health care provider; and (v) leverage the Company's technology
platform to develop additional applications, such as clinical trial data
compilation and analysis, patient surveys, clinical outcomes evaluation, demand
management and case management.
The Company was founded in February 1995, signed its first customer contract
in September 1995 and plans to enroll its first patients in its programs in
1996. Bristol-Myers Squibb Company, U.S. Pharmaceuticals Division and
Oncology/Immunology Division (collectively, "Bristol-Myers") has retained the
Company to provide customized disease state management systems for congestive
heart failure, cardiovascular disease, chronic pain and weight management. The
Bristol-Myers agreements call for development fees and per patient operational
fees. In June 1996, the Company entered into services agreements with American
HomePatient, Inc. ("American HomePatient") and with Equifax Healthcare
Administrative Services, a division of Equifax, Inc. ("Equifax"), for
standardized programs for patients suffering from asthma, each of which provides
for the Company to receive a per patient fee for services provided to enrolled
patients over the duration of the program.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock being offered..................................... 2,500,000 shares (1)
Common Stock outstanding after the offering.................... 9,904,000 shares (1)(2)
Use of proceeds................................................ For expansion of systems capabilities, for sales and
marketing activities and for working capital and
other general corporate purposes
Proposed Nasdaq National Market symbol......................... "PATI"
</TABLE>
RISK FACTORS
There are a number of risks that must be overcome for the Company's
integrated disease state management system to succeed, including achieving
market acceptance. See "Risk Factors."
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
FROM
FEBRUARY 22, 1995
(DATE OF FROM FEBRUARY 22,
INCEPTION) 1995 (DATE OF
TO DECEMBER 31, THREE MONTHS ENDED INCEPTION) TO MARCH
1995 MARCH 31, 1996 31, 1996
----------------- -------------------- -------------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................................. $ 113,000 $ 166,236 $ 279,236
Total operating expenses............................................. 1,255,661 743,340 1,999,001
----------------- ---------- -------------------
Operating loss....................................................... (1,142,661) (577,104) (1,719,765)
Interest income...................................................... 26,009 8,899 34,908
----------------- ---------- -------------------
Net loss............................................................. $ (1,116,652) $ (568,205) $ (1,684,857)
----------------- ---------- -------------------
----------------- ---------- -------------------
Pro forma net loss per common and
common share equivalents(3)......................................... $ (.14) $ (.07) $ (.21)
----------------- ---------- -------------------
----------------- ---------- -------------------
Pro forma weighted average common and common share equivalents....... 8,204,030 8,207,992 8,207,992
----------------- ---------- -------------------
----------------- ---------- -------------------
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------------------
ACTUAL AS ADJUSTED (4)
----------------- -------------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................................ $ (87,803) $30,212,197
Total assets............................................................... 1,356,683 31,656,683
Total liabilities.......................................................... 759,723 759,723
Deficit accumulated during the development stage........................... (1,684,857) (1,684,857)
Total stockholders' equity................................................. 596,960 30,896,960
</TABLE>
- ---------------
(1) Does not include 375,000 shares of Common Stock that may be sold by the
Company pursuant to the Underwriters' over-allotment option. See
"Underwriting."
(2) Based on the number of shares of Common Stock outstanding as of June 30,
1996. Includes 2,400,000 shares of Common Stock issuable upon conversion in
connection with this offering of all outstanding shares of the Company's
Series A Convertible Preferred Stock (the "Series A Preferred Stock") and
Series B Convertible Preferred Stock (the "Series B Preferred Stock" and,
collectively with the Series A Preferred Stock, the "Convertible Preferred
Stock"). Excludes (i) 1,106,000 shares of Common Stock issuable upon the
exercise of options outstanding under the Company's stock option plan at a
weighted average exercise price of $.55 per share and (ii) 155,503 shares of
Common Stock issuable upon the exercise of outstanding stock purchase
warrants at a weighted average exercise price of $.56 per share. See
"Management--Stock Option Plan," "Description of Capital Stock" and Note 5
of Notes to Financial Statements.
(3) See Note 1 of Notes to Financial Statements for a description of the
calculation of pro forma net loss per share.
(4) Gives effect to the sale of 600,000 shares of the Series B Preferred Stock
at a price of $5.00 per share in the second quarter of 1996, the conversion
of all outstanding shares of Convertible Preferred Stock into 2,400,000
shares of Common Stock in connection with this offering and the sale of the
shares of Common Stock offered hereby (at an assumed public offering price
of $12.00 per share and after deducting underwriting discounts and
commissions and estimated offering expenses) and receipt of the estimated
net proceeds therefrom.
------------------
UNLESS OTHERWISE INDICATED, INFORMATION IN THIS PROSPECTUS (I) ASSUMES NO
EXERCISE OF THE UNDERWRITERS' OPTION TO PURCHASE FROM THE COMPANY UP TO 375,000
ADDITIONAL SHARES OF COMMON STOCK TO COVER OVER-ALLOTMENTS, IF ANY, (II)
REFLECTS, UPON THE CLOSING OF THIS OFFERING, THE AUTOMATIC CONVERSION OF ALL
OUTSTANDING SHARES OF CONVERTIBLE PREFERRED STOCK INTO AN AGGREGATE OF 2,400,000
SHARES OF COMMON STOCK AND (III) DOES NOT GIVE EFFECT TO THE ISSUANCE OF
1,261,503 SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF OUTSTANDING
OPTIONS AND WARRANTS. SEE "MANAGEMENT--STOCK OPTION PLAN," "DESCRIPTION OF
CAPITAL STOCK," "UNDERWRITING" AND NOTES 4 AND 5 OF NOTES TO FINANCIAL
STATEMENTS.
4
<PAGE>
THE COMPANY
The Company was incorporated in the State of Delaware on February 22, 1995
under the name DSMI Corp., changed its name to Disease State Management, Inc. on
October 13, 1995 and then changed its name to Patient Infosystems, Inc. on June
28, 1996. The Company's principal executive offices are located at 46 Prince
Street, Rochester, New York 14607, and its telephone number is 716-242-7200.
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. In evaluating the Company and its business, prospective
investors should carefully consider the following risk factors. This Prospectus
contains, in addition to historical information, forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from the results discussed in the forward-looking statements. Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed below as well as those discussed elsewhere in this
Prospectus.
DEVELOPMENT STAGE COMPANY WITH LIMITED OPERATING HISTORY; OPERATING LOSSES
The Company was formed on February 22, 1995, is in the development stage and
has a limited operating history from which to evaluate its performance. To date,
the Company has generated limited revenues and through March 31, 1996 had
incurred cumulative losses of $1,684,857, which losses are continuing. Although
the Company has completed the development of its integrated information capture
and delivery system, and the Company is developing several disease state
management programs for specific diseases, further development activities may be
necessary to implement these programs. The Company has not yet enrolled any
patients in any disease state management program. The Company anticipates that
its losses will continue at least until it has completed the development of
programs for several customers and has begun providing services to a substantial
number of patients for such customers. The Company may encounter problems and
delays in its research and development or sales and marketing efforts, and the
failure to address these problems and delays successfully could have a material
adverse effect on the Company's business prospects. The Company's prospects must
be considered in light of the numerous risks, expenses, delays and difficulties
frequently encountered in the establishment of a new business in an industry
characterized by intense competition, as well as the risks inherent in the
development of new programs and the commercialization of new services. There can
be no assurance that the Company's development efforts will result in an ability
to provide any services that can be marketed or operated in a commercially
successful manner, or that any such services will be able to compete with other
services that might be in the market at the time that the Company's services are
made available. There can be no assurance that the Company will achieve
recurring revenue or profitability on a consistent basis or at all. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements.
TECHNOLOGICAL FACTORS; UNCERTAINTY OF SYSTEM DEVELOPMENT AND COMMERCIALIZATION
The Company has not yet tested its integrated information capture and
delivery system in commercial use, and no assurance can be given that
substantial additional programming and development efforts will not be necessary
to allow the Company to contact patients and to publish and process information
with the required speed and accuracy. The Company may be required to devote
considerable additional efforts and resources to enhance and refine its software
and hardware, and such efforts will remain subject to all of the risks inherent
in the development and commercialization of new products and services, including
unanticipated delays, expenses, additional technical problems or difficulties,
changes in customer preferences or needs, as well as the possible insufficiency
of funds which could result in abandonment or substantial change in the
development or commercialization of the Company's services. There can be no
assurance that the Company will be able to complete the development of its
disease management programs or that it will be able to develop the additional
program enhancements needed to keep pace with anticipated changes in customer
preferences and needs. See "Business--Information Capture, Delivery and Analysis
Technologies."
5
<PAGE>
TERMINABILITY OF AGREEMENTS; EXCLUSIVITY PROVISIONS
The Company's current services agreements with its customers may be
terminated by those customers without cause upon 30 or 90 days' notice. In
addition, the Company has agreed not to engage or participate in any project
other than those under development for Bristol-Myers that involve the
development or implementation of a program similar to those developed for
Bristol-Myers for specified time periods (the "Exclusivity Periods"). In
general, at the completion of the Exclusivity Periods, Bristol-Myers has the
right to negotiate an exclusive arrangement for these disease state management
programs provided that a specified minimum number of patients have enrolled in
the programs or that it agrees to pay an exclusivity fee. Bristol-Myers has the
further right, in the event exclusive arrangements cannot be negotiated, to
match any bona fide offers made to the Company for disease state management
programs for these categories of patients for a period of time from the
conclusion of the Exclusivity Periods. These exclusivity provisions could
restrict the Company's ability to market its services to other customers. The
Company will charge its customers a per patient program fee; however, while
Bristol-Myers is required to enroll a minimum number of patients in the
congestive heart failure and weight enhancement programs, there are no such
requirements for any of the Company's other programs. In general, customer
contracts may include significant performance criteria and implementation
schedules for the Company. Failure to satisfy such criteria or meet such
schedules could result in termination of the agreements. See "Business--Customer
Agreements."
CUSTOMER CONCENTRATION
The Company's current contracts are concentrated in a small number of
customers, with five of the Company's seven contracts being with Bristol-Myers.
The Company expects that its sales of services will be concentrated in a small
number of customers for the foreseeable future. Consequently, the loss of any
one of its customers could have a material adverse effect on the Company and its
operations. There can be no assurance that customers will enroll a sufficient
number of patients in the programs developed by the Company for the Company to
achieve or maintain profitability, or that customers will renew their contracts
upon expiration or on terms favorable to the Company. See "Business--Customer
Agreements."
NEW CONCEPT; UNCERTAINTY OF MARKET ACCEPTANCE AND COMMERCIALIZATION STRATEGY
In connection with the commercialization of the Company's health information
system, the Company is marketing a new service designed to link patients, health
care providers and payors in order to provide specialized disease state
management for targeted chronic diseases. This is a new business concept in an
industry characterized by an increasing number of market entrants who have
introduced or are developing an array of new services. As is typical in the case
of a new business concept, demand and market acceptance for newly introduced
services are subject to a high level of uncertainty, and there can be no
assurance as to the ultimate level of market acceptance for the Company's
system, especially in the health care industry, in which the containment of
costs is emphasized. The Company has entered into contracts with a very limited
number of customers and has not yet begun to provide services to these
customers. No conclusions can be made with respect to the market acceptance of
the Company's services based on this customer base. Because of the subjective
nature of patient compliance, the Company may be unable, for an extensive period
of time, to develop a significant amount of data to demonstrate to potential
customers the effectiveness of its services. Even after such time, no assurance
can be given that the Company's data and results will be convincing or
determinative as to the success of its system. There can be no assurance that
increased marketing efforts and the implementation of the Company's strategies
will result in market acceptance for its services or that a market for the
Company's services will develop or not be limited. See "Business--Sales and
Marketing."
DEPENDENCE ON CUSTOMERS FOR MARKETING AND PATIENT ENROLLMENT
The Company has limited marketing experience and limited financial,
personnel and other resources to undertake extensive marketing activities. One
element of the Company's marketing strategy involves marketing specialized
disease state management programs to pharmaceutical companies, with the intent
that the pharmaceutical company customers will market the program to parties
responsible for the payment of health
6
<PAGE>
care costs, who will enroll patients in the programs. Accordingly, the Company
will to a degree be dependent upon pharmaceutical company customers, over whom
it has no control, for the marketing and implementation of its initial programs.
The timing and extent of patient enrollment is completely within the control of
the Company's customers. To the extent that an adequate number of patients are
not enrolled in the program, or enrollment of initial patients by a customer is
delayed for any reason, the Company's revenue may be insufficient to support its
activities. See "Business--Customer Agreements."
UNPREDICTABILITY OF PATIENT BEHAVIOR
The ability of the Company to monitor patient behavior and provide
information to health care providers and payors, and consequently the success of
the Company's disease state management system, will be dependent upon the
accuracy of information received from patients. The Company does not expect that
it will take specific measures to determine the accuracy and veracity of
information provided to the Company by patients regarding their medical
histories. No assurance can be given that the information provided to the
Company by patients will be accurate. To the extent that patients have chosen
not to comply with prescribed treatments, such patients might provide inaccurate
information to avoid detection. Because of the subjective nature of medical
treatment, it will be difficult for the Company to validate or confirm any such
information. In the event that patients enrolled in the Company's programs
provide inaccurate information to a significant degree, the Company would be
materially and adversely affected. Many potential customers may seek data from
the Company with respect to the results of its programs prior to retaining it to
develop new disease state management or other health information programs. The
Company's ability to market its system to new customers may be limited if it is
unable to demonstrate successful results for its programs. See "Business-- Sales
and Marketing."
ABILITY TO MANAGE GROWTH
The Company is retaining a program development and operating staff
sufficient to handle its current and anticipated business commitments, and
consequently is experiencing a period of rapid growth and expansion. Such growth
and expansion has placed and will continue to place a significant strain on the
Company's development, administrative personnel and other resources. The
Company's ability to manage such growth effectively will require the Company to
continue improving its operational, management and financial systems and
controls and to train, motivate and manage its employees. As a result, the
Company is subject to certain risks of expansion, including the risk that it
will be unable to retain the necessary personnel and acquire other resources
necessary to manage such growth adequately. In addition, to the extent that the
Company commences its expansion activities in anticipation of growth, it may
undertake significant financial commitments for which it will have
responsibility whether or not it enters into any additional services agreements
and regardless of the timing of payment for services. Accordingly, the Company
will likely have significant financial commitments without necessarily having
the revenues to offset such expenses. See "Use of Proceeds."
CHANGES IN THE HEALTH CARE INDUSTRY
The health care industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operations
of health care industry participants. Several lawmakers have announced that they
intend to propose programs to reform the U.S. health care system. These programs
may contain proposals to increase governmental involvement in health care, lower
reimbursement rates and otherwise change the operating environment for the
Company and its targeted customers. Health care industry participants may react
to these proposals and the uncertainty surrounding such proposals by curtailing
or deferring certain expenditures, including those for the Company's programs.
The Company cannot predict what impact, if any, such changes in the health care
industry might have on its business, financial condition and results of
operations. In addition, many health care providers are consolidating to create
larger health care delivery enterprises with greater regional market power. As a
result, the remaining enterprises could have greater bargaining power, which may
lead to price erosion of the Company's programs. The failure of the Company to
maintain adequate price levels could have a material adverse effect on the
Company. See "Business--Industry Overview."
7
<PAGE>
TECHNOLOGICAL CHANGE AND OBSOLESCENCE
The development and maintenance of the telecommunications and computer
publishing systems through which the Company operates its integrated information
capture and delivery system is a major component of its business. The
communications and information technology industries are subject to rapid and
significant technological change, and the ability of the Company to operate and
compete is dependent in significant part on its ability to update and enhance
its system continuously. In order to do so, the Company must be able to utilize
effectively its research and development capabilities and implement new
technology in order to enhance its systems. At the same time, the Company must
not jeopardize its ability to contact patients and to process and publish
patient information or adapt to customer preferences or needs. There can be no
assurance that the Company will be able to develop and implement technological
changes to its system. In addition, following this offering the Company will
maintain a significant investment in its technology, and therefore is subject to
the risk of technological obsolescence. If the Company's technology were
rendered obsolete, the Company's business and operating results would be
materially adversely affected. See "Business--Information Capture, Delivery and
Analysis Technologies."
GOVERNMENT REGULATION
The health care industry, including the current and proposed business of the
Company, is subject to extensive regulation by both the Federal and state
governments. A number of states have extensive licensing and other regulatory
requirements applicable to companies that provide health care services.
Additionally, services provided to health benefit plans in certain cases are
subject to the provisions of the Employee Retirement Income Security Act of 1974
("ERISA") and may be affected by other state and Federal statutes.
Generally, state laws prohibit the practice of medicine and nursing without
a license. Many states interpret the practice of nursing to include health
teaching, health counseling, the provision of care supportive to or restorative
of life and well being and the execution of medical regimens prescribed by a
physician. Accordingly, to the extent that the Company assists providers in
improving patient compliance by publishing educational materials or providing
behavior modification training to patients, such activities could be deemed by a
state to be the practice of medicine or nursing. Although the Company has not
conducted a survey of the applicable law in all 50 states, it believes that it
is not engaged in the practice of medicine or nursing. There can be no
assurance, however, that the Company's operations will not be challenged as
constituting the unlicensed practice of medicine or nursing. If such a challenge
were made successfully in any state, the Company could be subject to civil and
criminal penalties under such state's law and could be required to restructure
its contractual arrangements in that state. Such results or the inability to
successfully restructure its contractual arrangements could have a material
adverse effect on the Company.
The Company and its customers may be subject to Federal and state laws and
regulations which govern financial and other arrangements between health care
providers. These laws prohibit certain fee splitting arrangements between health
care providers, as well as direct and indirect payments, referrals or other
financial arrangements that are designed to induce or encourage the referral of
patients to, or the recommendation of a particular provider for, medical
products and services. Possible sanctions for violation of these restrictions
include civil and criminal penalties. Further, criminal violations may result in
mandatory exclusions of up to five years and additional permissive exclusions
from participation in Medicare and Medicaid programs. See "Business--Government
Regulation."
Regulation in the health care field is constantly evolving. The Company is
unable to predict what government regulations, if any, affecting its business
may be promulgated in the future. The Company's business could be adversely
affected by the failure to obtain required licenses and governmental approvals,
comply with applicable regulations or comply with existing or future laws, rules
or regulations or their interpretations.
POTENTIAL LIABILITY AND INSURANCE
The Company will provide information to health care providers and payors
upon which determinations affecting medical care will be made, and it could
share in potential liabilities for resulting adverse medical
8
<PAGE>
consequences to patients. In addition, the Company could have potential legal
liability in the event it fails to record or disseminate correctly patient
information. The Company maintains an errors and omissions insurance policy with
coverage of $3 million in the aggregate and per occurrence. Although the Company
does not believe that it will directly engage in the practice of medicine or
direct delivery of medical services and has not been a party to any such
litigation, it maintains a medical liability policy with coverage of $3 million
in the aggregate and per occurrence. There can be no assurance that the
Company's procedures for limiting liability have been or will be effective, that
the Company will not be subject to litigation that may adversely affect the
Company's results of operations, that appropriate insurance will be available to
it in the future at acceptable cost or at all or that any insurance maintained
by the Company will cover, as to scope or amount, any claims that may be made
against the Company.
RELIANCE ON DATA PROCESSING AND TELEPHONE EQUIPMENT
The business of the Company is dependent upon its ability to store,
retrieve, process and manage data and to maintain and upgrade its data
processing capabilities. In addition, as the Company commences commercial
activities and begins to initiate patient contacts, an increased burden will be
placed upon the Company's telecommunications equipment to process the large
number of incoming and outgoing telephone calls that will be placed every day.
Interruption of data processing capabilities for any extended length of time,
loss of stored data, programming errors, other computer problems or
interruptions of telephone service could have a material adverse effect on the
business of the Company. See "Business--Information Capture, Delivery and
Analysis Technologies."
VARIABILITY IN QUARTERLY OPERATING RESULTS
The Company's results of operations may fluctuate significantly from quarter
to quarter as a result of a number of factors, including the volume and timing
of sales and the rate at which customers implement disease state management and
other health information programs within their patient populations. Accordingly,
the Company's future operating results are likely to be subject to variability
from quarter to quarter and could be adversely affected in any particular
quarter. Due to the foregoing factors, it is possible that the Company's
operating results will be below the expectations of public market analysts and
investors. In such event, the price of the Common Stock could be materially
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
POSSIBLE NEED FOR ADDITIONAL FINANCING
The Company has been substantially dependent upon private placements of its
equity securities to fund its research and development activities and working
capital requirements. In order to implement programs using the Company's
integrated information capture and delivery system, the Company will be required
to devote substantial additional assets to the development of technology, the
construction of physical facilities and the acquisition of telephone and
computer equipment. The Company will also be required to retain the services of
employees in advance of obtaining contracts to provide services. The Company
anticipates, based on currently proposed plans and assumptions relating to its
operations (including with respect to the timing of research and product
development and the costs associated with marketing and promotion of its
system), that the proceeds of this offering, together with available resources,
will be sufficient to satisfy the Company's contemplated cash requirements for
at least 24 months following the consummation of this offering. In the event
that the Company's plans change, or its assumptions change or prove to be
inaccurate, the Company could be required to seek additional financing or
curtail its activities. The Company has no current arrangements with respect to,
or sources of, additional financing. Any additional equity financing may involve
substantial dilution to the interest of the Company's stockholders, and any debt
financing could result in operational or financial restrictions on the Company.
There can be no assurance that any additional financing will be available to the
Company on acceptable terms or at all. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
9
<PAGE>
COMPETITION
The market for health care information products and services is intensely
competitive. Competitors vary in size and in scope and breadth of products and
services offered. Many of the Company's competitors have significantly greater
financial, technical, product development and marketing resources than the
Company. Furthermore, other major information, pharmaceutical and health care
companies not presently offering disease state management or other health
information services may enter into the market in which the Company intends to
compete. With sufficient financial and other resources, many of these
competitors may provide services similar to those of the Company without
substantial barriers. The Company's potential competitors include specialty
health care information companies, health care information system and software
vendors, health care management organizations, pharmaceutical companies and
other service companies within the health care industry that have publicly
stated that they intend to be involved in providing comprehensive disease state
management or other health information services. The Company will also compete
against other companies that provide statistical and data management services,
including clinical trial services to pharmaceutical companies. Many potential
competitors have substantial installed customer bases in the health care
industry and the ability to fund significant product development and acquisition
efforts. There can be no assurance that competitive pressures will not have a
material adverse effect on the Company. See "Business--Competition."
DEPENDENCE ON KEY PERSONNEL
The Company's continued success will depend upon its ability to retain
Donald A. Carlberg, its President and Chief Executive Officer, and a core group
of key officers and employees. The Company has entered into an employment
contract with Mr. Carlberg, expiring on March 1, 1997, but does not have
employment agreements or non-competition agreements with any other employees.
The Company maintains key man life insurance in the amount of $2 million on the
life of Mr. Carlberg and in the amount of $1 million on the life of Gregory D.
Brown, its Senior Vice President and Chief Financial Officer. The loss of
certain key employees or the Company's inability to attract and retain other
qualified employees could have an adverse impact on the Company's business.
Also, the Company's ability to transition from development stage to commercial
operations will depend upon, among other things, the successful recruiting of
highly skilled managerial and marketing personnel with experience in business
activities such as those contemplated by the Company. Competition for the type
of highly skilled individuals sought by the Company is intense. There can be no
assurance that the Company will be able to retain existing employees or that it
will be able to find, attract and retain skilled personnel on acceptable terms.
See "Management."
CONTROL OF THE COMPANY
Following this offering, the Company will be controlled by the executive
officers, directors and certain stockholders of the Company who will
beneficially own in the aggregate approximately 45% of the outstanding Common
Stock. As a result of such ownership, these stockholders, in the event they act
in concert, will have control over the management policies of the Company and
all matters requiring approval by the stockholders of the Company, including the
election of directors. See "Principal Stockholders."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or be sustained after this offering or that the market price of the Common Stock
will not decline below the public offering price. The initial public offering
price of the Common Stock has been determined by negotiations between the
Company and the Representatives of the Underwriters. For a description of the
factors considered in determining the initial public offering price, see
"Underwriting." The market price of the Common Stock following this offering may
be highly volatile, as has been the case with the securities of other start-up
companies. In recent years, the stock market has experienced a high level of
price and volume volatility, and market prices for the stock of many
10
<PAGE>
companies (particularly of small and emerging growth companies) have experienced
wide price fluctuations which have not necessarily been related to the operating
performance of such companies. These broad market fluctuations could have a
material adverse effect on the market price of the Common Stock.
IMMEDIATE AND SUBSTANTIAL DILUTION; ABSENCE OF DIVIDENDS
The initial public offering price per share of the Common Stock will exceed
the net tangible book value per share of the Common Stock. Accordingly, the
purchasers of shares of Common Stock in this offering will experience immediate
dilution in net tangible book value per share of $8.88 (assuming a public
offering price of $12.00 per share and after deducting underwriting discounts
and commissions and estimated offering expenses). The Company has not paid any
dividends on its Common Stock and does not anticipate paying any dividends on
such stock in the foreseeable future. See "Dividend Policy" and "Dilution."
EFFECT ON SHARE PRICE OF SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
9,904,000 shares of Common Stock (based on the number of shares of Common Stock
outstanding as of June 30, 1996). Of these shares, the 2,500,000 shares offered
hereby (2,875,000 shares if the Underwriters' over-allotment option is exercised
in full) will be eligible for immediate sale in the public market without
restriction unless they are held by affiliates of the Company. The 7,404,000
outstanding shares not sold in this offering will be "restricted securities"
within the meaning of Rule 144 ("Rule 144") promulgated under the Securities Act
and may not be sold in the absence of registration under the Securities Act
unless an exemption from registration is available. Under current law, none of
these shares will be eligible for sale under Rule 144 until at least February
22, 1997, when 5,000,000 of these shares will be eligible for sale pursuant to
Rule 144, subject to the volume, manner of sale and other limitations thereof.
The holders of the 2,400,000 shares of Common Stock issuable upon conversion of
the Convertible Preferred Stock have demand and piggy-back registration rights
with respect to their shares commencing one year after the completion of this
offering. The holders of substantially all of the 7,404,000 shares of Common
Stock outstanding prior to this offering have agreed not to sell or otherwise
dispose of any such shares for at least 180 days after the date of this
Prospectus without the prior written consent of Smith Barney Inc. No predictions
can be made as to the effect, if any, that public sale of shares of Common
Stock, or the availability for sale of such shares, will have on the market
price prevailing from time to time. Nevertheless, sales of substantial amounts
of the Common Stock in the public market, particularly by directors and officers
of the Company, or the perception that such sales could occur, could have an
adverse impact on the market price of the Common Stock. See "Shares Eligible for
Future Sale."
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's certificate of incorporation and bylaws
may inhibit changes in control of the Company not approved by the Company's
board of directors. The Company will also be afforded the protection of Section
203 of the Delaware General Corporation Law ("Delaware Law"), which could have
similar effects. These provisions could limit the price that investors might be
willing to pay in the future for shares of Common Stock, and consequently could
adversely affect the market for the Common Stock. See "Description of Capital
Stock."
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby, after deducting underwriting discounts and commissions and
estimated expenses payable by the Company in connection with this offering, are
estimated to be approximately $27.3 million ($31.5 million if the Underwriters'
over-allotment option is exercised in full), assuming a public offering price of
$12.00 per share.
The Company intends to use approximately $12 million of the net proceeds of
this offering for capital improvements necessary for expansion of telephone and
computer capabilities, approximately $5 million of the net proceeds for sales
and marketing and the balance of the net proceeds for working capital and
general corporate purposes, potentially including acquisition of companies or
technologies that complement or expand the Company's business. The Company is
not a party to any purchase agreement or letter of intent with respect to any
acquisitions.
The actual amount of the net proceeds of this offering expended for each
purpose may vary significantly depending upon many factors, including the
progress of the Company's commercialization efforts, the success of the
Company's marketing efforts and the timing of the development of specific
programs for potential customers. Pending application of the net proceeds as
described above, the Company intends to invest the net proceeds of the offering
in short-term, interest bearing securities of investment grade or in short-term
bank deposits. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
DIVIDEND POLICY
The Company has never paid cash dividends on its capital stock and does not
anticipate paying any cash dividends in the foreseeable future. The Company
currently intends to retain all future earnings, if any, to fund the
development, commercialization and growth of its business. Any future
determination to pay cash dividends will be at the discretion of the Board of
Directors and will be dependent upon the Company's financial condition, results
of operations, capital requirements from time to time and such other factors as
the Board of Directors deems relevant. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
12
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1996 and as adjusted to give effect to the sale of 600,000 shares of Series
B Preferred Stock at a price of $5.00 per share in the second quarter of 1996,
conversion of the Convertible Preferred Stock into 2,400,000 shares of Common
Stock in connection with this offering, the sale of the shares of Common Stock
offered hereby (assuming a public offering price of $12.00 per share and after
deducting underwriting discounts and commissions and estimated offering
expenses) and receipt of the estimated net proceeds therefrom.
<TABLE>
<CAPTION>
MARCH 31, 1996
----------------------------
ACTUAL (1) AS ADJUSTED
------------- -------------
<S> <C> <C>
Stockholders' equity:
Series A Convertible Preferred Stock, $0.01 par value; 1,800,000 shares
authorized; 1,800,000 shares issued and outstanding, actual; and none
issued or outstanding, as adjusted......................................... $ 18,000 $ --
Common Stock, $0.01 par value; 20,000,000 shares authorized; 5,004,000
shares issued and outstanding, actual; and 9,904,000 shares issued and
outstanding, as adjusted(1)................................................ 50,040 99,040
Additional paid-in capital.................................................. 2,213,777 32,482,777
Deficit accumulated during the development stage............................ (1,684,857) (1,684,857)
------------- -------------
Total stockholders' equity................................................ $ 596,960 $ 30,896,960
------------- -------------
------------- -------------
</TABLE>
- ------------
(1) Excludes (i) 1,106,000 shares of Common Stock issuable upon the exercise of
options outstanding under the Company's stock option plan at a weighted
average exercise price of $.55 per share and (ii) 155,503 shares of Common
Stock issuable upon the exercise of outstanding stock purchase warrants at a
weighted average exercise price of $.56 per share. See "Management--Stock
Option Plan," "Description of Capital Stock" and Note 5 of Notes to
Financial Statements."
13
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1996
was $3,596,960, or $.49 per share. Pro forma net tangible book value per share
is determined by dividing the net tangible book value of the Company (total
assets less intangible assets and total liabilities) by the number of shares
outstanding, after giving effect to the sale by the Company of 600,000 shares of
Series B Preferred Stock at a price of $5.00 per share in the second quarter of
1996 and the conversion of all outstanding shares of Convertible Preferred Stock
into 2,400,000 shares of Common Stock. Without taking into account any changes
in pro forma net tangible book value after March 31, 1996, other than to give
effect to the sale of the shares of Common Stock offered by the Company hereby
(at an assumed public offering price of $12.00 per share and after deducting
underwriting discounts and commissions and estimated offering expenses), the net
tangible book value of the Company as of March 31, 1996 would have been
approximately $30,896,960, or $3.12 per share. This represents an immediate
increase in net tangible book value of $2.63 per share to existing stockholders
and an immediate dilution of $8.88 per share to new stockholders. The following
table illustrates this per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $ 12.00
Pro forma net tangible book value per share
before the offering.............................................. $ .09
Increase per share attributable to the offering................... 3.03
---------
Pro forma net tangible book value per share
after the offering................................................. 3.12
---------
Dilution per share to new investors................................. $ 8.88
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1996
(giving effect to the sale by the Company of 600,000 shares of Series B
Preferred Stock at a price of $5.00 per share in the second quarter of 1996 and
the conversion of all outstanding shares of Convertible Preferred Stock), the
number of shares purchased from the Company, the total consideration paid and
the average price per share paid by existing stockholders and new investors
(based upon, in the case of new investors, an assumed public offering price of
$12.00 per share and before deduction of estimated underwriting discounts and
commissions and offering expenses).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........................... 7,404,000 74.8% $ 5,300,400 15.0% $ 0.72
New investors................................... 2,500,000 25.2 30,000,000 85.0 12.00
------------ ----- ------------- -----
Total....................................... 9,904,000 100.0% $ 35,300,400 100.0%
------------ ----- ------------- -----
------------ ----- ------------- -----
</TABLE>
The foregoing tables assume no exercise of options or warrants outstanding
as of March 31, 1996. At such date, there were outstanding (i) options to
purchase 901,500 shares of Common Stock at a weighted average exercise price of
$.55 per share and (ii) warrants to purchase 108,000 shares of Common Stock at a
weighted average exercise price of $.56 per share. See "Management--Stock Option
Plan," "Description of Capital Stock" and Note 5 of Notes to Financial
Statements.
14
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below as of December 31, 1995 and for
the period from the date of inception to December 31, 1995 have been derived
from the Company's financial statements, which have been audited by Deloitte &
Touche LLP, independent auditors, and are included elsewhere in this Prospectus.
The selected financial data set forth below as of March 31, 1996, for the three
months then ended and for the period from the date of inception to March 31,
1996 have been derived from the Company's unaudited financial statements, have
been prepared by the Company on a basis consistent with the Company's audited
financial statements and in the opinion of management of the Company reflect all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of such information. The results of operations for the three
months ended March 31, 1996 are not necessarily indicative of results that may
be expected for the full fiscal year or any future period. The financial data
for the Company should be read in conjunction with the Financial Statements and
Notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FROM
FEBRUARY 22,
1995
(DATE OF FROM FEBRUARY
INCEPTION) TO 22, 1995 (DATE
DECEMBER 31, THREE MONTHS ENDED OF INCEPTION) TO
1995 MARCH 31, 1996 MARCH 31, 1996
---------------- ------------------- ----------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................... $ 113,000 $ 166,236 $ 279,236
Operating expenses:
Cost of sales........................................ 111,870 163,460 275,330
Sales and marketing.................................. 370,384 182,960 553,344
General and administrative........................... 683,498 388,291 1,071,789
Research and development expenses.................... 89,909 8,629 98,538
---------------- ------------------- ----------------
Total operating expenses........................... 1,255,661 743,340 1,999,001
---------------- ------------------- ----------------
Operating loss......................................... (1,142,661) (577,104) (1,719,765)
Interest income........................................ 26,009 8,899 34,908
---------------- ------------------- ----------------
Net loss............................................... $ (1,116,652) $ (568,205) $ (1,684,857)
---------------- ------------------- ----------------
---------------- ------------------- ----------------
Pro forma net loss per common and common share
equivalents(1)........................................ $ (.14) $ (.07) $ (.21)
---------------- ------------------- ----------------
---------------- ------------------- ----------------
Pro forma weighted average common and common share
equivalents(1)........................................ 8,204,030 8,207,992 8,207,992
---------------- ------------------- ----------------
---------------- ------------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995 MARCH 31, 1996
------------------- ----------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................................... $ 611,655 $ (87,803)
Total assets.............................................................. 1,763,629 1,356,683
Total liabilities......................................................... 598,464 759,723
Deficit accumulated during the development stage.......................... (1,116,652) (1,684,857)
Total stockholders' equity................................................ 1,165,165 596,960
</TABLE>
- ------------
(1) See Note 1 of Notes to Financial Statements for a description of the
calculation of pro forma net loss per share.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Financial Statements of the Company and Notes thereto appearing elsewhere in
this Prospectus.
OVERVIEW
The Company was formed on February 22, 1995, is in the development stage and
has a limited operating history from which to evaluate its performance. Although
the Company has completed the development of its integrated information capture
and delivery system and is developing several disease state management programs
for specific diseases, further development activities may be necessary to
implement these programs. The Company has not yet enrolled any patients in any
disease state management program.
The Company has generated limited revenues to date and has recorded losses
since inception, totalling $1,684,857 through March 31, 1996, which losses are
continuing to date. The Company anticipates that its losses will continue at
least until it has completed the development of programs for several customers
and has begun providing services to a substantial number of patients for such
customers.
The Company has entered into services agreements with Bristol-Myers to
develop, implement and operate programs for (i) patients who have recently
experienced certain cardiovascular events, (ii) patients who have been diagnosed
with primary congestive heart failure, (iii) patients suffering from anorexia or
cachexia secondary to diagnosis of cancer or AIDS and (iv) patients suffering
from high levels of chronic pain. In addition, the Company has entered into
services agreements with American HomePatient and Equifax to operate a program
for patients suffering from asthma. These contracts provide for, and the Company
anticipates future contracts will provide for, fees paid by its customers based
upon the number of patients participating in each of its programs, as well as
initial program development fees from customers for the development of a
disease-specific program. The amount of the per patient fee is expected to vary
from program to program depending upon the number of patient contacts required,
the complexity of the interventions and the detail of the reports generated. The
Company expects that it will require a substantial number of patients to
participate in its programs in order to generate revenues sufficient to support
its operations. Accordingly, the Company will be dependent upon the activities
of its customers in marketing the programs to their patients and the patients of
payors.
The Company has not to date capitalized any costs related to the development
of software for use in its disease state management program.
The sales cycle for the Company's programs is expected to extend for periods
of six to nine months from initial contact to contract execution. During these
periods, the Company may expend substantial time, effort and funds to prepare a
contract proposal and negotiate the contract. The Company may be unable to
consummate a commercial relationship after the expenditure of such time, effort
and financial resources.
RESULTS OF OPERATIONS
The Company generated revenue of $113,000 during the period from inception
on February 22, 1995 to December 31, 1995, and $166,236 during the three months
ended March 31, 1996. During the period from inception to December 31, 1995,
$84,000 of revenue was derived from development fees with respect to disease
state management programs and $29,000 of revenue was derived from fees with
respect to the development and conduct of a patient satisfaction survey and a
patient focus group. During the three months ended March 31, 1996, $161,843 of
revenue was derived from development fees with respect to disease state
management programs and $4,393 of revenue was derived from fees with respect to
the development and conduct of a patient satisfaction survey and a patient focus
group.
16
<PAGE>
Cost of sales include salaries and related benefits, services provided by
third parties, and other expenses associated with the development of disease
state management programs and a patient satisfaction survey and assembly of a
patient focus group. Cost of sales was $111,870 from inception to December 31,
1995, and $163,460 for the three months ended March 31, 1996.
Sales and marketing expenses from inception to December 31, 1995 were
$370,384, and were $182,960 for the three months ended March 31, 1996. These
costs consisted primarily of salaries, related benefits costs and travel costs.
These expenditures allowed the Company to undertake initial marketing efforts to
pharmaceutical companies, payors and other health care services organizations.
General and administrative expenses include the costs of corporate
operations, finance and accounting, human resources and other general operating
expenses of the Company. General and administrative expenses from inception to
December 31, 1995 were $683,498, and were $388,291 for the three months ended
March 31, 1996. These expenditures allowed the Company to create a corporate
infrastructure to support anticipated program development and operating
activity.
Research and development expenses consist primarily of salaries and related
benefits and administrative costs allocated to the Company's research and
development personnel for development of certain components of the integrated
information capture and delivery system and its integrated disease state
management system. Research and development expenses from inception to December
31, 1995 were $89,909, and were $8,629 for the three months ended March 31,
1996.
The Company had a net loss of $1,116,652 from inception to December 31,
1995, representing a loss of $.14 per share on a pro forma basis, and a net loss
of $568,205 for the three months ended March 31, 1996, representing a loss of
$.07 per share on a pro forma basis. See Note 1 of Notes to Financial
Statements.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had a working capital deficit of $87,803
(which excludes cash paid to the Company relating to programs that had not yet
been developed and which is treated as deferred revenue of $485,000). Since its
inception the Company has funded its operations, working capital needs and
capital expenditures from private placements of its equity securities. The
initial capitalization of $500,000 took place in February 1995. The Company
received $1.8 million from the sale of additional equity securities in a private
placement during the third quarter of 1995, $1.6 million of which was received
in August 1995, and $200,000 of which was received in September 1995 and $3.0
million from the sale of additional equity securities in a private placement
during the second quarter of 1996, $2,825,000 of which was received in May 1996
and $175,000 of which was received in June 1996. The 1996 private placement
proceeds are not reflected in the March 31, 1996 working capital balance.
The Company has been substantially dependent upon private placements of its
equity securities to fund its research and development activities and working
capital requirements. In order to implement programs using the Company's
integrated information capture and delivery system, the Company will be required
to devote substantial additional assets to the development of technology, the
construction of physical facilities and the acquisition of telephone and
computer equipment. The Company will also be required to retain the services of
employees in advance of obtaining contracts to provide services. The Company
anticipates, based on currently proposed plans and assumptions relating to its
operations (including with respect to the timing of research and product
development and the costs associated with marketing and promotion of its
system), that the proceeds of this offering, together with available resources,
will be sufficient to satisfy the Company's contemplated cash requirements for
at least twenty-four months following the consummation of this offering. In the
event that the Company's plans change or its assumptions change or prove to be
inaccurate, the Company could be required to seek additional financing or
curtail its activities. The Company has no current arrangements with respect to,
or sources of, additional financing. The Company may also deem it desirable to
acquire assets, technologies or other entities in complementary or related
fields, or for other projects which management believes to be in the Company's
best interest, and therefore may reapportion proceeds of this offering to such
acquisition or project.
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BUSINESS
GENERAL
Patient Infosystems, Inc. provides patient-centered health care information
systems that proactively collect and analyze information to improve patient
compliance with prescribed treatments. The Company's technology platform
integrates treatment compliance algorithms with an advanced voice recognition
telephone system, high speed data processing and analysis capability and demand
publishing and information distribution capabilities. The system communicates
directly with the patient at home in order to elicit relevant patient-specific
data, evaluate the data and automatically transmit computer generated reports to
health care payors, providers and patients tailored to the specific needs of
each recipient.
The Company markets its services to pharmaceutical manufacturers, pharmacy
benefit managers and health care payors and providers to collect data not
obtained in a clinic setting and enhance compliance by patients with prescribed
treatments. The Company's disease state management programs are designed to
provide the following benefits: (i) for patients, improved communication with
health care resources, enhanced self-care skills, increased treatment adherence
resulting in improved quality of care and reduced inconvenience, risk and
expense associated with unscheduled physician interventions; (ii) for health
care providers, more information on patient progress, quicker identification of
hard-to-manage patients, enhanced ability to make timely treatment
modifications, triage capability and expanded information for development of
improved treatment protocols; and (iii) for payors and program sponsors,
cost-effective management of the disease risk, improved patient compliance and
outcomes and enhanced patient and provider satisfaction.
INDUSTRY OVERVIEW
Health care costs have increased significantly in the United States in
recent years despite substantial attempts to control costs by the government and
private payors. According to the Federal government, national health
expenditures have increased from $540 billion in 1988 (11.1% of gross national
product ("GNP")) to a projected $1 trillion in 1995 (15.7% of projected GNP).
Faced with rapidly rising health benefit costs, employers are aggressively
seeking methods through managed care techniques to reduce the volume and unit
cost of health care services. By 1992, approximately 55% of Americans with
employer-sponsored health insurance were enrolled in some type of managed care
plan. The Company believes that payors have achieved substantial health care
cost savings to date through reducing the unit pricing for and utilization of
products and services. One way to achieve significant additional savings is to
change the way that health care is delivered to patients by focusing on quality
and cost efficient clinical outcomes. In an effort to lower costs, payors and
providers have encouraged the shifting of the treatment of patients from the
institutional setting to the home. As a result, more and more patients
administer their own medications away from the provider's scrutiny. However, the
Company believes that to date only limited progress has been made in
implementing cost-effective methods to monitor patient compliance with their
prescribed treatments. Yet the failure to comply with treatment regimens results
in significant unnecessary costs to the health care system. The Company believes
that as cost containment strategies move the point of care out of an
institutional setting, payors will require information systems that gather data
and facilitate behavior modification in the home.
Once effective clinical treatment decisions are made, patients must comply
with the prescribed treatment regimen to achieve the desired outcome. Estimates
vary from disease to disease, but generally indicate that between 30% and 60% of
all patients fail to take medications as prescribed. The consequences of patient
non-compliance with prescribed treatment plans represent a significant portion
of health care expenditures. One third-party study indicated that patient
non-compliance results in $100 billion in health care and lost productivity
costs annually. Costs associated with treating patients with chronic diseases
who fail to adhere to prescribed treatment regimens have been particularly
difficult to control. When long-term treatments for chronic disease have been
prescribed, as many as 80% of all patients fail to carry out correctly at least
one element of the disease treatment regimen. In addition, a 1990 study
indicated that over 5% of hospital admissions are caused by outpatient
noncompliance. The Company believes that by coupling
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effective treatment protocols with the ability to monitor patient condition and
treatment regimen compliance between physician interventions, health care
providers and payors can significantly enhance clinical outcomes while reducing
costs.
Monitoring patients by telephone can be a cost effective strategy for
improving the treatment of chronic diseases. One third-party study, which
involved patient contact by nurses to determine treatment compliance and disease
progress, indicated that the use of telephone follow-up saved an estimated 28%
in health care delivery costs for elderly, ambulatory patients with chronic
diseases. In addition, patients who received follow-up telephone care had 20%
fewer clinic visits, 14% overall less medication utilization, 20% fewer hospital
days and 41% fewer intensive care unit days. Telephone patient monitoring
systems may be used with a broad range of chronic patient treatment programs for
disease state management and outcome evaluation and other health care
applications.
STRATEGY
The Company's strategy is to capitalize on its advanced information
technology platform to become the leading provider of patient-centered health
care information programs. The key elements of this strategy are to:
INTRODUCE INFORMATION SYSTEM PROGRAMS FOR SPECIFIC DISEASES. The
Company develops software systems and identifies treatment protocols to
assist in the management of specific chronic diseases. The Company designs
and markets these systems either on a customized basis, in which a client
targets a specific disease and funds development and implementation of the
system, or on a standardized basis, in which the Company selects the target
disease, develops the system internally and then markets the system to
multiple end-users. The Company markets its customized systems to
pharmaceutical and pharmacy benefits management companies interested in
sponsoring disease state management programs to provide their managed care
customers with a value-added service. The Company typically markets its
standardized systems to payors and health care providers interested in
reducing the overall cost of health care delivery. These programs are
designed to modify patient behavior in order to improve treatment and
outcomes and reduce costs associated with non-compliance.
IMPLEMENT PROGRAMS THAT DEMONSTRATE CLINICAL BENEFITS AND
COST-EFFECTIVENESS. The Company markets its services based on the expected
reduction of overall health care costs that it believes will result from
improved treatment compliance by a given patient population. The Company
intends to complement its marketing efforts by conducting or sponsoring
clinical studies and implementing other measures designed to establish and
document the clinical and cost benefits it believes will result from the
application of its integrated information capture and delivery system. The
Company intends to promote the benefits of its system through publication in
clinical journals and presentations at scientific conferences of the results
of these studies.
ANALYZE COLLECTED OUTCOMES DATA WITH ARTIFICIAL INTELLIGENCE SYSTEMS TO
DEVELOP IMPROVED CLINICAL PROTOCOLS. As the Company's network of patients
expands, so will its database of relevant information with respect to
patient behavior, treatment efficacy and disease progression. The Company
has designed its system to enable analysis of captured data through a
variety of computer technologies, including neural networks, fuzzy logic and
genetic algorithms, for use by providers, payors and pharmaceutical
companies. The Company intends to use this information to improve treatment
algorithms and compliance behavior in an effort to improve treatment, and
thereby maximize positive patient outcomes and reduce costs.
DEVELOP OR ACQUIRE ADDITIONAL INFORMATION CAPTURE AND DELIVERY
TECHNOLOGIES. The Company plans to develop or acquire additional
technologies that enhance its ability to gather information and interact
with patients while the patient is away from the health care provider. The
Company has developed a wireless two-way communication system to provide
constant, uninterrupted information, and is developing a CD-ROM-based
educational information system for patient use and a means of using the
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Internet to interact directly with particular patients. The Company believes
that these additional technologies will allow the Company to provide and
obtain more detailed information both as a supplement to or as a substitute
for telephone interactions and printed materials.
LEVERAGE TECHNOLOGY PLATFORM TO DEVELOP ADDITIONAL APPLICATIONS. The
Company intends to use its expertise in information management and database
technologies to develop additional programs and services, such as clinical
trial data compilation and analysis, patient surveys, clinical outcomes
evaluation, demand management and case management. By gaining access to
certain customers through the provision of one type of information service,
the Company will be well positioned to provide additional services. For
example, the Company believes that as it provides clinical trial information
for pharmaceutical companies in connection with specific products, it will
also be in a position to provide disease state management services in
connection with the use of such drugs.
INFORMATION CAPTURE, DELIVERY AND ANALYSIS TECHNOLOGIES
The Company's technology platform integrates treatment algorithms with an
advanced voice recognition telephone system, high speed data processing and
analysis capability and demand publishing and information distribution
capabilities. The system utilizes trained telephone operators and a computerized
interactive voice response to communicate via telephone directly with the
patient at home in order to elicit patient-specific and relevant data. To
minimize costly live operator interaction, the computer initiates each call,
which when answered is automatically transferred to a live operator and then
manually switched to a recorded speech application. Patients respond to the
recorded speech application by using their normal speaking voice, which is
designed to ensure a more accurate and reliable response than is achievable via
telephone key pad. Depending on the patient's response, situation-specific
algorithms are applied to modify future questions and thus help customize the
collection of data.
The Company's system analyzes and prepares the captured data for automatic
delivery to the payor, provider and patient using demand publishing. Demand
publishing technology enables the creation of highly individualized reports by
inserting stored graphic images customized for race, gender and age. These
reports are also customized to the individual patient's specific situation, and
the system utilizes the information received during contacts with the patient to
further customize the content of the report. The data relevant to the separate
report for health care providers is formatted in a customized report to be
automatically transmitted via mail, fax or on-line.
Each contact with a patient contributes to the establishment of a
longitudinal data base which can be analyzed to provide insights to treatment
modalities for patients, providers and payors. The Company's system is designed
to analyze patient compliance to prescribed treatment regimens and gather
additional clinical information so that improvements in such regimens can be
developed.
THE INTEGRATED DISEASE STATE MANAGEMENT SYSTEM
INTRODUCTION. The Company's first application of its integrated information
capture and delivery system is its integrated disease state management system.
This system is designed to provide care givers with the ability to monitor, on a
cost-effective basis, patient condition and behavior while the patient is
between physician consultations. The Company believes that this will permit care
givers to improve patient compliance and, as a consequence, improve patient
outcomes.
Each of the Company's integrated disease state management programs is
designed to provide one or more of the following benefits:
FOR PATIENTS:
-Improved access to and communication with health care resources beyond
existing hospital care and office and in-home provider visits
-Enhanced self-care skills and knowledge in the area of the disease
covered by the program
-Increased treatment adherence, motivation and confidence in disease
self-management resulting in improved quality of life
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-Reduced inconvenience, risk and expense associated with unscheduled
office visits, emergency room interventions and hospitalizations
FOR HEALTH CARE PROVIDERS:
-More comprehensive information on patient progress
-Quicker identification of hard-to-manage patients
-Enhanced ability to make timely treatment modifications
-Better utilization of health care resources appropriate to patient needs
-Expanded information for development of improved treatment methods
FOR PAYORS AND PROGRAM SPONSORS:
-Cost-effective management of the disease risk
-Improved patient compliance
-Improved treatment outcomes
-Enhanced patient and provider satisfaction
The Company has not yet enrolled any patients in any disease state
management program, and there can be no assurance that the benefits described
above will be attained. See "Risk Factors."
The system has three primary components. First, using a panel of recognized
medical and clinical experts, the Company develops a disease-specific patient
intervention/compliance program that includes a template for the integration of
each patient's history, current medical status and treatment protocol. If the
program is being developed on a custom basis for a particular customer, the
program is developed in consultation with the customer's clinical staff and
consultants. Second, the Company establishes periodic telephone contacts with
each patient to monitor the patient's adherence to prescribed therapies as well
as the patient's treatment progress. Third, using the information obtained from
patient contacts and other available information regarding the patient and his
or her treatment, such as physician records and pharmacy information,
personalized reports are prepared, typically following each patient contact, for
evaluation by the patient, the patient's health care provider and, on a periodic
basis, payors.
The following diagram illustrates the intended data flow and benefits of the
Company's integrated disease state management system.
[GRAPHICS TO FOLLOW]
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DEVELOPMENT OF DISEASE SPECIFIC PROTOCOLS. The Company's disease-specific
compliance programs are developed for targeted diseases either on a customized
basis to meet the needs of particular customers or on a standardized basis for
broader use by a variety of users. The Company retains an internal clinical
staff and panels of independent medical and clinical experts to identify
guidelines with respect to the spectrum of generally accepted treatment
protocols and diagnostic factors for particular diseases. These guidelines serve
as a template for the information to be obtained from each patient. If the
program is being developed on a custom basis for a particular customer, the
program is developed in consultation with the customer's clinical staff and
consultants. In addition, the Company's internal clinical staff conducts
research of available databases and gathers information provided by medical
experts, insurance providers, governmental agencies, Medicare and Medicaid and
other medical research sources to develop with the medical experts the
disease-specific program structure. The resulting compliance protocols are
designed to enable the Company to gather the necessary patient information to
determine the extent of a patient's compliance with his or her prescribed
treatment, the effectiveness of treatment and the progress of the patient's
disease. As the Company's database of patient experience relating to
disease-specific treatments expands, it intends to use that data to modify,
update and enhance its own disease state management compliance programs and
assist health care providers in improving treatment protocols.
PATIENT ENROLLMENT. When a patient is enrolled in one of the Company's
disease state management programs a patient history will be obtained, including
the histories of the chronic illness, medications, and surgical procedures as
well as other information deemed relevant by the disease-specific compliance
program. This information will be included in the Company's database for each
patient and distinct customized reports will be printed for distribution to each
of the patient's health care provider and payor as well as the patient. The
patient report can include information on the prescribed treatment of the
patient's disease as well as the use of the program and other social support
services to improve compliance with the patient's treatment regimen. In
addition, the Company's on-demand publishing technology provides personalized
behavior modification and educational materials for the patient. The health care
provider report contains the relevant clinical and behavioral information
gathered from the patient.
PATIENT CONTACTS. In accordance with a designated patient contact schedule,
a patient will periodically receive telephone calls from a live operator who,
after confirming the identity of the patient, will transfer the patient to an
automated system that will ask specific questions determined in accordance with
the disease-specific compliance program and provide information and motivational
feedback. Patient contact schedules are established for each disease state
management program, with the frequency of patient contact varying with the
disease state under management and the goal of the applicable treatment and
occurring as often as daily or as infrequently as on a quarterly basis. The data
gathered from the patient during each contact will be processed and stored in
the Company's database.
The compliance program takes into account patient responses to treatment
follow-up questions and initiates specific courses of action which can include
positive reinforcement messages, confirmation of prescription instructions and
scheduled callbacks to remind the patient of the need to take prescribed
medication. In addition, the questions to be asked in future calls are modified
based upon the patient's responses during current and previous calls.
The Company's system captures and processes the information obtained from
the patient during the contact and integrates it with the other data maintained
by the Company relating to the patient's prior responses, history, treatment
regimen and the mandated treatment protocols for the disease. The system then
automatically prepares distinct reports using the Company's demand publishing
technologies for the patient and for the physician or other care-giver. Each
report is tailored for the particular requirements of each recipient. The
patient's report, for example, may include pictures, diagrams and informative
discussions relating to the treatment course intended to modify or reinforce
certain behaviors. The physician's report would likely be more factual and
direct and summarize the clinical and behavioral information that has been
gathered.
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On a periodic basis, the Company will provide data to the patient's health
care payor with respect to that patient's progress. The Company will also be
able to include information from various data sources in these reports for the
purpose of providing additional information with respect to a patient. For
example, the Company may be able to interact with the pharmacy services division
of a payor to determine the renewal frequency of prescriptions, which provides
an indication of whether a patient is taking his or her medication. In addition,
the system provides the flexibility to allow other information from physicians'
reports and hospital tests to be included in the periodic reports.
COMPLIANCE ASSISTANCE. The Company assists payors and health care providers
in monitoring patient compliance and works with health care providers to develop
compliance and education programs that can be implemented through the Company's
system. Through the Company's customized publishing technology, specific patient
compliance and education literature that is customized to an individual patient,
his or her condition and his or her compliance problems can be prepared and
delivered to a patient by mail, facsimile or on-line. In addition, the Company
can implement a variety of procedures including medication reminders via
wireless two-way communication and more frequent telephone communications for
non-compliant patients or patients with more difficult treatment regimens. The
Company can provide additional support services, such as an 800 number that will
provide recorded information with respect to a variety of patient education
topics or other support messages.
PATIENT INFOSYSTEMS PROGRAMS. The following table lists certain of the
disease state management programs currently under development by the Company, as
well as other diseases identified as good candidates for disease state
management programs:
<TABLE>
<CAPTION>
ANNUAL DIRECT PROGRAM
COSTS AVAILABILITY
AFFECTED U.S. ASSOCIATED WITH FOR PATIENT
DISEASE CATEGORY POPULATION (1) TREATMENT (1) CUSTOMERS (2) ENROLLMENT (3)
- ------------------------------------------- ------------- --------------- ------------------ ---------------
<S> <C> <C> <C> <C>
PROGRAMS UNDER DEVELOPMENT:
Secondary Cardiovascular Disease (4) (5) Bristol-Myers 3rd Qtr. 1996
Congestive Heart Failure 4,700,000 $18 billion Bristol-Myers 4th Qtr. 1996
Diabetes 16,000,000 $45 billion 4th Qtr. 1996
Asthma 12,000,000 $3 billion American 4th Qtr. 1996
HomePatient;
Equifax
Chronic Pain Management Not available Not available Bristol-Myers 3rd Qtr. 1996
Weight Management--Cancer and AIDS Not available Not available Bristol-Myers 4th Qtr. 1996
Patients
ADDITIONAL IDENTIFIED DISEASE TARGETS:
Cancer 1,000,000 $29 billion
Depression 11,000,000 $15 billion
AIDS 330,000 $33 billion
Chronic Obstructive Pulmonary Disease 14,000,000 Not available
Hypertension 50,000,000 $43 billion
Osteoporosis 24,000,000 $10 billion
Arthritis 37,000,000 $15 billion
</TABLE>
- ------------
(1) This information is estimated and based upon published industry data.
(2) See "Business--Customer Agreements" for a description of the agreements with
customers.
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(3) Patient enrollment is dependent upon the identification and referral by the
Company's customers of patients to the Company's system. As a result,
initial patient enrollment dates may differ from the date that the program
is available for enrollment.
(4) The patient population falling within this program's guidelines is a subset
of the population with cardiovascular disease, which exceeds 60 million
individuals.
(5) The associated direct costs are a portion of the $129 billion of total
annual direct cost of cardiovascular disease.
SECONDARY CARDIOVASCULAR DISEASE. It is estimated by the American Heart
Association that in 1994, $151 billion was spent in the United States for the
treatment of cardiovascular disease. Cardiovascular disease is treated with a
combination of medications, as well as dietary, lifestyle and behavior
modifications. The treatment is on-going and requires a high level of patient
discipline. The Company has entered into a services agreement with Bristol-Myers
to develop, implement and operate a disease state management program relating to
the prevention of cardiovascular sequelae in patients who have recently
experienced certain cardiovascular illnesses or treatments such as angina,
cardiac bypass surgery or heart attack. The Company has developed a secondary
cardiovascular disease program and expects the program to be available for
patient enrollment during the third quarter of 1996.
CONGESTIVE HEART FAILURE. Elderly patients with heart failure are at
increased risk for rehospitalization after discharge. Behavioral factors such as
noncompliance with medications and poor diet as well as social isolation may
contribute to the hospital admissions. The Company has entered into a services
agreement with Bristol-Myers to develop, implement and operate a disease state
management program to aid in the treatment of patients suffering from congestive
heart failure and expects the program to be available for patient enrollment
during the fourth quarter of 1996.
DIABETES. Diabetes is an incurable disease characterized by elevated blood
glucose levels. The American Diabetes Association estimates that there are over
16 million diagnosed diabetics in the United States, at least 2.4 million of
whom are undergoing insulin therapy. Insulin therapy involves daily sampling of
blood and, in many cases, regular injections of insulin. Currently, the direct
medical expense for treatment of all diabetics and diabetes-related conditions
within the United States is estimated to be over $10 billion annually. With
proper treatment, diabetes should not be life threatening; however, untreated or
improperly treated diabetes can lead to such complications as blindness, kidney
disease, nervous disorders, vascular disease and death. The Company is
developing a disease state management program for diabetic patients that it is
marketing to payors and expects the program to be available for patient
enrollment during the fourth quarter of 1996.
ASTHMA. Asthma affects 12 million people in the United States, with direct
costs related to the disease estimated at $6 billion annually and noncompliance
with pharmacological therapy being the leading cause of hospitalization among
asthmatics. With proper treatment, patient understanding of the treatment plan
and a high level of patient compliance, most asthmatics may control their
disease effectively, which should result in a decrease in the number of asthma
episodes and the cost of care. The Company is developing a disease state
management program for asthmatic patients that it is marketing to payors.
American HomePatient and Equifax have retained the Company to provide these
disease state management programs for patients enrolled in their health care
programs who are suffering from asthma. The Company expects that its disease
state management program for asthmatic patients will be available for patient
enrollment during the fourth quarter of 1996.
CHRONIC PAIN MANAGEMENT. Persons suffering from cancer are often treated
with medication to alleviate constant, severe pain. Bristol-Myers has retained
the Company to develop, implement and update a program to manage patients who
are experiencing intense levels of chronic pain. The Company is developing a
disease state management program for chronic pain management and expects the
program to be available for patient enrollment during the third quarter of 1996.
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WEIGHT MANAGEMENT--CANCER AND AIDS PATIENTS. The inability to maintain
adequate weight levels is a serious problem for individuals afflicted with
cancer or AIDS. Bristol-Myers has retained the Company to develop and implement
a program to mange patients suffering from anorexia or cachexia secondary to a
diagnosis of cancer or AIDS. The Company is developing a disease state
management program for weight management and expects the program to be available
for patient enrollment during the fourth quarter of 1996.
OTHER APPLICATIONS OF THE INTEGRATED INFORMATION CAPTURE AND DELIVERY SYSTEM
OUTCOMES ANALYSIS. The Company intends to utilize information gathered from
patients enrolled in its programs to serve two purposes. First, the information
as to treatment results, success of the compliance program and patient reaction
to differing treatments or compliance protocols may be used by the Company to
further improve each disease-specific compliance program. Second, the
information may be used by payors, pharmaceutical companies and health care
providers to assist in the development of improved treatment modalities. The
Company has developed methodologies for analyzing the data using database
management and information technologies, including neural network systems, fuzzy
logic and genetic algorithms. The Company intends to use these data analysis
technologies to predict the best treatment methodologies for specific patients.
CLINICAL STUDIES. Many pharmaceutical companies and clinical research
organizations are seeking more economical, efficient and reliable methods for
compiling and analyzing clinical data in conducting Phase III and Phase IV
clinical studies. Furthermore, many drug development protocols, particularly as
they relate to efficacy, have begun to place emphasis upon subjective criteria
and outcomes information. The Company believes that its system will allow it to
develop programs tailored to the measurement of outcomes data relating to the
conduct of Phase III and Phase IV clinical studies. The Company believes that
its system can also assist pharmaceutical companies in studying and documenting
the efficacy of products that are already developed in order to provide ongoing
information to the FDA or for internal marketing use.
PATIENT SURVEYS. Organizations in many different areas of the health care
industry survey users regarding their products and services for a variety of
reasons including regulatory, marketing and research purposes. The Company's
information systems, with their ability to proactively contact patients in a
cost-efficient manner, may be used for this type of application.
DEMAND MANAGEMENT. Demand management involves assisting providers in
evaluating patient treatment needs to identify those patients who may not
require immediate or intensive services. The goal of demand management is to
reduce the need for and use of costly, often clinically unnecessary, medical
services and arbitrary managed-care interventions while improving the overall
quality of life of patients undergoing various treatment regimens. The Company
believes that its system can be used to provide automated or semi-automated
demand management services.
CASE MANAGEMENT. Patients who are prescribed complex or high cost treatment
regimens may require a higher level of monitoring, interaction, care planning
and reassessment than patients with less complicated treatment regimens. The
Company believes that its system is capable of providing these enhanced services
to such patients to eliminate or minimize the unnecessary costs and medical
attention that result from a patient's lack of compliance with a prescribed
treatment regimen.
SALES AND MARKETING
The Company markets its integrated disease state management system to those
organizations within the health care industry that are involved in the treatment
of disease or payment of medical services to patients who require complex or
long-term medical therapies. These include five distinct groups: pharmaceutical
companies, medical service companies, pharmacy benefits managers, health care
payors, such as managed care organizations and insurance companies, and employer
groups. The Company employs a sales and
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marketing staff of four persons to market the Company's systems and has entered
into consulting agreements for sales and marketing services with three
additional persons not employed by the Company. In addition, the senior members
of the Company's management are actively engaged in marketing the Company's
programs.
The Company intends to complement its marketing efforts by conducting
clinical studies and implementing other measures designed to document the
clinical and cost benefits it believes will result from the application of its
integrated information capture and delivery system. In collaboration with the
members of its expert panels who are retained to develop program protocols and
other research and clinical technicians, the Company intends to promote the
benefits of its system through publication in clinical journals and
presentations at scientific conferences of the results of these studies. The
Company is pursuing opportunities to develop programs specifically designed to
produce significant short-term data, such as its chronic pain management
program, which will be studied at the M.D. Anderson Cancer Center.
CUSTOMER AGREEMENTS
The Company is developing disease state management programs in conjunction
with the following customers for the indicated disease states:
BRISTOL-MYERS
The Company has entered into four services agreements (the "Service
Agreements") with Bristol-Myers relating to the development, implementation and
operation by the Company of disease state management programs for certain
specified diseases. The Service Agreements provide for development fees to be
paid by Bristol-Myers to the Company upon the achievement of certain milestones
related to the disease state management programs, including the performance of
pilot programs for each disease state management program. Bristol-Myers has also
agreed to pay the Company operational fees per enrolled patient, which fees for
certain programs vary with the length, complexity and frequency of patient
contact dictated by the respective program protocols.
Each of the Service Agreements provide for an exclusivity period (the
"Exclusivity Period"), during which time the Company is prohibited from engaging
or participating in any other projects involving the specific disease target
that is the subject of the Service Agreement. The Exclusivity Periods extend
from the effective dates of the Service Agreements until, in general, a certain
date or a certain period (ranging from eight to 12 months) following the
achievement of a specified milestone in the development or implementation of the
program (such as the completion of the pilot program). Three of the four Service
Agreements provide that upon conclusion of the Exclusivity Period, Bristol-Myers
has the right to negotiate with the Company for an exclusive arrangement for the
administration of the disease state management program, provided that
Bristol-Myers has enrolled a certain number of patients in the disease state
management program to date. In the event that such negotiations prove
unsuccessful, Bristol-Myers retains a right of first refusal with respect to any
other offers made to the Company for such arrangements for a period of nine or
12 months following the Exclusivity Period.
The Service Agreements provide that Bristol-Myers retains ownership rights
to certain materials and other work product created by the Company pursuant to
the Service Agreements and that the Company is entitled to use other materials
and data. The extent of these rights varies by agreement. The Company and
Bristol-Myers have agreed to indemnify each other with respect to losses arising
from willful or negligent acts or omissions or breaches of the Service
Agreements by the indemnifying party pursuant to the Service Agreement. The
Service Agreements are terminable without cause by either party with either 30
or 90 days' notice. The Company has entered into Service Agreements with
Bristol-Myers in the following disease areas:
CONGESTIVE HEART FAILURE. The Company is a party to a Service Agreement
with Bristol-Myers dated February 1, 1996, to develop, implement and update a
program for patients suffering from congestive heart failure.
26
<PAGE>
CARDIOVASCULAR DISEASE. The Company is party to a Service Agreement dated
September 18, 1995 with Bristol-Myers to develop, implement and update a program
in the English and Spanish languages for patients with cardiovascular disease
who have recently experienced moderate to severe angina, cardiac bypass surgery,
percutaneous transluminal coronary angioplasty or myocardial infarction.
CHRONIC PAIN. The Company is a party to a Service Agreement dated March 30,
1996 with Bristol-Myers to develop, implement and update a program for patients
who are experiencing intense levels of chronic pain. The initial phase of this
program is expected to be a thirty day trial monitoring cancer patients located
at the M.D. Anderson Cancer Center. A second phase of this program is expected
to consist of a twelve week trial monitoring cancer patients at numerous sites.
The final phase of this program will be the implementation of a program for use
in conjunction with products that Bristol-Myers may market in this area. Upon
the earlier of the completion of the final phase of the program or December 31,
1996, Bristol-Myers may extend the Exclusivity Period relating to the chronic
pain management program for successive one-year periods by agreeing to pay the
Company a fee in the event that the program operational fees paid to the Company
by Bristol-Myers during the year fall below certain levels.
WEIGHT MANAGEMENT. The ability to prevent loss of body weight in certain
diseases is a significant quality of life concern. The Company is a party to a
Service Agreement, dated April 24, 1996, with Bristol-Myers to develop,
implement and update a program for patients suffering from anorexia or cachexia
secondary to a diagnosis of cancer or AIDS. The Company has agreed to conduct a
pilot program in this area, which is required to be initiated by November 1996.
PATIENT SATISFACTION SURVEY. The Company is also developing a patient
satisfaction survey and a general medication compliance program pursuant to a
services agreement with Bristol-Myers dated October 16, 1995. The patient
satisfaction survey is designed to measure a patient's satisfaction with the
services provided by their payor, and the general medication compliance
program's goal is to improve compliance with guidelines for using prescribed
pharmaceutical products. The services agreement calls for the payment to the
Company of program development fees as well as fees related to its providing
services to enrolled patients throughout the terms of the program protocols set
forth in the agreement. The Company and Bristol-Myers have agreed to indemnify
each other for losses arising from willful or negligent acts, omissions or
breaches of the services agreement by the indemnifying party. The services
agreement is terminable without cause by either party with 30 days' notice.
EQUIFAX
The Company is a party to a services agreement dated June 21, 1996 with
Equifax to implement and update a program for patients suffering from asthma.
The agreement provides for the Company to receive a per patient fee for services
provided to enrolled patients over the duration of the program. Equifax has also
agreed to pay to the Company a one-time licensing fee in the event it fails to
enroll a minimum number of patients within 36 months of the effective date of
the agreement. The agreement may be terminated by either party with 30 days'
notice.
AMERICAN HOMEPATIENT
The Company is a party to a services agreement dated June 24, 1996 to
implement and update a program for patients suffering from asthma. The agreement
provides for the Company to receive a per patient fee for services provided to
enrolled patients over the duration of the program. In addition, the Company is
entitled to receive a joint marketing fee from American HomePatient payable in
stages over a 24 month period if American HomePatient is successful in marketing
the program with three health care payors. The agreement may be terminated by
either party upon 30 days' prior written notice.
COMPETITION
The market for health care information products and services is intensely
competitive. Competitors vary in size and in scope and breadth of products and
services offered, and the Company will compete with
27
<PAGE>
various companies in each of its disease target markets. Many of the Company's
competitors have significantly greater financial, technical, product development
and marketing resources than the Company. Furthermore, other major information,
pharmaceutical and health care companies not presently offering disease state
management or other health care information services may enter the markets in
which the Company intends to compete. In addition, with sufficient financial and
other resources, many of these competitors may provide services similar to those
of the Company without substantial barriers. The Company does not possess any
patents with respect to its integrated information capture and delivery system,
and although it has filed a provisional patent application with respect to
certain aspects of its integrated information capture and delivery system and
its integrated disease state management system, there can be no assurance that
this application will result in the issuance of a patent, or if issued, that a
patent would provide the Company with any competitive advantage.
The Company's potential competitors include specialty health care companies,
health care information system and software vendors, health care management
organizations, pharmaceutical companies and other service companies within the
health care industry. Many of these competitors have substantial installed
customer bases in the health care industry and the ability to fund significant
product development and acquisition efforts. The Company will also compete
against other companies that provide statistical and data management services,
including clinical trial services to pharmaceutical companies.
The Company is aware of several large pharmaceutical and medical service
companies that have publicly stated that they intend to be involved in providing
comprehensive disease state management services. The Company believes that the
principal competitive factors in its market are the ability to link patients,
health care providers and payors, and provide the relevant health care
information at an acceptable cost. In addition, the Company believes that the
ability to anticipate changes in the health care industry and identify current
needs are important competitive factors.
QUALITY CONTROL AND SECURITY
The Company has developed quality control measures designed to insure that
information obtained from patients is accurately transcribed, that reports
covering each patient contact are delivered to health care providers and
patients and that the Company's personnel and technologies are interacting
appropriately with patients and health care providers. Quality control systems
will include random monitoring of telephone calls, patient surveys to confirm
patient participation and effectiveness of the particular program, and
supervisory reviews of telephone agents.
GOVERNMENT REGULATION
The health care industry, including the current and proposed business of the
Company, is subject to extensive regulation by both the Federal and state
governments. A number of states have extensive licensing and other regulatory
requirements applicable to companies that provide health care services.
Additionally, services provided to health benefit plans in certain cases are
subject to the provisions of the Employee Retirement Income Security Act
("ERISA") and may be affected by other state and Federal statutes. Generally,
state laws prohibit the practice of medicine and nursing without a license. Many
states interpret the practice of nursing to include health teaching, health
counseling, the provision of care supportive to or restorative of life and well
being and the execution of medical regimens prescribed by a physician.
Accordingly, to the extent that the Company assists providers in improving
patient compliance by publishing educational materials or providing behavior
modification training to patients, such activities could be deemed by a state to
be the practice of medicine or nursing. Although the Company has not conducted a
survey of the applicable law in all 50 states, it believes that it is not
engaged in the practice of medicine or nursing. There can be no assurance,
however, that the Company's operations will not be challenged as constituting
the unlicensed practice of medicine or nursing. If such a challenge were made
successfully in any state, the Company could be subject to civil and criminal
penalties under such state's law and could be required to restructure its
contractual arrangements in that state. Such results or the inability to
successfully restructure its contractual arrangements could have a material
adverse effect on the Company.
28
<PAGE>
The Company and its customers may be subject to Federal and state laws and
regulations which govern financial and other arrangements between health care
providers. These laws prohibit certain fee splitting arrangements between health
care providers, as well as direct and indirect payments, referrals or other
financial arrangements that are designed to induce or encourage the referral of
patients to, or the recommendation of, a particular provider for medical
products and services. Possible sanctions for violation of these restrictions
include civil and criminal penalties. Further, criminal violations may result in
mandatory exclusions of up to five years and additional permissive exclusions
from participation in Medicare and Medicaid programs.
Regulation in the health care field is constantly evolving. The Company is
unable to predict what government regulations, if any, affecting its business
may be promulgated in the future. The Company's business could be adversely
affected by the failure to obtain required licenses and governmental approvals,
comply with applicable regulations or comply with existing or future laws, rules
or regulations or their interpretations.
INTELLECTUAL PROPERTY
The Company considers its methodologies, processes and know-how to be
proprietary. The Company seeks to protect its proprietary information through
confidentiality agreements with its employees. The Company's policy is to have
employees enter into confidentiality agreements containing provisions
prohibiting the disclosure of confidential information to anyone outside the
Company, requiring employees to acknowledge, and, if requested, assist in
confirming the Company's ownership 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.
The Company has filed a provisional patent application with respect to
certain aspects of its integrated information capture and delivery and
integrated disease state management systems. No assurance can be given that a
patent will issue or that if issued such patent will provide the Company with a
competitive advantage.
EMPLOYEES
As of June 30, 1996, the Company had 30 employees.
PROPERTIES
The Company's executive and corporate offices are located in Rochester, New
York in approximately 7,200 square feet of leased office space, under a lease
that expires on September 30, 1999.
LEGAL MATTERS
The Company is not a party to any material pending legal proceedings.
29
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the Company's
directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Dr. Derace Schaffer.................................. 48 Chairman of the Board
Donald A. Carlberg................................... 43 Director, President and Chief Executive Officer
Gregory D. Brown..................................... 34 Senior Vice President, Chief Financial Officer,
Secretary and Treasurer
George T. Witter..................................... 36 Vice President, Sales and Marketing
Kent A. Tapper....................................... 38 Vice President, Systems Engineering
Giancarla C. Miele................................... 52 Vice President, Operations
Dr. David B. Nash.................................... 40 Executive Vice President, Medical Affairs
Dr. Alvin I. Mushlin................................. 54 Senior Medical Advisor
John Pappajohn....................................... 67 Director
Dr. Barbara J. McNeil................................ 53 Director
Dr. Carl F. Kohrt.................................... 53 Director
</TABLE>
Dr. Derace Schaffer has been Chairman of the Board and a Director of the
Company since its inception in February 1995. Since 1980, Dr. Schaffer has been
the President of The Ide Group, P.C., a group of physicians providing
radiological services at multiple locations in New York State, and since 1990 he
has also been President of The Lan Group, a venture capital firm specializing in
health care investments. He also serves as a Director of NeuralTech, Inc.,
NeuralMed, Inc., Preferred Oncology Networks of America, Inc., Image Guided
Technologies, Inc., and Medifax, Inc. as well as several not-for-profit
corporations.
Donald A. Carlberg has been President, Chief Executive Officer and a
Director of the Company since its inception. From February 1993 to December
1994, Mr. Carlberg served as Chief Executive Officer of Patient Management
Technologies, Inc., a medical services consulting company, which he founded.
From 1992 to 1994, Mr. Carlberg served as Senior Vice President--Sales and
Marketing for Neurocare, Inc./ Paradigm Health Corp. From 1990 to 1992, Mr.
Carlberg served as Director of Managed Care for Baxter Healthcare International
where he started managed care initiatives for its Caremark Division. From 1985
to 1990, Mr. Carlberg held several senior level positions in managed care at
Blue Cross/Blue Shield of Rochester, New York and Independence Blue Cross in
Philadelphia, Pennsylvania.
Gregory D. Brown has been Senior Vice President, Chief Financial Officer,
Secretary and Treasurer of the Company since May 1995. From 1989 to 1995, Mr.
Brown was Chief Financial Officer of Pappajohn Capital Resources, a venture
capital firm specializing in health care investments, and Equity Dynamics, Inc.,
a financial consulting firm, both located in Des Moines, Iowa. From 1984 to
1989, Mr. Brown was a Senior Accountant with Vroman, McGowen, Hurst, Clark &
Smith, P.C., a certified public accounting firm.
George T. Witter has been Vice President, Sales and Marketing of the Company
since June 1995. From 1985 through 1995, Mr. Witter held various sales and
marketing positions with Genentech, Inc., a pharmaceutical company, most
recently as Mid-Atlantic Regional Manager of Genentech's Pediatric Specialty
Division.
Kent A. Tapper has been Vice President, Systems Engineering of the Company
since July 1995. Prior to joining the Company and since 1992, Mr. Tapper was
Product Manager, Audio Response and Call Center Platforms for Northern Telecom,
Inc. From 1983 to 1992, Mr. Tapper held Product Manager, Systems Engineering
Manager and various engineering management positions with Northern Telecom.
Giancarla C. Miele has been Vice President, Operations, of the Company since
October 1995. From 1994 to 1995, Ms. Miele was Director of Operations for
Integrated Medical Delivery Corporation, a medical
30
<PAGE>
management firm. From 1992 to 1994, Ms. Miele was the Administrator of Cancer
Care, Inc., an MSO in the metropolitan Washington, D.C. region. From 1989 to
1992, Ms. Miele served as Senior Consultant to CMA, a medical services
consulting firm.
Dr. David B. Nash has been Executive Vice President, Medical Affairs of the
Company since April 1996. Dr. Nash is Director of Health Policy and Clinical
Outcomes at Thomas Jefferson University Hospital and Associate Professor of
Medicine at Jefferson Medical College. Dr. Nash is the recipient of the 1995
Clifton Latiolias Prize in Managed Care from the American Managed Care Pharmacy
Association. He also serves as a scientific advisory board member of iSTAT Corp.
Dr. Nash provides his services to the Company on a part-time consulting basis.
Dr. Alvin I. Mushlin has been Senior Medical Advisor of the Company since
April 1996. Dr. Mushlin is a Professor of Community and Preventative Medicine at
the University of Rochester, where he has served in various capacities since
1976. He is a member of the National Councils of the Society for General
Internal Medicine and the Society for Medical Decision Making and has served on
the Health Care Technology Study Section of the Agency for Health Care Policy
and Research. Dr. Mushlin provides his services to the Company on a part-time
consulting basis.
John Pappajohn has been a Director of the Company since its inception, and
served as its Secretary and Treasurer from inception through May 1995. Since
1969, Mr. Pappajohn has been the sole owner of Pappajohn Capital Resources, a
venture capital firm specializing in health care investments, and President of
Equity Dynamics, Inc., a financial consulting firm, both located in Des Moines,
Iowa. He serves as a Director for the following public companies: CORE, Inc.,
Drug Screening Systems, Inc., Fuisz Technologies, Ltd., GalaGen, Inc., OncorMed,
Inc., and Pace Health Management Systems, Inc.
Dr. Barbara J. McNeil has been a Director of the Company since May 1995. Dr.
McNeil is Head of the Department of Health Care Policy and a Professor of
Radiology at Harvard Medical School where she has served in various capacities
since 1971. For four years she has served as Chair of the Blue Cross--
Massachusetts Hospital Association Fund for Cooperative Innovation and currently
she is a member of the National Council on Radiation Protection, the American
College of Radiology and its Board of Chancellors, the Society of Nuclear
Medicine, the Advisory Council for the Agency for Health Care Policy and
Research, and the National Academy of Sciences' Institute of Medicine where she
is a Council member. She also serves as a Director of CV Therapeutics, Inc.
Dr. Carl F. Kohrt has been a Director of the Company since April 1996. Dr.
Kohrt is Executive Vice President and Assistant Chief Operating Officer of the
Eastman Kodak Company, where he has served in various capacities since 1971. Dr.
Kohrt is a recipient of a Sloan Fellowship for study at Massachusetts Institute
of Technology. Dr. Kohrt also serves on the board of governors of The Genesee
Hospital.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has appointed two committees: the
Audit Committee and the Compensation Committee. The members of the Audit
Committee are John Pappajohn, Dr. Barbara McNeil and Dr. Carl Kohrt. The Audit
Committee periodically reviews the Company's auditing practices and procedures,
makes recommendations to management or to the Board of Directors as to any
changes to such practices and procedures deemed necessary from time to time to
comply with applicable auditing rules, regulations and practices, and recommends
independent auditors for the Company to be elected by the stockholders. The
members of the Compensation Committee are Dr. Derace Schaffer, Dr. McNeil and
Dr. Kohrt. The Compensation Committee meets periodically to make recommendations
to the Board of Directors concerning the compensation and benefits payable to
the Company's executive officers and other senior executives. The Company
reimburses directors for their out-of-pocket expenses incurred in attending
Board and Committee meetings.
31
<PAGE>
DIRECTOR COMPENSATION
At present no separate cash compensation or fees are payable to directors of
the Company, other than reimbursement of expenses incurred in connection with
attending meetings. The Company expects, however, that new non-employee
directors not otherwise affiliated with the Company or its stockholders will be
paid in a manner and at a level consistent with industry practice.
On May 20, 1995, the Company granted options to acquire 50,000 shares of
Common Stock at an exercise price of $0.10 per share to Dr. Barbara McNeil, a
director of the Company. On August 25, 1995, the Company granted options to
acquire 50,000 shares of Common Stock to John Pappajohn, a director of the
Company, and options to acquire 50,000 shares of Common Stock to Dr. Derace
Schaffer, Chairman of the Board of Directors of the Company, with both of these
issuances having an exercise price of $0.50 per share. On April 8, 1996, the
Company granted options to acquire 50,000 shares of Common Stock at an exercise
price of $1.50 per share to Dr. Carl Kohrt, a director of the Company.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by the
Company for services rendered in all capacities for executive officers of the
Company who received compensation in excess of $100,000 during the period from
inception on February 22, 1995 to December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------------ AWARDS SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS($) UNDERLYING OPTIONS (#)
- -------------------------------------------------------- --------- ----------- ----------- ----------------------
<S> <C> <C> <C> <C>
Donald A. Carlberg, President and Chief Executive
Officer................................................ 1995(1) $ 96,417 $ 15,000 300,000
</TABLE>
- ------------
(1) Reflects compensation paid from February 22, 1995 (inception) through
December 31, 1995.
Messrs. Carlberg, Brown, Witter, Tapper and Ms. Miele are currently
compensated at annual rates of $125,000, $100,000, $100,000, $80,000 and
$100,000, respectively.
The following table sets forth certain information regarding options granted
to the Chief Executive Officer and other executive officers of the Company
during the period from inception on February 22, 1995 through December 31, 1995.
OPTION GRANTS IN 1995
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
-------------------------------- ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES % OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OPTION TERM (2)
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION --------------------
NAME GRANTED (#)(1) FISCAL YEAR $/SHARE DATE 5% ($) 10% ($)
- -------------------------------------- -------------- ---------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Donald A. Carlberg.................... 250,000 27.3% $ .10 3/1/05 $ 15,722 $ 39,844
Donald A. Carlberg.................... 50,000 5.5 .50 8/25/05 15,722 39,844
Gregory D. Brown...................... 100,000 10.9 .10 5/1/05 6,289 15,937
Gregory D. Brown...................... 25,000 2.7 .50 8/25/05 7,861 19,922
George T. Witter...................... 75,000 8.2 .10 6/7/05 4,717 11,953
Kent A. Tapper........................ 50,000 5.5 .10 7/24/05 3,144 7,969
Giancarla C. Miele.................... 50,000 5.5 .75 10/9/05 23,583 59,766
</TABLE>
- ------------
(1) 50,000 of Mr. Carlberg's options vested as of the date of the option grant.
The remainder of his options and all other options will become exercisable
at the rate of 20% per year from the date of grant and have
32
<PAGE>
ten- year terms as long as the optionee's employment with the Company
continues. The exercise price of each option is equal to the fair market
value of the underlying Common Stock on the date of the grant, as determined
by the Board of Directors.
(2) Future value of current year grants assumes appreciation in the market value
of the Common Stock of 5% and 10% per year over the ten-year option period
as required by the rules of the Securities and Exchange Commission and do
not represent the Company's estimate or projection of actual values. The
actual value realized may be greater than or less than the potential
realizable values set forth in the table.
No stock options were exercised by the Chief Executive Officer or other
executive officers of the Company during the period from inception on February
22, 1995 through December 31, 1995. The following table sets forth certain
information regarding unexercised options held by the Chief Executive Officer
and other executive officers of the Company at December 31, 1995.
AGGREGATED OPTION EXERCISES THROUGH DECEMBER 31, 1995 AND
DECEMBER 31, 1995 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, 1995
AT DECEMBER 31, 1995 (#) ($)(1)
----------------------------- -------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------------------------------------- ----------------------------- -------------------------
<S> <C> <C>
Donald A. Carlberg..................................... 50,000/250,000 $57,500/$267,500
Gregory D. Brown....................................... 0/125,000 0/133,750
George T. Witter....................................... 0/75,000 0/86,250
Kent A. Tapper......................................... 0/50,000 0/57,000
Giancarla C. Miele..................................... 0/50,000 0/25,000
</TABLE>
- ------------
(1) Calculated based upon $1.25 estimated fair market value of the underlying
securities as of December 31, 1995.
STOCK OPTION PLAN
The Company's Stock Option Plan (the "Plan") was originally adopted by the
Board of Directors and stockholders in June 1995. Up to 1,500,000 shares of
Common Stock have been authorized and reserved for issuance under the Plan.
Under the Plan, options may be granted in the form of incentive stock options
("ISOs") or non-qualified stock options ("NQOs") from time to time to salaried
employees, officers, directors and consultants of the Company, as determined by
the Compensation Committee of the Board of Directors. The Compensation Committee
determines the terms and conditions of options granted under the Plan, including
the exercise price. The Plan provides that the Committee must establish an
exercise price for ISOs that is not less than the fair market value per share at
the date of the grant. However, if ISOs are granted to persons owning more than
10% of the voting stock of the Company, the Plan provides that the exercise
price must not be less than 110% of the fair market value per share at the date
of the grant. The Plan also provides for a non-employee director to be entitled
to receive a one-time grant of a NQO to purchase 50,000 shares at an exercise
price equal to fair market value per share on the date of their initial election
to the Company's Board of Directors. Such NQO is exercisable only during the
non-employee director's term and automatically expires on the date such
director's service terminates. Each option, whether an ISO or NQO, must expire
within ten years of the date of the grant.
There are currently outstanding 1,106,000 options outstanding which have
been granted under the Plan, 580,000 of which have an exercise price of $0.10
per share, 175,000 of which have an exercise price of $.50 per share, 65,000 of
which have an exercise price of $.75 per share, 81,500 of which have an exercise
price of $1.25 per share and 204,500 of which have an exercise price of $1.50
per share. Of these options, 50,000 were
33
<PAGE>
granted as of March 1, 1995 to Mr. Carlberg and vested immediately. The
remainder of Mr. Carlberg's options and all other options granted under the plan
vest as to 20% of the option grant on the first anniversary of the grant, and
20% on each subsequent anniversary.
EMPLOYMENT AGREEMENT
The Company has entered into an employment agreement with Mr. Carlberg as
its President and Chief Executive Officer dated March 1, 1995, which has a term
of one year and is automatically renewed for successive one-year periods unless
either party receives written notice from the other party of such party's
intention not to renew within 60 days of the agreement's expiration date. The
agreement calls for Mr. Carlberg to receive a base salary of $125,000 per year,
and a bonus of $25,000 on March 1, 1996 which was paid to Mr. Carlberg. Upon
execution of the agreement, Mr. Carlberg received a $15,000 signing bonus and an
option to purchase up to 250,000 shares of Common Stock of the Company at an
exercise price of $.10 per share. The option has a ten-year term, vests over
five years and was 20% vested upon grant. The remainder of the option vests at a
rate of 20% per year, and the option is therefore fully exercisable after the
first five years of employment. Mr. Carlberg is eligible for any discretionary
bonuses and additional option grants in amounts to be determined by the
Company's Board of Directors based upon the performance of the Company and Mr.
Carlberg. The agreement prohibits Mr. Carlberg from engaging in any business
activity involving the measurement of clinical outcomes for patients with acute
or chronic diseases, or the measurement of patient compliance with prescribed
treatments for acute or chronic diseases within one year of the termination of
his employment with the Company.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Bylaws provide for mandatory indemnification rights, subject
to limited exceptions, to any officer or director of the Company who, by reason
of the fact that he or she is or was an officer or director of the Company, is
involved in a legal proceeding of any nature. In addition, the Restated
Certificate of Incorporation contains provisions limiting the personal liability
of directors to the Company or its shareholders for monetary damages arising
from certain acts or omissions in the director's capacity as a director.
CERTAIN TRANSACTIONS
The Company was initially capitalized on February 22, 1995 through the sale
of 5,000,000 shares of its Common Stock for $.10 per share. Included among the
participants in that transaction were Dr. Derace Schaffer, Chairman of the
Board, who purchased 2,300,000 shares, Dr. Schaffer's spouse who purchased
200,000 shares, John Pappajohn, a director, who purchased 752,500 shares, a sole
proprietorship owned by Mr. Pappajohn which purchased 500,000 shares. Mr.
Pappajohn's spouse, who purchased 500,000 shares, and a sole proprietorship
owned by Mr. Pappajohn's spouse which purchased 500,000 shares.
In August and September of 1995 the Company sold 1,800,000 shares of its
Series A Preferred Stock in a private placement for $1.00 per share. Included
among the participants in that transaction were George T. Witter, Vice
President, Sales and Marketing, who purchased 50,000 shares, Gregory D. Brown,
Sr. Vice President, Chief Financial Officer, Secretary and Treasurer, who
purchased 10,000 shares, and Mr. Pappajohn who purchased 10,000 shares.
In May and June of 1996, the Company sold 600,000 shares of its Series B
Preferred Stock in a private placement for $5.00 per share. Included among the
participants in that transaction were Dr. Schaffer, who purchased 20,000 shares,
and Mr. Pappajohn, who purchased 40,000 shares.
34
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of June 30, 1996 (giving effect to the
conversion of all outstanding shares of Convertible Preferred Stock into
2,400,000 shares of Common Stock) and as adjusted to reflect the sale of the
shares offered hereby (i) by each person who is known by the Company to own
beneficially more than 5% of the Common Stock, (ii) by each of the Company's
directors and its chief executive officer and (iii) by all directors and
executive officers as a group.
<TABLE>
<CAPTION>
PERCENTAGE OWNED
SHARES -----------------------------
BENEFICIALLY BEFORE THE AFTER
NAME (1) OWNED OFFERING THE OFFERING
- ---------------------------------------------------------------------------- ----------- ------------- --------------
<S> <C> <C> <C>
Derace L. Schaffer (2)...................................................... 2,370,000 32.0% 23.9%
John Pappajohn (3).......................................................... 1,984,000 26.8 20.0
Edgewater Private Equity Fund II, L.P. ..................................... 1,200,000 16.2 12.1
666 Grand Avenue, Suite 200
Des Moines, IA 50309
Donald A. Carlberg (4)...................................................... 100,000 1.3 1.0
Gregory D. Brown (5)........................................................ 33,000 * *
George T. Witter (6)........................................................ 65,000 * *
Kent A. Tapper (7).......................................................... 10,000 * *
Giancarla C. Miele (8)...................................................... -- -- --
David B. Nash (9)........................................................... -- -- --
Alvin I. Mushlin (10)....................................................... -- -- --
Barbara J. McNeil (7)....................................................... 10,000 * *
Carl F. Kohrt (11).......................................................... -- -- --
All directors and executive officers as a
group (11 persons) (12).................................................... 4,572,000 60.3% 45.3%
</TABLE>
- ------------
* Less than one percent.
(1) Unless otherwise noted, the address of each of the listed persons is c/o
the Company at 46 Prince Street, Rochester, New York 14607.
(2) Includes 400,000 shares held by Dr. Schaffer's minor children. Includes
options to purchase 10,000 shares which are either currently exercisable or
which become exercisable within 60 days of the date of this Prospectus.
Does not include 40,000 shares subject to outstanding options which are not
exercisable within 60 days of the date of this Prospectus.
(3) Includes 500,000 shares held by Halkis, Ltd., a sole proprietorship owned
by Mr. Pappajohn, 500,000 shares held by Thebes, Ltd., a sole
proprietorship owned by Mr. Pappajohn's spouse, and 500,000 shares held
directly by Mr. Pappajohn's spouse. Mr. Pappajohn disclaims beneficial
ownership of the shares owned by Thebes, Ltd. and by his spouse. Includes
options to purchase 10,000 shares which are either currently exercisable or
which become exercisable within 60 days of the date of this Prospectus.
Does not include 40,000 shares subject to outstanding options which are not
exercisable within 60 days of the date of this Prospectus.
(4) Represents options to purchase 100,000 shares which are either currently
exercisable or which become exercisable within 60 days of the date of this
Prospectus. Does not include 225,000 shares subject to outstanding options
which are not exercisable within 60 days of the date of this Prospectus.
35
<PAGE>
(5) Includes options to purchase 25,000 shares which are either currently
exercisable or which become exercisable within 60 days of the date of this
Prospectus. Does not include 115,000 shares subject to outstanding options
which are not exercisable within 60 days of the date of this Prospectus.
(6) Includes options to purchase 15,000 shares which are either currently
exercisable or which become exercisable within 60 days of the date of this
Prospectus. Does not include 85,000 shares subject to outstanding options
which are not exercisable within 60 days of the date of this Prospectus.
(7) Includes options to purchase 10,000 shares which are either currently
exercisable or which become exercisable within 60 days of the date of this
Prospectus. Does not include 40,000 shares subject to outstanding options
which are not exercisable within 60 days of the date of this Prospectus.
(8) Does not include 100,000 shares subject to outstanding options which are
not exercisable within 60 days of the date of this Prospectus.
(9) Does not include 20,000 shares subject to outstanding warrants which are
not exercisable within 60 days of the date of this Prospectus.
(10) Does not include 10,000 shares subject to outstanding warrants which are
not exercisable within 60 days of the date of this Prospectus.
(11) Does not include 50,000 shares subject to outstanding options which are
not exercisable within 60 days of the date of this Prospectus.
(12) Includes options to purchase 180,000 shares which are either currently
exercisable or which become exercisable within 60 days of the date of this
Prospectus. Does not include 765,000 shares subject to outstanding options
and warrants which are not exercisable within 60 days of the date of this
Prospectus.
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The Company's Certificate of Incorporation authorizes the issuance of
25,000,000 shares of capital stock, divided into 20,000,000 shares of Common
Stock, $0.01 par value per share, and 5,000,000 shares of Preferred Stock, $0.01
par value per share, in one or more series with such terms as the Board of
Directors may determine. As of the date hereof, there are 5,004,000 shares of
outstanding Common Stock held by fifty-nine record holders, 1,800,000 shares of
Series A Preferred Stock outstanding held by twenty record holders and 600,000
shares of Series B Preferred Stock outstanding held by twenty-six record
holders. Pursuant to the Company's Certificate of Incorporation, all outstanding
shares of Convertible Preferred Stock will automatically convert into 2,400,000
shares of Common Stock as of the closing of this offering. The following is a
brief summary of the terms of the various classifications of capital stock
giving pro forma effect to the automatic conversion of Series A Preferred Stock
and Series B Preferred Stock into shares of Common Stock at the closing of this
offering.
COMMON STOCK
No shares of Common Stock are entitled to preference over any other share,
and each share is equal to any other share in all respects. Holders of Common
Stock are entitled to one vote per share held of record at each meeting of
stockholders. Subject to the preferences that may be applicable to any
outstanding Preferred Stock, the holders of the Common Stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
the Board of Directors out of funds legally available therefor. See "Dividend
Policy." In any distribution of capital assets, whether voluntary or
involuntary, holders of Common Stock are entitled to receive pro rata the assets
remaining after creditors have been paid in full and holders of Preferred Stock
have received their preferential distribution. Holders of the Common Stock have
no pre-emptive or conversion rights or other subscription rights. The
outstanding shares of Common Stock and those issuable upon conversion of the
Series A Preferred Stock and the Series B Preferred Stock will be, when issued,
duly authorized, validly issued, fully paid and non assessable.
36
<PAGE>
PREFERRED STOCK
The Board of Directors is authorized to issue without stockholder approval
5,000,000 shares of Preferred Stock in one or more series and to determine and
alter all rights, preferences and privileges and qualifications, limitations and
restrictions thereof, including with respect to the rate and nature of
dividends, the price and terms and conditions on which shares may be redeemed,
the amount payable in the event of voluntary or involuntary liquidation, the
terms and conditions for conversion or exchange into any other class or series
of stock, voting rights and other terms.
REGISTRATION RIGHTS
Holders owning fifty percent or more of the aggregate of the shares of
Common Stock into which any shares of the Series A Preferred Stock have been or
can be converted or the Series B Preferred Stock have been or can be converted
have the right on one occasion at any time commencing twelve months from the
date of the initial public offering of the Common Stock of the Company, but not
later than October 31, 2000 or May 31, 2001, respectively, to require the
Company to prepare and file a Registration Statement under the Securities Act
covering such shares of Common Stock, and the Company, at its expense, will use
its best efforts to cause such registration statement to become effective as
soon as possible.
In addition, the holders of Series A Preferred Stock and Series B Preferred
Stock are each entitled, subject to the approval of the underwriter, to two
"piggyback" registrations at the Company's expense as part of a registration by
the Company of its shares of Common Stock at any time commencing twelve months
from the date of the Initial Public Stock Offering, but not later than October
31, 2000 and May 31, 2001, respectively. Holders of Series A Preferred Stock and
Series B Preferred Stock are each granted the right on up to two occasions at
the participating holder's expense, and prior to October 31, 2000 and May 31,
2001, respectively, to have their shares registered on Form S-3 if such is
available for use by the Company and such holder or holders. The registration
rights are subject to a number of terms and conditions, including but not
limited to requirements as to minimum offering size and reaching satisfactory
underwriting terms.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation limits the liability of directors
to the maximum extent permitted by Delaware law. Delaware law provides that
directors of a company will not be personally liable for monetary damages for
breach of their fiduciary duties as directors, except for liability for (i) any
breach of their duty of loyalty to the company or its stockholders, (ii) acts or
omissions not in good faith or involving intentional misconduct or a knowing
violation of law, (iii) unlawful payment of dividends or unlawful stock
repurchases or redemptions as provided in Section 174 of the Delaware General
Corporation Law or (iv) any transaction from which the director derived an
improper personal benefit.
The Company's Bylaws provide that the Company shall indemnify its officers,
directors, employees and other agents to the extent permitted by Delaware law.
The Company's Bylaws also permit it to secure insurance on behalf of any
officer, director, employee or other agent for any liability arising out of his
or her actions in such capacity, regardless of whether the Bylaws would permit
indemnification.
TRANSFER AGENT AND REGISTRAR
The Company has appointed American Stock Transfer and Trust Company as its
transfer agent and registrar for the Company's Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 9,904,000 shares of
Common Stock outstanding (based upon the number of shares outstanding as of June
30, 1996). The 2,500,000 shares sold in this offering (2,875,000 shares if the
Underwriters' over-allotment option is exercised in full) will be freely
tradable without restriction under the Securities Act, except for any such
shares held at any time by an "affiliate" of the Company, as such term is
defined under Rule 144 promulgated under the Securities Act.
The remaining 7,404,000 shares (the "Restricted Shares") were issued and
sold by the Company in private transactions and may be publicly sold only if
registered under the Securities Act or sold in accordance
37
<PAGE>
with an applicable exemption from registration, such as Rule 144. In general,
under Rule 144, as currently in effect, a person, including an "affiliate" as
that term is defined in Rule 144, who has held "restricted" shares for a period
of at least two years from the later of the date such shares were acquired from
the Company or the date such shares were acquired from an affiliate, is entitled
to sell, within any three-month period, a number of restricted shares that does
not exceed the greater of one percent (1%) of the then outstanding shares of
Common Stock or the average weekly trading volume during the four calendar weeks
preceding such sale. Sales under Rule 144 are subject to certain manner of sale
limitations, notice requirements and the availability of current public
information about the Company. Rule 144(k) provides that a person who is not
deemed an "affiliate" and who has held restricted shares for a period of at
least three years from the later of the date such shares were acquired from the
Company and the date they were acquired from an affiliate is entitled to sell
such shares at any time under Rule 144 without regard to the limitations
described above.
The holders of substantially all of the outstanding shares of Common Stock
have agreed pursuant to certain agreements (the "Lock-up Agreements") that they
will not sell or otherwise dispose of any shares of Common Stock for a period of
180 days from the date of this Prospectus without the prior written consent of
Smith Barney Inc.
Of the 7,404,000 Restricted Shares, 5,000,000 Restricted Shares will become
eligible for sale in February 1997, subject to compliance with the volume and
other limitations of Rule 144. In addition, 1,800,000 Restricted Shares will
become eligible for sale in August and September 1997 and 600,000 Restricted
Shares will become eligible for sale during May and June 1998, all subject to
compliance with the volume and other limitations of Rule 144.
Rule 701 ("Rule 701") under the Securities Act provides an exemption from
the registration requirements of the Securities Act for offers and sales of
securities issued pursuant to certain compensatory benefit plans or written
contracts of a company not subject to the reporting requirements of Section 13
or 15(d) of the Securities Exchange Act (the "Exchange Act"). Securities issued
pursuant to Rule 701 are defined as restricted securities for purposes of Rule
144. However, 90 days after the issuer becomes subject to the reporting
provisions of the Exchange Act, the Rule 144 resale restrictions, except for the
broker's transaction requirement, do not apply to shares acquired pursuant to
Rule 701 by non-Affiliates. Affiliates are subject to all Rule 144 restrictions
after this 90-day period, but without the Rule 144 holding period requirement.
If all the requirements of Rule 701 are met, upon expiration of the Lock-up
Agreements, an aggregate of 319,300 shares of Common Stock issued upon the
exercise of options granted and issuable on exercise of currently outstanding
options will become eligible for sale pursuant to such rule (subject to
applicable Rule 144 restrictions), substantially all of which shares are subject
to the Lock-up Agreements.
The Securities and Exchange Commission has proposed amendments to Rule 144
and Rule 144(k) that would permit resales of Restricted Shares under Rule 144
after a one-year, rather than a two-year holding period, subject to compliance
with the other provisions of Rule 144, and would permit resale of Restricted
Shares by non-Affiliates under Rule 144(k) after a two-year, rather than a
three-year, holding period. Assuming adoption of such amendments, approximately
6,800,000 of the Restricted Shares will be eligible for sale in the public
market immediately after this offering pursuant to Rule 144 (subject to
compliance with the volume and other limitations of Rule 144), substantially all
of which shares are subject to the Lock-up Agreements.
The Company is unable to estimate the number of shares that may be sold in
the future by its existing stockholders or the effect, if any, that sales of
shares by such stockholders will have on the market price of the Common Stock
prevailing from time to time. Sales of substantial amounts of Common Stock by
existing stockholders could adversely affect prevailing market prices.
38
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company has agreed to sell to such Underwriter,
shares of Common Stock which equal the number of shares set forth opposite the
name of such Underwriter below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------------------------------------------------------------------------------------------------- ----------
<S> <C>
Smith Barney Inc.....................................................................................
Needham & Company, Inc...............................................................................
----------
Total............................................................................................ 2,500,000
----------
----------
</TABLE>
The Underwriters are obligated to take and pay for all shares of Common
Stock offered hereby (other than those covered by the over-allotment option
described below) if any such shares are taken.
The Underwriters, for whom Smith Barney Inc. and Needham & Company, Inc. are
acting as Representatives, propose initially to offer part of the shares of
Common Stock directly to the public at the public offering price set forth on
the cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ per share under the public offering price.
The Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per share to other Underwriters or to certain other dealers.
After the initial public offering, the public offering price and such
concessions may be changed by the Underwriters. The Representatives have
informed the Company that the Underwriters do not intend to confirm sales to
accounts over which they exercise discretionary authority.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of 375,000
additional shares of Common Stock at the public offering price set forth on the
cover page hereof less underwriting discounts and commissions. The Underwriters
may exercise such option to purchase additional shares solely for the purpose of
covering over-allotments, if any, incurred in connection with the sale of the
shares offered hereby. To the extent such option is exercised, each Underwriter
will become obligated, subject to certain conditions, to purchase approximately
the same percentage of such additional shares as the number set forth next to
such Underwriter's name in the preceding table bears to the total number of
shares in such table.
The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
39
<PAGE>
The Company, its officers and directors and certain other stockholders,
holding in the aggregate substantially all of the Company's currently
outstanding equity securities, have agreed that, for a period of 180 days after
the date of this Prospectus, they will not, without the prior written consent of
Smith Barney Inc., offer, sell, contract to sell or otherwise dispose of any
shares of Common Stock or any securities convertible into, or exercisable or
exchangeable for, Common Stock except, in the case of the Company, in certain
limited circumstances.
At the Company's request, the Representatives have agreed to reserve up to
125,000 shares of Common Stock for sale at the public offering price to Company
employees and other persons having certain business relationships with the
Company. The number of shares available for sale to the general public will be
reduced to the extent these persons purchase such reserved shares. Any reserved
shares not purchased will be offered by the Underwriters to the general public
on the same basis as the other shares offered hereby.
Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock has
been determined by negotiations between the Company and the Representatives of
the Underwriters. The factors considered in determining the initial public
offering price were the history of, and the prospects for, the Company's
business and the industry in which it competes, an assessment of the Company's
management, its past and present operations, its past and present earnings and
the trend of such earnings, the prospects for earnings of the Company, the
present state of the Company's development, the general condition of the
securities market at the time of the offering and the market prices and earnings
of similar securities of comparable companies at the time of the offering.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Crummy, Del Deo, Dolan, Griffinger &
Vecchione, Newark, New Jersey. Certain legal matters will be passed upon for the
Underwriters by Dewey Ballantine, New York, New York.
EXPERTS
The financial statements of the Company as of December 31, 1995 and for the
period from February 22, 1995 (date of incorporation) to December 31, 1995
included in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein and elsewhere
in the registration statement, and have been so included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") under the Securities Act a Registration Statement with respect to
the Common Stock offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits thereto.
Statements contained in the Prospectus as to the contents of any contract or
other document referred to are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference, but such statements are complete in all material
respects for the purposes herein made. The Registration Statement may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549; at its Chicago Regional Office, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511; and at its New York Regional Office, Seven World
Trade Center, New York, New York 10048. Copies of such material can be obtained
from the public reference section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. For further information pertaining
to the Company and the Common Stock offered hereby, reference is made to the
Registration Statement, including the exhibits thereto and the financial
statements, notes and schedules filed as a part thereof.
40
<PAGE>
PATIENT INFOSYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Independent Auditors' Report.............................................................................. F-2
Balance Sheets as of December 31, 1995 and March 31, 1996 (unaudited).................................... F-3
Statements of Operations for the period from February 22, 1995 (date of incorporation) through December
31, 1995, for the three months ended March 31, 1996 (unaudited) and for the period from February 22,
1995 (date of incorporation) through March 31, 1996 (unaudited)......................................... F-4
Statements of Stockholders' Equity for the period from February 22, 1995 (date of incorporation) through
March 31, 1996 (unaudited).............................................................................. F-5
Statements of Cash Flows for the period from February 22, 1995 (date of incorporation) through December
31, 1995, for the three months ended March 31, 1996 (unaudited) and for the period from February 22,
1995 (date of incorporation) through March 31, 1996 (unaudited)......................................... F-6
Notes to Financial Statements............................................................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Patient Infosystems, Inc.:
We have audited the accompanying balance sheet of Patient Infosystems, Inc.
(formerly Disease State Management, Inc.) (a development stage enterprise), as
of December 31, 1995 and the related statement of operations, stockholders'
equity, and cash flows for the period from February 22, 1995 (date of
incorporation) 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, such financial statements present fairly, in all material
respects, the financial position of Patient Infosystems, Inc., as of December
31, 1995, and the results of its operations and its cash flows for the period
from February 22, 1995 (date of incorporation) to December 31, 1995 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Rochester, New York
January 26, 1996
(July 1, 1996 as to Notes 1 and 8)
F-2
<PAGE>
PATIENT INFOSYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31, 1995 MARCH 31, 1996
----------------- --------------
(UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and cash equivalents....................... $ 1,182,080 $ 169,473
Accounts receivable............................. 4,055 484,443
Prepaid expenses and other current assets....... 23,984 18,004
----------------- --------------
Total current assets........................ 1,210,119 671,920
Property and Equipment, net....................... 553,510 684,763
----------------- --------------
Total Assets...................................... $ 1,763,629 $ 1,356,683
----------------- --------------
----------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................ $ 362,769 $ 146,970
Accrued salaries and wages...................... 48,259 32,975
Accrued expenses................................ 19,381 94,778
Deferred revenue................................ 168,055 485,000
----------------- --------------
Total current liabilities................... 598,464 759,723
----------------- --------------
Commitments and Contingencies (Notes 1 and 6).....
Stockholders' Equity:
Preferred stock--$.01 par value; authorized
5,000,000 shares:
Series A Convertible Preferred Stock;
authorized 1,800,000 shares; 1,800,000 shares
issued and outstanding (liquidation
preference $1,800,000)....................... 18,000 18,000
Common stock--$.01 par value; authorized
20,000,000 shares; 5,004,000 shares issued and
outstanding.................................... 50,040 50,040
Additional paid-in capital...................... 2,213,777 2,213,777
Deficit accumulated during the development
stage.......................................... (1,116,652) (1,684,857)
----------------- --------------
Total stockholders' equity.................. 1,165,165 596,960
----------------- --------------
Total Liabilities and Stockholders' Equity........ $ 1,763,629 $ 1,356,683
----------------- --------------
----------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-3
<PAGE>
PATIENT INFOSYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM FEBRUARY 22, 1995
(DATE OF INCORPORATION)
TO DECEMBER 31, 1995
------------------------------
THREE MONTHS ENDED PERIOD FROM FEBRUARY 22, 1995
MARCH 31, 1996 (DATE OF INCORPORATION)
------------------- TO MARCH 31, 1996
------------------------------
(UNAUDITED)
(UNAUDITED)
Revenues................................ $ 113,000 $ 166,236 $ 279,236
<S> <C> <C> <C>
----------- ------------------- -----------
Operating Expenses:
Cost of sales......................... 111,870 163,460 275,330
Sales and marketing................... 370,384 182,960 553,344
General and administrative............ 683,498 388,291 1,071,789
Research and development.............. 89,909 8,629 98,538
----------- ------------------- -----------
Total operating expenses............ 1,255,661 743,340 1,999,001
----------- ------------------- -----------
Operating Loss.......................... (1,142,661) (577,104) (1,719,765)
Interest Income......................... 26,009 8,899 34,908
----------- ------------------- -----------
Net Loss................................ $(1,116,652) $(568,205) $(1,684,857)
----------- ------------------- -----------
----------- ------------------- -----------
Pro forma Net Loss Per Common and Common
Share Equivalents...................... $ (.14) $ (.07) $ (0.21)
----------- ------------------- -----------
----------- ------------------- -----------
Pro forma Weighted Average Common and
Common Share Equivalents............... 8,204,030 8,207,992 8,207,992
----------- ------------------- -----------
----------- ------------------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-4
<PAGE>
PATIENT INFOSYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY
PERIOD FROM FEBRUARY 22, 1995 (DATE OF INCORPORATION)
TO MARCH 31, 1996
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL DURING THE
------------------- ------------------- PAID-IN DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE
--------- -------- --------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Sale of common stock, substantially all of
which were issued on February 22, 1995, at
$0.10 per share............................. -- $ -- 5,004,000 $50,040 $ 450,360 $ --
Sale of preferred stock at $1.00 per share in
August and September 1995 (net of issuance
costs of $18,583)........................... 1,800,000 18,000 -- -- 1,763,417 --
Net loss for the period from date of
incorporation to December 31, 1995.......... -- -- -- -- -- (1,116,652)
--------- -------- --------- -------- ----------- ------------
Balances, December 31, 1995.................. 1,800,000 18,000 5,004,000 50,040 2,213,777 (1,116,652)
Net loss for the period January 1, 1996 to
March 31, 1996 (unaudited).................. -- -- -- -- -- (568,205)
--------- -------- --------- -------- ----------- ------------
Balances, March 31, 1996 (unaudited)......... 1,800,000 $18,000 5,004,000 $50,040 $2,213,777 $(1,684,857)
--------- -------- --------- -------- ----------- ------------
--------- -------- --------- -------- ----------- ------------
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Sale of common stock, substantially all of
which were issued on February 22, 1995, at
$0.10 per share............................. $ 500,400
Sale of preferred stock at $1.00 per share in
August and September 1995 (net of issuance
costs of $18,583)........................... 1,781,417
Net loss for the period from date of
incorporation to December 31, 1995.......... (1,116,652)
-------------
Balances, December 31, 1995.................. 1,165,165
Net loss for the period January 1, 1996 to
March 31, 1996 (unaudited).................. (568,205)
-------------
Balances, March 31, 1996 (unaudited)......... $ 596,960
-------------
-------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-5
<PAGE>
PATIENT INFOSYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM FEBRUARY 22, 1995
(DATE OF INCORPORATION)
TO DECEMBER 31, 1995
------------------------------
THREE MONTHS ENDED PERIOD FROM FEBRUARY 22, 1995
MARCH 31, 1996 (DATE OF INCORPORATION)
------------------- TO MARCH 31, 1996
------------------------------
(UNAUDITED)
(UNAUDITED)
Operating Activities:
<S> <C> <C> <C>
Net loss.............................. $(1,116,652) $ (568,205) $(1,684,857)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization....... 26,473 38,100 64,573
(Increase) in accounts receivable... (4,055) (480,388) (484,443)
(Increase) decrease in prepaid
expenses and other current
assets............................. (23,984) 5,980 (18,004)
Increase (decrease) in accounts
payable............................ 362,769 (215,799) 146,970
Increase (decrease) in accrued
salaries and wages................. 48,259 (15,284) 32,975
Increase in accrued expenses........ 19,381 75,397 94,778
Increase in deferred revenue........ 168,055 316,945 485,000
----------- ------------------- -----------
Net cash used in operating
activities....................... (519,754) (843,254) (1,363,008)
----------- ------------------- -----------
Investing Activity:
Property and equipment additions...... (579,983) (169,353) (749,336)
----------- ------------------- -----------
Financing Activity:
Proceeds from issuance of common and
preferred stock, net................. 2,281,817 -- 2,281,817
----------- ------------------- -----------
Increase (decrease) in Cash and Cash
Equivalents............................ 1,182,080 (1,012,607) 169,473
Cash and Cash Equivalents at Beginning
of Period.............................. -- 1,182,080 --
----------- ------------------- -----------
Cash and Cash Equivalents at End of
Period................................. $ 1,182,080 $ 169,473 $ 169,473
----------- ------------------- -----------
----------- ------------------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-6
<PAGE>
PATIENT INFOSYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1995 AND FOR
THE THREE MONTH PERIOD ENDED MARCH 31, 1996 (UNAUDITED)
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
DEVELOPMENT STAGE ACTIVITIES
The Company was incorporated in Delaware on February 22, 1995 under the name
DSMI Corp., and changed its name to Disease State Management, Inc. on October
13, 1995. On June 28, 1996 the Company changed its name to Patient Infosystems,
Inc. The Company has selected December 31 as the close of its fiscal year.
Through March 31, 1996 the Company's development activities have consisted
primarily of efforts to raise funds, develop the first application of its
information capture and delivery system (which is a system that proactively
collects and analyzes information relevant to patients in specific disease
categories to improve patient compliance with prescribed regimens), and market
its disease management programs for specific diseases. Successful completion of
the Company's program development and, ultimately the attainment of profitable
operations, is dependent upon future events, including obtaining adequate
financing to fund its research and development activities and achieving market
acceptance of its products.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual amounts could differ from those estimates.
BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to fairly present the Company's
financial position as of March 31, 1996 and the results of operations and cash
flows for the three months ended March 31, 1996 and for the period from February
22, 1995 (date of inception) to March 31, 1996. All such adjustments are of a
normal recurring nature. The results of operations for the three month period
ended March 31, 1996 are not necessarily indicative of the results to be
expected for the entire year of 1996.
FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 1995, the Company's financial instruments consist of current
assets and current liabilities which are carried at cost, which approximates
fair market value.
REVENUE RECOGNITION AND DEFERRED REVENUE
The Company's principal source of revenue to date has been from contracts
with a pharmaceutical company for the development and operation of disease
management programs for chronic diseases. Deferred revenue represents amounts
billed in advance under these contracts. Future revenue sources are expected to
include disease management programs and other health care information system
applications.
DEVELOPMENT CONTRACTS
Development contract revenue is recognized in accordance with the terms
of the contract. Losses, if any, will be recognized in full as identified.
PROGRAM OPERATIONS
Revenues from program operations are recognized ratably over the
contract period.
F-7
<PAGE>
PATIENT INFOSYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1995
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH EQUIVALENTS
Cash equivalents include all highly liquid debt instruments with original
maturities of three months or less.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets which
range from 3 to 10 years.
RESEARCH AND DEVELOPMENT
Research and development costs consist principally of compensation and
benefits paid to Company employees. All research and development costs are
expensed as incurred.
INCOME TAXES
The Company uses the asset and liability method of accounting for income
taxes in accordance with Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes" ("Statement 109"). Under the asset and liability
method, deferred income tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and net operating loss and tax credit carryforwards.
PRO FORMA NET LOSS PER SHARE
Pro forma net loss per share is based on the weighted average number of
common and common share equivalents outstanding during the period using the
Treasury Stock method. Common share equivalents include Series A Convertible
Preferred Stock, Common Stock options and Common Stock warrants. Pursuant to
rules of the Securities and Exchange Commission, all common shares issued and
stock options and warrants granted by the Company at a price less than the
estimated initial public offering price during the twelve months preceding the
offer date (using the treasury stock method until shares are issued and an
assumed public offering price of $12 per share) have been included in the
calculation of common and common share equivalents outstanding. (See Note 8 for
a description of additional issuances of Preferred Stock, Common Stock options
and Common Stock warrants.)
2. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1995 and March 31, 1996 are
summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1995
----------- MARCH 31
1996
-----------
(UNAUDITED)
<S> <C> <C>
Computer software................................. $137,153 $140,197
Computer equipment................................ 242,393 355,175
Telephone equipment............................... 120,233 123,517
Leasehold improvements............................ 12,200 17,709
Office furniture and equipment.................... 68,004 112,738
----------- -----------
579,983 749,336
Less accumulated depreciation and amortization.... 26,473 64,573
----------- -----------
Property and equipment, net....................... $553,510 $684,763
----------- -----------
----------- -----------
</TABLE>
F-8
<PAGE>
PATIENT INFOSYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1995
3. INCOME TAXES
The Company has not recorded any income tax expense during the period from
incorporation to December 31, 1995 because of operating losses incurred since
incorporation.
As of December 31, 1995, the Company has net operating loss carryforwards
for Federal income tax purposes of approximately $1,100,000 which are available
to offset future Federal taxable income. These carryforwards expire in 2010. No
tax benefit relating to the net operating loss carryforwards has been reflected
in the financial statements due to the uncertainty regarding the utilization of
any such benefit, and a valuation allowance has been recognized to offset any
deferred tax asset related to this item. Future benefit may occur to the extent
taxable income is earned prior to the expiration of the carryforward period.
Section 382 of the Internal Revenue Code imposes limitations on the use of
net operating loss carryforwards if there is a change in ownership, as defined,
within any three year period. These provisions place an annual limitation on the
use of the tax loss carryforwards. This annual limitation carries forward if not
used.
4. PREFERRED STOCK
The Company has 5,000,000 shares of authorized preferred stock and has the
ability to issue different series with different rights and preferences. A
summary of the rights and preferences related to the Series A Convertible
Preferred Stock is as follows:
The holders of Series A Convertible Preferred Stock have the right to
convert their shares into shares of Common Stock at the rate of one share of
Common Stock for each share of Series A Convertible Preferred Stock. This
conversion ratio will be adjusted in the event that the Company, in the
future, sells shares of its Common Stock for less than $1.00 per share. Each
share of Series A Convertible Preferred Stock will be automatically
converted into shares of Common Stock at the then effective conversion rate
immediately upon the closing of an underwritten public stock offering which
meets certain requirements, and it is anticipated that the current offering
will meet these requirements.
The holders of Series A Convertible Preferred Stock and the holders of
Common Stock vote together as a single class, with each share of Series A
Convertible Preferred Stock entitled to the number of votes equal to the
number of shares of Common Stock into which it is convertible. They also
have certain liquidation preferences in the event of a liquidation,
dissolution or winding up of the Company, and the right to participate in
dividends to the extent that they are declared on the Company's Common
Stock.
5. STOCK OPTIONS AND WARRANTS
The Company has an Employee Stock Option Plan (the "Stock Option Plan") for
the benefit of certain non-employee directors, employees, and key advisors. The
Stock Option Plan provides for 1,500,000 shares of common stock to be reserved
for future issuance.
Stock options granted under the Stock Option Plan may be of two types: (1)
incentive stock options and (2) nonqualified stock options. The option price of
such grants shall be determined by a Committee of the Board of Directors (the
"Committee"), but shall be not less than the estimated fair market value of the
common stock at the date the option is granted. The terms of the grants shall be
fixed by the Committee, with no term lasting longer than ten years. The ability
to exercise such options shall be determined by the Committee as the options are
granted. All of the outstanding options vest at the rate of 20% per year with
the exception of 50,000 options which were vested as of the date of grant.
F-9
<PAGE>
PATIENT INFOSYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1995
5. STOCK OPTIONS AND WARRANTS (CONTINUED)
A summary of stock option activity follows:
<TABLE>
<CAPTION>
OPTION
OUTSTANDING PRICE PER
OPTIONS SHARE
----------- -------------
<S> <C> <C>
Options granted during the period from incorporation to December 31,
1995...................................................................... 915,000 $.10 - .75
Non-vested options forfeited by holders during the period from
incorporation to December 31, 1995........................................ (91,000) $.10 - .75
Options exercised during the period from incorporation to December 31,
1995...................................................................... (4,000) $.10
-----------
Options outstanding at December 31, 1995................................... 820,000 $.10 - .75
Options granted during the three months ended March 31, 1996 (unaudited)... 89,000 $1.25
Non-vested options forfeited by holders during the three months ended March
31, 1996 (unaudited)...................................................... (7,500) $1.25
-----------
Options outstanding at March 31, 1996 (unaudited).......................... 901,500 $.10 - 1.50
-----------
Options exercisable at March 31, 1996 (unaudited).......................... 100,500 $.10
Options available for grant at March 31, 1996 (unaudited).................. 598,500
</TABLE>
The Company also has outstanding stock purchase warrants entitling the
holder to purchase 108,000 shares of common stock at $.10 - .50 per share.
22,001 of these warrants are currently vested, with 80,000 of the non-vested
warrants vesting at 20% per year, and the remaining 5,999 non-vested warrants
vesting at 667 per month.
6. COMMITMENTS AND CONTINGENCIES
The Company leases office space for its main operating facility under an
operating lease agreement expiring in September 1999, which is cancelable in
September 1998 at the option of the Company. Rental expense from this lease for
the period from incorporation to December 31, 1995 was $40,375.
Future minimum lease payments under this lease are summarized as follows:
<TABLE>
<S> <C>
1996.............................................................. $ 69,900
1997.............................................................. 73,845
1998.............................................................. 67,833
---------
$ 211,578
---------
---------
</TABLE>
7. RECENTLY ISSUED ACCOUNTING STANDARD
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," which will be effective for the Company beginning January 1,
1996. SFAS No. 123 requires expanded disclosures of stock-based compensation
arrangements with employees and encourages (but does not require) compensation
cost to be measured
F-10
<PAGE>
PATIENT INFOSYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1995
7. RECENTLY ISSUED ACCOUNTING STANDARD (CONTINUED)
based on the fair value of the equity instrument awarded. Companies are
permitted, however, to continue to apply APB Opinion No. 25, which recognizes
compensation cost based on the intrinsic value of the equity instrument awarded.
The Company will continue to apply APB Opinion No. 25 to its stock based
compensation awards to employees and will disclose the required pro forma effect
on net income and earnings per share.
8. SUBSEQUENT EVENTS
In May and June of 1996 the Company sold 600,000 shares of its Series B
Convertible Preferred Stock for a total of $3,000,000. The holders of Series B
Convertible Preferred Stock have the right to convert their shares into shares
of Common Stock at the rate of one share of Common Stock for each share of
Series B Convertible Preferred Stock. This conversion ratio will be adjusted in
the event that the Company sells shares of its Common Stock in its initial
underwritten public stock offering for less than $10.00 per share. Each share of
Series B Convertible Preferred Stock will be automatically converted into shares
of Common Stock at the then effective conversion rate immediately upon the
closing of an underwritten public stock offering which meets certain criteria,
and it is anticipated that the current offering will meet those requirements.
In April and May 1996, the Company issued incentive stock options to
purchase 207,000 shares of its Common Stock at an exercise price of $1.50 per
share, and stock purchase warrants to purchase 49,500 shares of its Common Stock
at an exercise price of $1.50 per share.
F-11
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
The Company.................................... 5
Risk Factors................................... 5
Use of Proceeds................................ 12
Dividend Policy................................ 12
Capitalization................................. 13
Dilution....................................... 14
Selected Financial Data........................ 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 16
Business....................................... 18
Management..................................... 30
Certain Transactions........................... 34
Principal Stockholders......................... 35
Description of Capital Stock................... 36
Shares Eligible for Future Sale................ 38
Underwriting................................... 39
Legal Matters.................................. 40
Experts........................................ 40
Additional Information......................... 40
Index to Financial Statements.................. F-1
</TABLE>
--------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTION.
2,500,000 SHARES
PATIENT INFOSYSTEMS, INC.
COMMON STOCK
------
PROSPECTUS
, 1996
---------
SMITH BARNEY INC.
NEEDHAM & COMPANY, INC.
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the fees and expenses to be incurred in
connection with the issuance and distribution of the shares of Common Stock, par
value $.01 per share, offered hereby.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee....................... $ 11,897
NASD Filing Fee........................................................... $ 3,950
NASDAQ Listing Fee........................................................ $
Blue Sky Fees and Expenses................................................ $ *
Legal Fees and Expenses................................................... $ *
Accounting Fees........................................................... $ *
Printing and Engraving Costs.............................................. $ *
Transfer Agent Fees....................................................... $ *
Miscellaneous Expenses.................................................... $ *
---------
TOTAL................................................................. $ 600,000
---------
---------
</TABLE>
- ------------
* To be included by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Certificate of Incorporation contains a provision
eliminating or limiting director liability to the Registrant and its
stockholders for monetary damages arising from acts or omissions in the
director's capacity as director. The provision does not, however, eliminate or
limit the personal liability of a director (i) for any breach of such director's
duty of loyalty to the Registrant or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of the law, (iii) under the Delaware statutory provision making
directors personally liable, under a negligence standard, for unlawful dividends
or unlawful stock purchases or redemptions or (iv) for any transaction from
which the director derived an improper personal benefit. This provision offers
persons who serve on the Board of Directors of the Registrant protection against
awards of monetary damages resulting from breaches of their duty of care (except
as indicated above). As a result of this provision, the ability of the
Registrant or a stockholder thereof to successfully prosecute an action against
a director for breach of his duty of care is limited. However, the provision
does not affect the availability of equitable remedies such as an injunction or
rescission based upon a director's breach of his duty of care. The Securities
and Exchange Commission has taken the position that the provision will have no
effect on claims arising under the Federal securities laws.
In addition, the Registrant's Certificate of Incorporation and Bylaws
provide for mandatory indemnification rights, subject to limited exceptions, to
any director or officer of the Registrant who by reason of the fact that he or
she is a director or officer of the Registrant, is involved in a legal
proceeding of any nature. Such indemnification rights include reimbursement for
expenses incurred by such director, officer, employee or agent in advance of the
final deposition of such proceeding in accordance with the applicable provisions
of Delaware General Corporation Law.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following table sets forth all sales of unregistered securities by the
Registrant within the past three years.
<TABLE>
<CAPTION>
AGGREGATE
OFFERING
NATURE OF TRANSACTION AND DATE CLASS OF PURCHASERS SECURITIES SOLD PRICE PRICE PER SHARE
- ------------------------------ ------------------------- --------------------- ------------- ----------------
<S> <C> <C> <C> <C>
Initial Capitalization Three Accredited 5,000,000 Common $ 500,000 $0.10
February 1995 Investors Stock
Private Placement August and Nineteen Accredited 1,800,000 Series A $ 1,800,000 $1.00
September 1995 Investors Preferred Stock
Warrant Issuances 1995 Two Consultants 108,000 Common Stock (No sale) $0.10 - $0.50
Exercise price
Option grants 1995 Sixteen Key Employees 915,000 Common Stock (No sale) $0.10 - $0.75
Exercise price
Exercise of Stock Options One Key Employee 4,000 Common Stock $ 400,000 $0.10
December 1995
Option grants 1996 Twenty-Four Key Employees 296,000 Common Stock (No sale) $1.25-$1.50
Exercise price
Warrant Issuances April 1996 Four Consultants 49,500 Common Stock (No sale) $1.50 Exercise
Price
Private Placement May and June Twenty-five Accredited 600,000 Series B $ 3,000,000 $5.00
1996 Investors Preferred Stock
</TABLE>
The Company relied on Section 4(2) of the Securities Act and Rule 701
promulgated thereunder for each issuance. No underwriters were involved nor any
commissions paid in connection with any of the above transactions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------
<C> <S>
1.1* Underwriting Agreement
3.1 Certificate of Incorporation, as amended.
3.2 Certificates of Designation
3.3 By-Laws
5.1* Opinion of Crummy, Del Deo, Dolan, Griffinger & Vecchione
10.1 Employment Agreement with Donald A. Carlberg
10.2 Stock Option Plan
10.3 Forms of Stock Option Agreement
10.4** Services Agreement dated September 18, 1995 between the Company and Bristol-Myers
Squibb U.S. Pharmaceuticals, a division of Bristol-Myers Squibb Company
10.5** Services Agreement dated February 1, 1996 between the Company and Bristol-Myers
Squibb U.S. Pharmaceuticals, a division of Bristol-Myers Squibb Company
10.6** Services Agreement dated March 30, 1996 between the Company and Bristol-Myers
Squibb Oncology, a division of Bristol-Myers Squibb Company
10.7** Services Agreement dated April 23, 1996 between the Company and Bristol-Myers
Squibb Oncology/Immunology, a division of Bristol-Myers Squibb Company
10.8** Services Agreement dated October 16, 1995 between the Company and Bristol-Myers
Squibb U.S. Pharmaceuticals, a division of Bristol-Myers Squibb Company
</TABLE>
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------
<C> <S>
10.9** Services Agreement dated June 24, 1996 between the Company and American
HomePatient, Inc.
10.10** Services Agreement dated June 21, 1996 between the Company and Equifax Healthcare
Administrative Services, a division of Equifax, Inc.
23.1* Consent of Crummy, Del Deo, Dolan, Griffinger & Vecchione (See Item 5.1)
23.2 Consent of Deloitte & Touche LLP
24.1 Power of Attorney (Page II-5)
</TABLE>
- ------------
* To be filed by amendment.
** Portions of these Exhibits have been omitted and have been filed separately
with the Secretary of the Commission pursuant to the Registrant's
Application Requesting Confidential Treatment under Rule 406 under the
Securities Act.
(B) FINANCIAL STATEMENT SCHEDULES
None
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters,
at the Closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to Item 14 hereof, or otherwise, the Registrant has been
advised that in the opinion of the 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, 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 of 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 further undertakes that:
(1) For purposes of determining any liability under the Securities Act,
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, 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 the time shall be
deemed to be bona fide offering thereof.
II-3
<PAGE>
SIGNATURES AND POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Rochester, State of New
York, on July 2, 1996.
PATIENT INFOSYSTEMS, INC.
By: /s/ DONALD A. CARLBERG
________________________________________
Donald A. Carlberg,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated. Each person whose signature appears below hereby constitutes
and appoints Donald A. Carlberg and Gregory D. Brown, or either of them, as such
person's true and lawful attorney-in-fact and agent with full power of
substitution for such person and in such person's name, place and stead, in any
and all capacities, to sign and to file with the Securities and Exchange
Commission, any and all amendments and post-effective amendments to this
Registration Statement, with exhibits thereto and other documents in connection
therewith, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as
such person might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent, or any substitute therefor, may lawfully
do or cause to be done by virtue thereof.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------ ------------------------------------ ------------------------------------
<C> <S> <C>
/s/ DONALD A. CARLBERG President, Chief Executive Officer
---------------------------- and Director (Principal Executive July 2, 1996
Donald A. Carlberg Officer)
/s/ GREGORY D. BROWN Senior Vice President and Chief
---------------------------- Financial Officer (Principal July 2, 1996
Gregory D. Brown Financial and Accounting Officer)
/s/ DERACE L. SCHAFFER
---------------------------- Chairman of the Board and Director July 2, 1996
Derace L. Schaffer
/s/ JOHN PAPPAJOHN
---------------------------- Director July 2, 1996
John Pappajohn
/s/ BARBARA J. MCNEIL
---------------------------- Director July 2, 1996
Barbara J. McNeil
/s/ CARL F. KOHRT
---------------------------- Director June 27, 1996
Carl F. Kohrt
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ----------- ----------------------------------------------------------------------------- -----------
<C> <S> <C>
1.1* Underwriting Agreement
3.1 Certificate of Incorporation, as amended.
3.2 Certificates of Designation
3.3 By-Laws
5.1* Opinion of Crummy, Del Deo, Dolan, Griffinger & Vecchione
10.1 Employment Agreement with Donald A. Carlberg
10.2 Stock Option Plan
10.3 Forms of Stock Option Agreement
10.4** Services Agreement dated September 18, 1995 between the Company and Bristol-
Myers Squibb U.S. Pharmaceuticals, a division of Bristol-Myers Squibb
Company
10.5** Services Agreement dated February 1, 1996 between the Company and
Bristol-Myers Squibb U.S. Pharmaceuticals, a division of Bristol-Myers
Squibb Company
10.6** Services Agreement dated March 30, 1996 between the Company and Bristol-Myers
Squibb Oncology, a division of Bristol-Myers Squibb Company
10.7** Services Agreement dated April 23, 1996 between the Company and Bristol-Myers
Squibb Oncology/Immunology, a division of Bristol-Myers Squibb Company
10.8** Services Agreement dated October 16, 1995 between the Company and
Bristol-Myers Squibb U.S. Pharmaceuticals, a division of Bristol-Myers
Squibb Company
10.9** Services Agreement dated June 24, 1996 between the Company and American
HomePatient, Inc.
10.10** Services Agreement dated June 21, 1996 between the Company and Equifax
Healthcare Administrative Services, a division of Equifax, Inc.
23.1* Consent of Crummy, Del Deo, Dolan, Griffinger & Vecchione (See Item 5.1)
23.2 Consent of Deloitte & Touche LLP
24.1 Power of Attorney (Page II-5)
</TABLE>
- ------------
* To be filed by amendment.
** Portions of these Exhibits have been omitted and have been filed separately
with the Secretary of the Commission pursuant to the Registrant's
Application Requesting Confidential Treatment under Rule 406 under the
Securities Act.
<PAGE>
CERTIFICATE OF INCORPORATION
OF
DSMI CORP.
I, the undersigned, for the purposes of incorporating and organizing a
corporation under the General Corporation Law of the State of Delaware, do
execute this Certificate of Incorporation and do hereby certify as follows:
1. The name of the Corporation is DSMI CORP.
2. The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street in the City of Wilmington, County of New
Castle. The name of the registered agent of the Corporation at such address
is The Corporation Trust Company.
3. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General
Corporation law of the State of Delaware.
4. (a) The total number of shares which the corporation shall have
authority to issue is 25,000,000 shares of capital stock, divided into
20,000,000 shares of Common Stock of the par value of $.01 per share, and
5,000,000 shares of Preferred Stock of the par value of $.01 per share.
(b) The Board of Directors is authorized, subject to limitations
prescribed by law and the provisions of this Paragraph 4 to provide for the
issuance of the shares of Preferred Stock in series, and by filing a
certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, and to fix the designation, powers, preferences and rights of the
shares of each such series and the qualifications, limitations or
restrictions thereof.
The authority of the Board with respect to each series shall
include, but not be limited to, determination of the following:
1
<PAGE>
(i) The number of shares constituting that series and the
distinctive designation of that series;
(ii) The dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates, and the
relative rights or priority, if any, of payment of dividends on shares of
that series;
(iii) Whether that series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the terms of such
voting rights;
(iv) Whether that series shall have conversion privileges,
and, if so, the terms and conditions of such conversion, including provision
for adjustment of the conversion rate in such events as the Board of
Directors shall determine;
(v) Whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such redemption,
including the date or date upon or after which they shall be redeemable, and
the amount per share payable in case of redemption, which amount may vary
under different conditions and at different redemption dates;
(vi) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms and
amount of such sinking fund;
(vii) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, and the relative rights of priority, if any, of payment of
shares of that series;
(viii) Any other relative rights, preferences and limitations
of that series.
Dividends on outstanding shares of Preferred Stock shall be paid or
declared and set apart for payment before any dividends shall be paid or
declared and set apart for payment on the Common Stock with respect to the
same dividend period.
If, upon any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the assets available for distribution to
holders of shares of Preferred Stock of all series shall be insufficient to
pay such holders the full preferential amount to which they are entitled,
then such assets shall be distributed ratably among the shares of all
2
<PAGE>
series of Preferred Stock in accordance with the respective preferential
amounts (including unpaid cumulative dividends, if any) payable with respect
thereto.
5. The name and mailing address of the incorporator is Steven R. Gersz,
Esq., 1800 Chase Square, Rochester, New York 14604.
6. The Board of Directors of the Corporation is expressly authorized to
make, alter or repeal by-laws of the Corporation, but the stockholders may
make additional by-laws and may alter or repeal any by-law whether adopted by
them or otherwise.
7. Elections of directors need not be by written ballot except and to
the extent provided in the by-laws of the Corporation.
8. A director of the Corporation shall not be liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent such exemption from liability or limitation
thereof is not permitted under the General Corporation Law of the State of
Delaware as the same exists or may hereafter be amended. Any amendment,
modification or repeal of the foregoing sentence shall not adversely affect
any right or protection of a director of the Corporation hereunder in respect
of any act or omission occurring prior to the time of such amendment,
modification or repeal.
9. The Corporation reserves the right at any time, and from time to
time, to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, and other provisions authorized by the laws of
the State of Delaware at the time in force may be added or inserted, in the
manner now or hereafter prescribed by law; and all rights, preferences and
privileges of whatsoever nature conferred upon stockholders, directors or any
other persons whomsoever by and pursuant to this Certificate of Incorporation
in its present form or as hereafter amended are granted subject to the rights
reserved in this article.
3
<PAGE>
IN WITNESS WHEREOF, the undersigned, being the sole incorporator for the
purpose of forming a corporation under the laws of the State of Delaware,
does make, file and record this Certificate of Incorporation, does certify
that the facts herein stated are true, and, accordingly, has executed this
Certificate of Incorporation this 21st day of February, 1995.
/s/ STEVEN R. GERSZ
-------------------------------------
Steven R. Gersz, Sole Incorporator
4
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
DSMI CORP.
DSMI CORP., a corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware, hereby certifies as
follows:
1. The Certificate of Incorporation is hereby amended to change the name
of the corporation in paragraph 1 to Disease State Management, Inc. Paragraph
1 shall read in its entirety as follows:
1. The name of the Corporation is Disease State Management, Inc.
2. This amendment was duly adopted by Unanimous Written Consent of the
Board of Directors of the Corporation followed by the Writen Consent of
Stockholders of the Corporation in accordance with the provisions of Sections
242 and 228 of the General Corporation Law of the State of Delaware. Written
Notice has been given as provided in Section 228 of the General Corporation
Law of the State of Delaware.
IN WITNESS WHEREOF, said DSMI CORP. has caused this certificate to be
signed by Donald Carlberg, its President, and Gregory D. Brown, its
Secretary, this 13th day of October, 1995.
DSMI CORP.
By: /s/ Donald Carlberg
---------------------------------------
Donald Carlberg, President
ATTEST:
/s/ Gregory D. Brown, Secretary
- -------------------------------
Gregory D. Brown, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
DISEASE STATE MANAGEMENT, INC.
Pursuant to the provisions of Section 242 of the Delaware Corporation Law,
the undersigned corporation executes the following Certificate of Amendment to
its Certificate of Incorporation:
1. The name of the corporation is Disease State Management, Inc. (the
"Corporation").
2. The following amendment to the Corporation's Certificate of
Incorporation was approved by written consent of the directors of the
Corporation, and thereafter duly adopted by written consent of the majority of
the shareholders of the Corporation, dated as of June 27, 1996:
RESOLVED, that Article 1 of the Corporation's Certificate of
Incorporation be amended in its entirety to read as follows:
1. The name of the corporation is Patient Infosystems, Inc.
3. The total number of shares entitled to vote on the amendment was
7,404,000.
4. The number of shares voted for the amendment was 3,934,000, the number
of shares voted against the amendment was 0.
The effective date of this Amendment to the corporation's Certificate of
Incorporation shall be upon filing.
Dated the 28th day of June, 1996.
ATTEST: DISEASE STATE MANAGEMENT, INC.
By: /s/ Gregory D. Brown By: /s/ Donald A. Carlberg
---------------------- -----------------------
Name: Gregory D. Brown Name: Donald A. Carlberg
Title: Secretary Title: President
<PAGE>
CERTIFICATE OF DESIGNATIONS, POWERS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS,
AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF
OF THE
SERIES A PREFERRED STOCK
OF
DSMI CORP.
Pursuant to Section 151 of the General Corporation Law of the State of
Delaware
DSMI Corp., a Delaware corporation ("Corporation") certifies that,
pursuant to the authority contained in paragraph 4 of its Certificate of
Incorporation, and in accordance with the provisions of Section 151 of the
General Corporation Law of the State of Delaware, its Board of Directors has
adopted the following resolution creating a series of its Series A Preferred
Stock, par value $.01 per share, designated as Series A Preferred Stock:
RESOLVED, that a series of the class of authorized $.01 par
value Preferred Stock of the Corporation be hereby created, and that
the designation and amount thereof and the voting powers, preferences
and relative, participating, optional and other special rights of the
shares of such series, and the qualifications, limitations or
restrictions thereof are as follows:
Section 1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "Series A Preferred Stock" and the number of shares
constituting such series shall be 1,800,000.
Section 2. VOTING RIGHTS. Except as otherwise provided by law, the
Series A Preferred Stock and the Common Stock shall vote together as a single
class, with each share of Series A Preferred Stock being entitled to that
number of votes equal to the number of shares of Common Stock into which it
is convertible at the record date for determining Shareholders entitled to
vote, or if no record date has been fixed, as of the date the vote is taken
or the written consent therefore is solicited. Holders of the Series A
Preferred Stock are not entitled to cumulative voting. Without the
affirmative vote of at least two-thirds of the votes attributable to the
issued and outstanding Series A Preferred Stock, the Corporation may not (1)
authorize or create any class of stock senior to the Series A Preferred
Stock as to dividends or liquidation preference, (2) make any changes to the
Certificate of Incorporation which would adversely affect the voting powers
or other rights and preferences of the Series A Preferred Stock, or (3)
increase the number of authorized shares of Preferred Stock; provided,
however, that out of the existing authorized
1
<PAGE>
Preferred Stock, the Board of Directors may designate classes of Preferred
Stock that is PARI PASSU with the Series A Preferred Stock.
Section 3. LIQUIDATION PREFERENCE. In the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary of
involuntary, the holders of the Series A Preferred Stock shall be entitled to
receive $1.00 per share plus any accrued and unpaid dividends, as and only if
such dividends were declared by the Corporation's Board of Directors, out of
the assets of the Corporation available for distribution, before any payment
of any amount to holders of Common Stock or Preferred Stock ranking junior to
the Series A Preferred Stock. If the assets available for distribution are
insufficient to pay the holders of Series A Preferred Stock and the holders
of all Preferred Stock that is PARI PASSU with the Series A Preferred Stock
the full amount to which they are entitled, then such holders shall share
ratably in any distribution of the assets of the Corporation in proportion to
the amounts that would have been payable with respect to their shares if all
amounts payable with respect to such shares were paid in full.
Section 4. DIVIDENDS. Holders of Series A Preferred Stock shall be
entitled to participate in dividends declared by the Corporation's Board of
Directors on Common Stock at the same time and on the same basis as holders
of Common Stock, each share of Series A Preferred Stock being entitled to the
same amount as would have been declared or paid thereon had the holder thereof
elected to convert the same into shares of Common Stock as of the record date
fixed for determining holders of Common Stock entitled to participate therein.
Section 5. CONVERSION RIGHTS. Holders of the Series A Preferred Stock
will have the right at any time to convert their shares into shares of Common
Stock at the rate of one share of Common Stock for each share of Series A
Preferred Stock (the "Conversion Rate"), subject to adjustment of the
Conversion Rate as provided herein. Each share of Series A Preferred Stock
will be automatically converted into shares of Common Stock at the then
effective Conversion Rate (1) immediately upon the closing of an Initial
Public Offering of the Common Stock pursuant to an effective registration
statement under the Securities Act of 1993, as amended, in which the
aggregate gross proceeds received by the Corporation equals or exceeds
$5,000,000, or (2) upon the approval of two-thirds or more of the votes
attributable to the issued and outstanding Series A Preferred Stock.
Section 5.1 EXCHANGE OF SHARE CERTIFICATES. Before any holder of Series
A Preferred Stock shall be entitled to voluntarily convert such Series A
Preferred Stock into Common Stock, and upon the automatic conversion thereof,
such holder shall surrender the stock certificate or certificates therefore,
duly endorsed, at the office of the Corporation or of any transfer agent for
its capital stock, accompanied, in the case of a voluntary conversion, by a
written notice of its election to convert the same and the number of shares
of Series A Preferred Stock to be so converted. Upon receipt of such stock
certificate(s) and notice where required, the Corporation shall forthwith
issue and deliver at such office to such holder of Series A Preferred Stock a
stock certificate or certificates for the number of shares of Common Stock to
which it shall be entitled pursuant hereto. Each conversion
2
<PAGE>
shall be deemed to have been made immediately prior to the close of business
of the Corporation on the date of the voluntary surrender to the Corporation
of the shares of Preferred Stock to be converted or the date of automatic
conversion, as the case may be, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock
on such date.
Section 5.2 PROTECTION AGAINST DILUTION.
(a) If, at any time or from time to time while the Series A
Preferred Stock is outstanding, the Corporation shall distribute to the
holders of Common Stock (i) securities other than Common Stock, or (ii)
property other than cash, without payment therefore, with respect to the
Common Stock, then, and in each such case, a holder of Series A Preferred
Stock, upon the conversion thereof, shall thereafter be entitled to receive
the securities and properties which the holder would hold on the date of
conversion if the holder had been the holder of record of the number of
shares of Common Stock issuable upon such conversion immediately prior to the
date of such an event and, during the period from such date to and including
the date of conversion, had retained such shares and the securities and
properties receivable by the holder during such period.
(b) If, at any time or from time to time while the Series A
Preferred Stock is outstanding, the Corporation shall (i) pay a dividend in
Common Stock, (ii) subdivide its outstanding Common Stock into a greater
number of shares, or (iii) combine its outstanding Common Stock into a
smaller number of shares, then, and in each such case, the Conversion Rate
shall be adjusted so that any share of Series A Preferred Stock surrendered
for conversion immediately thereafter would be entitled to receive the number
of shares of Common Stock which the holder would have owned immediately
following such action had such share of Series A Preferred Stock been
converted immediately prior thereto. An adjustment made pursuant to this
Paragraph 5.2(b) shall become effective immediately after the record date in
the case of a dividend and shall become effective immediately after the
effective date in the case of a subdivision or combination.
(c) If, at any time or from time to time while the Series A
Preferred Stock is outstanding, the Corporation shall (i) make a distribution
on its Common Stock in shares of capital stock or (ii) issue by
reclassification of its Common Stock any shares of capital stock of the
Corporation, then, and in each such case, a holder of Series A Preferred
Stock, upon the conversion thereof, shall thereafter have the right to receive
the kind and amount of Common Stock or other securities which the holder
would have owned immediately following such action had such share of Series A
Preferred Stock been converted immediately prior thereto.
(d) In case of any consolidation or merger to which the
Corporation is a party, other than a merger or consolidation in which the
Corporation is the continuing corporation, or in case of any sale or
conveyance to another entity of the property of the Corporation as an
entirety or substantially as an entirety, or in the case of any statutory
3
<PAGE>
exchange effected in connection with a merger of a third corporation into the
Corporation, a holder of Series A Preferred Stock shall thereafter have the
right to convert the Series A Preferred Stock into the kind and amount of
securities, cash or other property which the holder would have owned or have
been entitled to receive immediately after such consolidation, merger, sale,
conveyance or statutory exchange has such the Series A Preferred Stock been
converted immediately prior to the effective date of such consolidation,
merger, sale, conveyance of statutory exchange and in any such case, if
necessary, appropriate adjustment shall be made in the application of the
provisions set forth in this Section 5 with respect to the rights and interests
thereafter of the holders of Series A Preferred Stock to the end that the
provisions set forth in this Section 5 shall thereafter correspondingly be
made applicable, as nearly as may reasonably be, in relation to any shares of
stock or other securities or property thereafter deliverable on the
conversion of the Series A Preferred Stock. The above provisions of this
Section 5.2(d) shall similarly apply to successive consolidations, mergers,
sales, conveyances or statutory exchanges. Notice of any such consolidation,
merger, sale, conveyance or statutory exchange and of said provisions so
proposed to be made, shall be mailed to the holders of Series A Preferred
Stock not less than 30 days prior to such event; PROVIDED, HOWEVER, that
failure to give such notice shall not affect the validity of such
consolidation, merger, sale, conveyance or statutory exchange.
(e) If, at any time or from time to time the Corporation
shall issue and sell any of its Common Stock, or any securities convertible
into Common Stock at a price less than $1.00 per share, then the Conversion
Rate shall be adjusted to be equal to $1.00 multiplied by the aggregate
number of shares of Common Stock outstanding immediately following such
transaction (including as outstanding those issuable upon conversion of all
Series A Preferred Stock and other securities convertible into Common Stock),
DIVIDED BY (i) the sum of (A) $1.00 multiplied by the aggregate number of
shares of Common Stock outstanding immediately prior to such transaction
(including as outstanding those issuable upon conversion of all Series A
Preferred Stock and other securities convertible into Common Stock) PLUS (B)
the aggregate consideration, if any, received or receivable by the
Corporation upon such transaction; provided, however that the foregoing
shall not apply in connection with the issuance of options granted pursuant
to any stock option plan adopted by the Corporation or the issuance of Common
Stock pursuant to such options.
(f) The adjustments provided in this Section 5.2 shall be
cumulative. Upon any adjustment as provided in this Section 5.2 and upon any
modification of the rights of a holder of shares of Series A Preferred Stock
in accordance with this Section 5.2, the Corporation shall promptly obtain,
at its expense, a certificate of a firm of independent public accountants
selected by the Board of Directors (who may be the regular auditors of the
Corporation) setting forth the Conversion Rate after such adjustment or the
effect of such modification, a brief statement of the facts requiring such
adjustment or modification and the manner of computing the same and cause
copies of such certificate to be mailed to the holders of the Series A
Preferred Stock.
and be it further
4
<PAGE>
RESOLVED, that the proper officers of the Corporation are
hereby authorized, empowered and directed to take all such further
action and to execute, deliver, certify and file all instruments
and documents in the name of and on behalf of this Corporation as
such officers executing same shall approve as necessary or advisable
to effectuate and accomplish the purpose of the foregoing resolution
and the transactions contemplated thereby, the taking of such action
and the execution, delivery, certification and filing of such
documents to be conclusive evidence of such approval.
IN WITNESS WHEREOF, said DSMI Corp. has caused this Certificate of
Designations, Powers, Preferences and Relative, Participating, Optional or
Other Special Rights, and the Qualifications, Limitations or Restrictions
thereof of the Series A Preferred Stock to be duly executed by its President
and attested to by its Secretary and has caused its corporate seal to be
affixed hereto this 25th day of August, 1995.
DSMI CORP.
By: /s/ DONALD A. CARLBERG
-----------------------------------
Donald A. Carlberg, President
ATTEST:
/s/ GREGORY D. BROWN
- ----------------------------------
Gregory D. Brown, Secretary
5
<PAGE>
CERTIFICATE OF DESIGNATIONS, POWERS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS,
AND THE QUALIFICATIONS, LIMITATIONS THEREOF
OF THE
SERIES B PREFERRED STOCK
OF
DISEASE STATE MANAGEMENT, INC.
Pursuant to Section 151 of the General Corporation Law of the State of
Delaware
Disease State Management, Inc. a Delaware corporation ("Corporation")
certifies that, pursuant to the authority contained in paragraph 4 of its
Certificate of Incorporation, and in accordance with the provisions of Section
151 of the General Corporation Law of the State of Delaware, its Board of
Directors has adopted the following resolution creating a series of its Series B
Preferred Stock, par value $.01 per share, designated as Series B Preferred
Stock:
RESOLVED, that a series of the class of authorized $.01 par value
Preferred Stock of the Corporation be hereby created, and that the
designation and the amount thereof and the voting powers, preferences and
relative, participating, optional and other special rights of the shares of
such series, and the qualifications, limitations or restrictions thereof
are as follows:
Section 1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "Series B Preferred Stock" and the number of shares constituting
such series shall be 600,000.
Section 2. VOTING RIGHTS. Except as otherwise provided by law, the Series
B Preferred Stock and the Common Stock shall vote together as a single class,
with each share of Series B Preferred Stock being entitled to that number of
votes equal to the number of shares of Common Stock into which it is convertible
at the record date for determining Shareholders entitled to vote, or if no
record date has been fixed, as of the date the vote is taken or the written
consent therefore is solicited. Holders of the Series B Preferred Stock are not
entitled to cumulative voting. Without the affirmative vote of at least two-
thirds of the votes attributable to the issued and outstanding Series B
Preferred Stock, the Corporation may not (1) authorize or create any class of
stock
<PAGE>
senior to the Series B Preferred Stock as to dividends or liquidation
preference, (2) make any changes to the Certificate of Incorporation which would
adversely affect the voting powers or other rights and preferences of the Series
B Preferred Stock, or (3) increase the number of authorized shares of Preferred
Stock; provided, however, that out of the existing authorized Preferred Stock,
the Board of Directors may designate classes of Preferred Stock that is PARI
PASSU with the Series B Preferred Stock.
Section 3. LIQUIDATION PREFERENCE. In the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary of involuntary,
the holders of the Series B Preferred Stock shall be entitled to receive $5.00
per share plus any accrued and unpaid dividends, as and only if such dividends
were declared by the Corporation's Board of Directors, out of the assets of the
Corporation available for distribution, before any payment of any amount to
holders of Common Stock or Preferred Stock ranking junior to the Series B
Preferred Stock. If the assets available for distribution are insufficient to
pay the holders of Series B Preferred Stock and the holders of all Preferred
Stock that is PARI PASSU with the Series B Preferred Stock the full amount to
which they are entitled, then such holders shall share ratably in any
distribution of the assets of the Corporation in proportion to the amounts that
would have been payable with respect to their shares if all amounts payable with
respect to such shares were paid in full.
Section 4. DIVIDENDS. Holders of Series B Preferred Stock shall be
entitled to participate in dividends declared by the Corporation's Board of
Directors on Common Stock at the same time and on the same basis as holders of
Common Stock, each share of Series B Preferred Stock being entitled to the same
amount as would have been declared or paid thereof had the holder thereof
elected to convert the same into shares of Common Stock as of the record date
fixed for determining holders of Common Stock entitled to participate therein.
Section 5. CONVERSION RIGHTS. Holders of the Series B Preferred Stock
will have the right at any time to convert their shares into shares of Common
Stock at the rate of one share of Common Stock for each share of Series B
Preferred Stock (the "Conversion Rate"), subject to adjustment of the Conversion
Rate as provided herein. Each share of Series B Preferred Stock will be
automatically converted into shares of Common Stock at the then effective
Conversion Rate (1) immediately upon the closing of an Initial Public Offering
of the Common Stock pursuant to an effective registration statement under the
Securities Act of 1993, as amended, in which the aggregate gross proceeds
received by the Corporation equals or exceeds $5,000,000, or (2) upon approval
of two-thirds or more of the votes attributable to the issued and outstanding
Series B Preferred Stock.
Section 5.1 EXCHANGE OF SHARE CERTIFICATES. Before any holder of Series B
Preferred Stock shall be entitled to voluntarily convert such Series B Preferred
Stock into Common Stock, and upon the automatic conversion thereof, such holder
shall surrender the stock certificate or certificates therefore, duly endorsed,
at the office of
<PAGE>
the Corporation or of any transfer agent for its capital stock, accompanied, in
the case of a voluntary conversion by a written notice or its election to
convert the same and the number of shares of Series B Preferred Stock to be so
converted. Upon receipt of such stock certificate(s) and notice where required
the Corporation shall forthwith issue and deliver at such office to such holder
of Series B Preferred Stock a stock certificate or certificates for the number
of shares of Common Stock to which it shall be entitled pursuant hereto. Each
conversion shall be deemed to have been made immediately prior to the close of
business of the Corporation on the date of the voluntary surrender to the
Corporation of the shares of Preferred Stock to be converted or the date of
automatic conversion, as the case may be, and the person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock on such date.
Section 5.2 PROTECTION AGAINST DILUTION.
(a) If, at any time or from time to time while the Series B Preferred
Stock is outstanding, the Corporation shall distribute to the holders of Common
Stock (i) securities other than Common Stock, or (ii) property other than cash,
without payment therefore, with respect to the Common Stock, then, and in each
such case, a holder of Series B Preferred Stock, upon the conversion thereof,
shall thereafter be entitled to receive the securities and properties which the
holder would hold on the date of conversion if the holder had been the holder of
record of the number of shares of Common Stock issuable upon such conversion
immediately prior to the date of such an event and, during the period from such
date to and including the date of conversion, had retained such shares and the
securities and properties receivable by the holder during such period.
(b) If, at any time or from time to time while the Series B Preferred
Stock is outstanding, the Corporation shall (i) pay a dividend in Common Stock,
(ii) subdivide its outstanding Common Stock into a greater number of shares, or
(iii) combine its outstanding Common Stock into a smaller number of shares, then
and in such case, the Conversion Rate shall be adjusted so that any share of
Series B Preferred Stock surrendered for conversion immediately thereafter would
be entitled to receive the number of shares of Common Stock which the holder
would have owned immediately following such action had such share of Series B
Preferred Stock been converted immediately prior thereto. An adjustment made
pursuant to this Paragraph 5.2(b) shall become effective immediately after the
record date in the case of a dividend and shall become effective immediately
after the effective date in the case of a subdivision or combination.
(c) If, at any time or from time to time while the Series B Preferred
Stock is outstanding, the Corporation shall (i) make a distribution on its
Common Stock in shares of capital stock or (ii) issue by reclassification of its
Common Stock any shares of capital stock of the Corporation, then, and in each
such case, a holder of Series B
<PAGE>
Preferred Stock, upon the conversion thereof, shall thereafter have the right to
receive the kind and amount of Common Stock or other securities which the holder
would have owned immediately following such action had such share of Series B
Preferred Stock been converted immediately prior thereto.
(d) In case of any consolidation or merger to which the Corporation is a
party, other than a merger or consolidation in which the Corporation is the
continuing corporation, or in case of any sale or conveyance to another entity
of the property of the Corporation as an entirety or substantially as an
entirety, or in the case of any statutory exchange effected in connection with a
merger of a third corporation into the Corporation, a holder of Series B
Preferred Stock shall thereafter have the right to convert the Series B
Preferred Stock into the kind and amount of securities, cash or other property
which the holder would have owned or have been entitled to receive immediately
after such consolidation, merger, sale, conveyance or statutory exchange had
such the Series B Preferred stock been converted immediately prior to the
effective date of such consolidation, merger, sale, conveyance or statutory
exchange and in any such case, if necessary, appropriate adjustment shall be
made in the application of the provisions set forth in this Section 5 with
respect to the rights and interests thereafter of the holders of Series B
Preferred Stock to the end that the provisions set forth in this Section 5 shall
thereafter correspondingly be made applicable, as nearly as may reasonably be,
in relation to any shares of stock or other securities or property thereafter
deliverable on the conversion of the Series B Preferred Stock. The above
provisions of this Section 5.2(d) shall similarly apply to successive
consolidations, mergers, sales, conveyances or statutory exchanges. Notices of
any such consolidation, merger, sale, conveyance or statutory exchange and of
said provisions so proposed to be made, shall be mailed to the holders of Series
B Preferred Stock not less than 30 days prior to such event; PROVIDED, HOWEVER,
that failure to give such notice shall not affect the validity of such
consolidation, merger, sale, conveyance or statutory exchange.
(e) (If the Corporation shall issue and sell shares of its Common Stock
for less than $10.00 per share, its first underwritten public offering of shares
of Common Stock pursuant to a registration statement under the Securities Act
(the "Initial Public Offering"), the Conversion Rate shall be adjusted so that
at the time of conversion the aggregate market value of the Common Stock into
which the Series B Preferred Stock is converted will equal $10.00 multiplied by
the number of shares of Series B Preferred Stock converted.
(f) The adjustments provided in this Section 5.2 shall be cumulative.
Upon any adjustment as provided in this Section 5.2 and upon any modification of
the rights of a holder of shares of Series B Preferred Stock in accordance with
this
<PAGE>
Section 5.2, the Corporation shall promptly obtain, at its expense, a
certificate of a firm of independent public accountants selected by the Board of
Directors (who may be the regular auditors of the Corporation) setting forth the
Conversion Rate after such adjustment or the effect of such modification, a
brief statement of the facts requiring such adjustment or modification and the
manner of computing the same and cause copies of such certificate to be mailed
to the holders of the Series B Preferred Stock.
and be it further
RESOLVED, that the proper officers of the Corporation are hereby authorized,
empowered and directed to take all such further action and to execute, deliver,
certify and file all instruments and documents in the name of and on behalf of
this Corporation as such officers executing same shall approve as necessary or
advisable to effectuate and accomplish the purpose of the foregoing resolution
and the transactions contemplated thereby, the taking of such action and the
execution, delivery, certification, and filing of such documents to be
conclusive evidence of such approval.
IN WITNESS WHEREOF, said Disease State Management, Inc. has caused this
Certificate of Designations, Powers, Preferences and Relative, Participating,
Optional or Other Special Rights, and the Qualifications, Limitations or
Restrictions thereof of the Series B Preferred Stock to be duly executed by its
President and attested to by its Secretary and has caused its corporate seal to
be affixed hereto this day of , 1996.
---- -----------
DSMI CORP.
By: /s/ Donald A. Carlberg
---------------------------------
Donald A. Carlberg, President
(Corporate Seal)
ATTEST:
/s/ Gregory D. Brown
- ------------------------------
Gregory D. Brown, Secretary
<PAGE>
Certified to be a true and correct copy of
the By-Laws of DSMI Corp. adopted by
the Incorporator on February 22, 1995,
and approved by written consent of the
Board of Directors on the same date.
/s/ John Pappajohn
-------------------------------------
John Pappajohn, Secretary
BYLAWS
OF
DSMI CORP.
(a Delaware corporation)
ARTICLE I
STOCKHOLDERS
SECTION 1.01 ANNUAL MEETING. The Annual Meeting of the
stockholders of this Corporation, for the purpose of electing Directors and
transacting such other business as may come before the meeting, shall be held on
such date, at such time and at such place as may be designated by the Board of
Directors.
SECTION 1.02 SPECIAL MEETINGS. Special Meetings of the
stockholders may be called at any time by the Chairman or by the President, or
by a majority of the entire Board of Directors acting with or without a meeting.
Special Meetings may be called for any purpose(s); however, the business
transacted at any such Special Meeting shall be confined to the purposes set
forth in the notice thereof.
SECTION 1.03 PLACE OF MEETINGS. Meetings of stockholders shall be
held at such place as the person or persons calling the meetings shall decide,
unless the Board of Directors decides that a meeting shall be held at some other
place and causes the notice thereof to so state.
SECTION 1.04 NOTICES OF MEETINGS. Unless waived, a written,
printed, or typewritten notice of each Annual or Special meeting, stating the
date, hour and place and the purpose or purposes thereof shall be delivered or
mailed to each stockholder of record entitled to vote or entitled to notice, not
more than 60 days nor less than 10 days before any such meeting. If mailed, such
notice shall be directed to a stockholder at his or her address as the same
appears on the records of the Corporation. Notice shall not be required to be
given to any stockholder who submits a signed waiver of notice, in person
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or by proxy, whether before or after such meeting. The attendance of any
stockholder at a meeting without protesting, prior to the conclusion of the
meeting, the lack of notice of such meeting, shall constitute a waiver of
notice by him or her. If a meeting is adjourned to another time or place and
such adjournment is for 30 days or less and no new record date is fixed for
the adjourned meeting, no further notice as to such adjourned meeting need be
given if the time and place to which it is adjourned are fixed and announced
at such meeting. If, however, such adjournment exceeds 30 days or if, after
the adjournment, a new record date is fixed for the adjourned meeting, a
notice of such adjourned meeting must be given to each stockholder of record
entitled to vote at such meeting. In the event of a transfer of shares after
notice has been given and prior to the holding of the meeting, it shall not
be necessary to serve notice on the transferee. Such notice shall specify the
place where the stockholders list will be open for examination prior to the
meeting if required by Section 1.08 hereof.
SECTION 1.05 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF
RECORD. In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
other change, conversion or exchange of stock or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
shall not be more than 60 nor less than 10 days before the date of such meeting,
nor more than 60 days prior to any other action. If the Board shall not fix such
a record date, (i) the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be the close of business
on the date next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held, and (ii) in any case involving the determination of
stockholders for any purpose other than notice of or voting at a meeting of
stockholders, the record date for determining stockholders for such purpose
shall be the close of business on the day on which the Board of Directors shall
adopt the resolution relating thereto. Determination of stockholders entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of such meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
SECTION 1.06 ORGANIZATION. At each meeting of the stockholders,
the Chairman, or in the absence of the Chairman, the President, or, in the
absence of both such officers, a Chairman chosen by a majority in interest of
the stockholders present in person or by proxy and entitled to vote, shall act
as Chairman, and the Secretary of the Corporation, or, if the Secretary of the
Corporation not be present, the Assistant Secretary, or, in the absence of both
such officers, any person whom the Chairman of the Meeting shall appoint, shall
act as Secretary of the Meeting.
SECTION 1.07 QUORUM. A stockholders' meeting duly called shall not
be organized for the transaction of business unless a quorum is present. Except
as otherwise expressly provided by law, the Certificate of Incorporation or
these Bylaws, the presence in person or by proxy of holders of record of shares
of stock of the Corporation entitling
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them to exercise at least a majority of the voting power of the Corporation
shall constitute a quorum for such meeting. The stockholders present at a duly
organized meeting can continue to do business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. If a meeting
cannot be organized because a quorum has not attended, a majority in voting
interest of the stockholders present may adjourn, or, in the absence of a
decision by the majority, any officer entitled to preside at such meeting may
adjourn the meeting from time to time to such time (not more than 30 days after
the previously adjourned meeting) and place as they (or he/she) may determine,
without notice other than by announcement at the meeting of the time and place
of the adjourned meeting. At any such adjourned meeting at which a quorum is
present any business may be transacted which might have been transacted at the
meeting as originally called.
SECTION 1.08 LIST OF STOCKHOLDERS. The Secretary of the
Corporation shall prepare and make a complete list of the stockholders of record
as of the applicable record date entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. This list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present. The Corporation
shall be entitled for all purposes to rely on the address for any stockholder
appearing on the records of its duly-appointed transfer agent(s), unless a
stockholder shall specifically file with the Secretary of the Corporation a
written request that notices intended for such stockholder be mailed to a
different address, in which case all notices shall be mailed to the address
specified in such request.
SECTION 1.09 ORDER OF BUSINESS AND PROCEDURE. The order of
business at all meetings of the stockholders and all matters relating to the
manner of conducting the meeting shall be determined by the Chairman of the
Meeting, whose decisions may be overruled only by majority vote of the
stockholders present and entitled to vote at the meeting in person or by proxy.
Meetings shall be conducted in a manner designed to accomplish the business of
the meeting in a prompt and orderly fashion and to be fair and equitable to all
stockholders, but it shall not be necessary to follow any manual of
parliamentary procedure.
SECTION 1.10 VOTING.
(a) Each stockholder of Common Stock shall, at each meeting of the
stockholders, be entitled to one vote for each share of the Common Stock of the
Corporation which shall have been held by and registered in the name of such
stockholder on the books of the Corporation on the date fixed pursuant to these
Bylaws as the record
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date for the determination of stockholders entitled to notice of and to vote at
such meeting, except as may otherwise be provided by statute or the Certificate
of Incorporation.
(b) Any such voting rights may be exercised by the stockholder
entitled thereto in person or by such stockholder's proxy appointed by an
instrument in writing, subscribed by such stockholder or by his attorney
thereunto authorized and delivered to the Secretary of the Meeting in sufficient
time to permit the necessary examination and tabulation thereof before the vote
is taken; provided, however, that no proxy shall be valid after the expiration
of three years after the date of its execution, unless the stockholder executing
it shall have specified therein the length of time it is to continue in force.
At any meeting of the stockholders at which a quorum is present, all matters,
except as otherwise expressly required by law, the Certificate of Incorporation
or these Bylaws, shall be decided by the vote of a majority of the shares
present in person or by proxy and entitled to vote thereat and thereon. The vote
at any meeting of the stockholders on any questions need not be by ballot,
unless so directed by the Chairman of the Meeting or required by the Certificate
of Incorporation; PROVIDED, however, that with respect to the election of
Directors, any stockholder shall have the right to demand that such vote be
taken by written ballot. On a vote by ballot, each ballot shall be signed by the
stockholder voting, or by such stockholder's proxy, as the case may be, and it
shall state the number of shares voted. Each proxy shall be revocable at the
pleasure of the person executing it, or of such person's personal
representative(s) or assign(s), except as otherwise provided by statute. The
authority of the holder of a proxy to act shall not be revoked by the
incompetence or death of the stockholder who executed the proxy unless, before
the authority is exercised, valid and sufficient written notice of an
adjudication of such incompetence or of such death is received by the Secretary
of the Corporation.
SECTION 1.11 INSPECTORS. The Board of Directors, in advance of any
meeting of the stockholders, may appoint one or more inspectors to act at the
meeting. If inspectors are not so appointed, the person presiding at the meeting
may appoint one or more inspectors. If any person so appointed fails to appear
or act, the vacancy may be filled by appointment made by the Board of Directors
in advance of the meeting or at the meeting by the person presiding thereat. The
inspectors so appointed shall determine the number of shares outstanding, the
shares represented at the meeting, the existence of a quorum and the
authenticity, validity and effect of proxies and shall receive votes, ballots,
waivers, releases, or consents, hear and determine all challenges and questions
arising in connection with the right to vote, count and tabulate all votes,
ballots, waivers, releases, or consents, determine and announce the results and
do such acts as are proper to conduct the election or vote with fairness to all
stockholders. On request of the person presiding at the meeting, the inspectors
shall make a report in writing of any challenge, question or matter determined
by them and execute a certificate of any fact found by them. Any report or
certificate made by them shall be prima facie evidence of the facts stated and
of the vote as certified by them.
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ARTICLE II
BOARD OF DIRECTORS
SECTION 2.01 GENERAL POWERS OF BOARD. The powers of the
Corporation shall be exercised, its business and affairs conducted, and its
property controlled by the Board of Directors, except as otherwise provided by
the law of Delaware or in the Certificate of Incorporation. Each Director shall
be at least 21 years of age.
SECTION 2.02 NUMBER OF DIRECTORS. The number of Directors of the
Corporation shall not be less than two, with the exact number of Directors to be
such number as may be set from time to time by resolution adopted by affirmative
vote of a majority of the entire Board of Directors; PROVIDED, HOWEVER, that no
decrease in the size of the Board shall serve to reduce the term of any Director
then in office. As used in these Bylaws, the term "entire Board" means the total
number of Directors which the Corporation would have if there were no vacancies.
The initial number of Directors and the persons appointed as the initial
Directors shall be as selected by the incorporator.
SECTION 2.03 ELECTION OF DIRECTORS. At each Annual Meeting of the
stockholders, Directors shall be elected by a plurality of the votes cast by
the holders of Common Stock entitled to vote thereon for a term of one year, and
shall hold office until the election and qualification of their successors, or
until their earlier resignation or removal.
SECTION 2.04 NOMINATIONS. Nominations for the election of
Directors may be made by the Board of Directors or a committee thereof or by any
stockholder entitled to vote for the election of Directors.
SECTION 2.05 RESIGNATIONS. Any Director of the Corporation may
resign at any time by giving written notice to the Chairman, the President or
the Secretary of the Corporation. Such resignation shall take effect at the time
specified therein, and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
SECTION 2.06 VACANCIES. In the event that any vacancy shall occur
in the Board of Directors, whether because of death, resignation, removal, newly
created directorships resulting from any increase in the authorized number of
Directors, the failure of the stockholders to elect the whole authorized number
of Directors, or for any other reason, such vacancy shall be filled by the vote
of a majority of the Directors then in office, although less than a quorum. A
Director elected to fill a vacancy shall hold office until the next Annual
Meeting of stockholders for the election of Directors, and until the election
and qualification of his or her successor.
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SECTION 2.07 REMOVAL OF DIRECTORS. Any or all of the Directors may
be removed for cause or without cause only by a majority vote of all outstanding
shares of stock.
SECTION 2.08 PLACE OF MEETING, ETC. The Board of Directors may
hold any of its meetings at the principal office of the Corporation or at such
other place or places as the Board of Directors may from time to time designate.
Directors may participate in any regular or special meeting of the Board of
Directors or of any committee thereof by means of conference telephone or
similar communications equipment pursuant to which all persons participating in
any such meeting can hear each other and such participation shall constitute
presence in person at any such meeting.
SECTION 2.09 REGULAR MEETINGS. A Regular Meeting of the Board of
Directors shall be held following each Annual Meeting of Stockholders for the
purpose of organizing the Corporation's affairs and the transaction of such
other business as may properly come before such meeting. Other Regular Meetings
of the Board of Directors may be held at such intervals and at such time as
shall from time to time be determined by the Board of Directors. Once such
determination has been made and notice thereof has been once given to each
person then a member of the Board of Directors, such Regular Meetings may be
held at such intervals and at the time(s) and place(s) so designated without
further notice being given.
SECTION 2.10 SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called at any time by the Chairman, by the President or by a
majority of Directors then in office, to be held on such day and at such time as
shall be specified by the person or persons calling the meeting.
SECTION 2.11 NOTICE OF MEETINGS. Notice of each Special Meeting
or, where required, each Regular Meeting of the Board of Directors shall be
deemed properly given to each Director either: (a) when mailed by first class
mail, postage prepaid, to each Director, addressed to him or her at his or her
residence or usual place of business, at least two days before the day on which
such meeting is to be held; or (b) when sent to him or her at such address by
telegraph, cable, telex, telecopier, facsimile or other similar means, or when
delivered to him or her personally, or when given to him or her by telephone or
other similar means, in any event at least 24 hours before the time at which
such meeting is to be held. Such notice shall specify the place, date and time
of the meeting; however, except as otherwise specifically required by these
Bylaws, notice of any Regular or Special Meeting of the Board of Directors need
not state the purpose or purposes of such meeting and, at any such meeting duly
held, any business may be transacted. At any meeting of the Board of Directors
at which every Director shall be present, even though without such notice, any
business may be transacted. Any acts or proceedings taken at a meeting of the
Board of Directors not validly called or convened may be made valid and fully
effective by ratification at a subsequent meeting that has been validly called
or convened. A written waiver of notice of a Special or Regular Meeting, signed
by the person or persons entitled to such notice, whether before or after the
time
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stated therein, shall be deemed the equivalent of such notice, and attendance of
a Director at any meeting shall constitute a waiver of notice of such meeting
except when the Director attends the meeting and prior to or at the commencement
thereof protests the lack of proper notice to him or her, or that the meeting is
not lawfully called or convened.
SECTION 2.12 QUORUM AND VOTING. At all meetings of the Board of
Directors, the presence of a majority of the Directors then in office shall
constitute a quorum for the transaction of business; PROVIDED, HOWEVER, that
such number may not be less than one-third of the entire Board. Except as
otherwise required by law, the Certificate of Incorporation, or these Bylaws,
the vote of a majority of the Directors present at any meeting at which a quorum
is present shall be the act of the Board of Directors. At all meetings of the
Board of Directors, each Director shall have one vote.
SECTION 2.13 COMMITTEES. The Board of Directors may appoint an
Executive Committee, an Audit Committee, an Executive Compensation Committee and
any other committee of the Board of Directors, each to consist of three or more
Directors of the Corporation. Each such committee shall have and may exercise
all of the powers and authority of the Board of Directors necessary and
appropriate to the carrying out of its functions, EXCEPT that no such committee
shall have the power or authority:
(a) To amend the Certificate of Incorporation or these Bylaws;
(b) To adopt an agreement of merger or consolidation;
(c) To recommend to the stockholders the sale, lease or exchange of
all or substantially all the Corporation's property and assets;
(d) To recommend to the stockholders a dissolution of the Corporation
or a revocation of a dissolution; nor
(e) To declare a dividend, authorize the issuance of stock or adopt a
certificate of ownership and merger pursuant to Section 253 of the Delaware
General Corporation Law unless the resolution creating such committee expressly
so provides.
The Executive Committee of the Board shall have the power and
authority to act in lieu of the full Board of Directors as may be necessary in
the intervals between Board meetings and as otherwise requested by the full
Board, except as otherwise specifically circumscribed by the Delaware General
Corporation Law, the Corporation's Certificate of Incorporation or these Bylaws.
The Audit Committee of the Board shall periodically review the
Corporation's auditing practices and procedures, make recommendations to
management or to the Board of Directors as to any changes to such practices and
procedures deemed necessary from time to time to comply with applicable auditing
rules, regulations and practices, and recommend independent auditors for the
Corporation to be elected by the stockholders.
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A majority of this Committee shall at all times consist of Directors who are not
also employees or officers of the Corporation.
The Executive Compensation Committee of the Board shall meet from
time to time to make recommendations to the Board of Directors concerning the
compensation and benefits payable to the Corporation's executive officers and
other senior executives.
Each such committee shall serve at the pleasure of the Board of
Directors and shall be subject to the control and direction of the Board of
Directors. In the absence of any member of any such committee, the members
thereof present at any meeting may appoint a member of the Board of Directors
previously designated by the Board of Directors as a committee alternate to act
in the place of such absent member. Any such committee shall keep written
minutes of its meetings and report the same to the Board of Directors at the
next Regular Meeting of the Board of Directors.
SECTION 2.14 COMPENSATION. The Board of Directors may, by
resolution passed by a majority of those in office, fix the compensation of
Directors for service in any capacity and may fix fees for attendance at
meetings and may authorize the Corporation to pay the traveling and other
expenses of Directors incident to their attendance at meetings, or may delegate
such authority to a committee of the Board of Directors. The Board of Directors
shall fix the compensation of all officers of the Corporation who are appointed
by the Board of Directors. The Board of Directors may authorize the Chairman or
the President to fix the compensation of such assistant and subordinate officers
and agents as either of them is authorized to appoint and remove.
SECTION 2.15 ACTION BY CONSENT. Any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if a written consent thereto is signed by all
members of the Board of Directors or of such committee, as the case may be, and
such written consent is filed with the minutes of proceedings of the Board of
Directors or such committee.
ARTICLE III
OFFICERS
SECTION 3.01 GENERAL PROVISIONS. The officers of the Corporation
shall be the Chairman of the Board, a President, such number of Vice Presidents
as the Board of Directors may from time to time determine, a Secretary and a
Treasurer. Any person may hold any two or more offices and perform all the
duties thereof. The Board of Directors may also elect a Chief Executive Officer,
a Chief Operating Officer, a Chief Financial Officer, a Controller, one or more
Assistant Secretaries and such other officers as it may determine from time to
time in the exercise of its sole discretion.
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SECTION 3.02 ELECTION, TERMS OF OFFICE, AND QUALIFICATION. The
officers of the Corporation named in Section 3.01 of this Article III shall be
elected by the Board of Directors for an indeterminate term and shall hold
office at the pleasure of the Board of Directors.
SECTION 3.03 ADDITIONAL OFFICERS, AGENTS, ETC. In addition to the
officers mentioned in Section 3.01 of this Article III, the Corporation may have
such other officers or agents as the Board of Directors may deem necessary and
may appoint, each of whom shall hold office for such period, have such authority
and perform such duties as may be provided in these Bylaws as the Board of
Directors may from time to time determine. The Board of Directors may from time
to time delegate to the Chairman or the President the power to appoint any
subordinate officers or agents and prescribe the powers and duties thereof. In
the absence of any officer of the Corporation, or for any other reason the Board
of Directors may deem sufficient, the Board of Directors may delegate the powers
and duties of such officer, in whole or in part, to any other officer, or to any
Director.
SECTION 3.04 REMOVAL. Any officer of the Corporation may be
removed, either with or without cause, at any time, by resolution adopted by the
Board of Directors at any meeting. Any officer appointed not by the Board of
Directors but by an officer or committee to which the Board of Directors shall
have delegated the power of appointment may be removed, with or without cause,
by the Board of Directors, by the committee that or superior officer (including
successors) who made the appointment, or by any committee or officer upon whom
such power of removal may be conferred by the Board of Directors.
SECTION 3.05 RESIGNATIONS. Any officer may resign at any time by
giving written notice to the Board of Directors, or to the Chairman, the
President or the Secretary of the Corporation. Any such resignation shall take
effect at the time specified therein, and unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
SECTION 3.06 VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise, shall be filled in the
manner prescribed in these Bylaws for regular appointments or elections to such
office.
ARTICLE IV
DUTIES OF THE OFFICERS
SECTION 4.01 CHAIRMAN. The Chairman shall preside at all meetings
of the stockholders and of the Board of Directors, and shall have general charge
of and be primarily responsible for the conduct of the business of the
Corporation, including long-range planning and strategic analyses of the
Corporation's future growth and direction, and subject to the Board's approval,
establishing the general business policies
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and goals of the Corporation. Except where by law the signature of the President
is required, the Chairman shall possess the same power as the President to sign
all contracts, certificates and other instruments of the Corporation which may
be authorized by the Board of Directors. During the absence or disability of the
President, the Chairman shall exercise all the powers and discharge all the
duties of the President. The Chairman shall also perform such duties and may
exercise such other powers as from time to time may be assigned by these Bylaws
or by the Board of Directors.
SECTION 4.02 PRESIDENT. The President shall, subject to the
control of the Board and the Chairman, have general supervision of the
day-to-day operation and administration of the business of the Corporation,
together with such other duties and such other powers as from time to time may
be assigned by the Board of Directors or the Chairman. He shall execute all
bonds, mortgages, contracts and other instruments of the Corporation requiring a
seal, under the seal of the Corporation, except where required or permitted by
law to be otherwise signed and executed and except that the other officers of
the Corporation may sign and execute documents when so authorized by these
Bylaws, the Board of Directors Or Chairman. In the absence or disability of the
Chairman, the President shall preside at all meetings of the shareholders and
the Board of Directors.
SECTION 4.04 VICE PRESIDENTS. The Vice Presidents shall perform
such duties as are conferred upon them by these Bylaws or as may from time to
time be assigned to them by the Board of Directors, the Chairman or the
President. Any one of the Vice Presidents may be designated by the Board of
Directors as an Executive Vice President. At the request of the Chairman or the
President, or in the absence or disability of the President, the Executive Vice
President shall perform all the duties and have all the powers of the President.
If there be no Executive Vice President, the Vice President designated by the
Board of Directors shall perform such duties and exercise such functions. Each
Vice President shall have such other powers and duties as may from time to time
be properly prescribed by the Board of Directors, the Chairman, or the
President.
SECTION 4.05 TREASURER. The Treasurer shall keep correct and
complete books and records of account for the Corporation. Subject to the
control and supervision of the Board of Directors and the Chairman, or such
other officer as either of them may designate, the Treasurer shall establish
programs for the provision of the capital required by the Corporation, including
negotiating the procurement of capital and maintaining adequate sources for the
Corporation's current borrowings from lending institutions. He shall maintain
banking arrangements to receive, have custody of and disburse the funds and
securities of the Corporation. He shall invest the funds of the Corporation as
required, and establish and coordinate policies for investment in pension and
other similar accounts due the Corporation. The Treasurer shall have such other
powers and duties as may from time to time be properly prescribed by the Board
of Directors, the Chairman, the President or the Chief Financial Officer.
SECTION 4.06 SECRETARY; ASSISTANT SECRETARY. The Secretary shall
attend all meetings of the Board of Directors and of the stockholders, and shall
record all votes
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in the Minutes of all such proceedings in a book to be maintained for such
purpose. The Secretary shall give or cause to be given a notice of all meetings
of stockholders and of the Board of Directors. The Secretary shall be the
custodian of the seal of the Corporation and shall affix the seal to any
instrument when authorized by the Board of Directors. The Secretary shall keep
all the documents and records of the Corporation, as required by law or
otherwise, in a proper and safe manner. At the request of the Board of
Directors, the Chairman, the President, or the Secretary, any Assistant
Secretary shall have all the powers and duties of and may act in place of the
Secretary. The Secretary and each Assistant Secretary shall have such other
powers and duties as may from time to time be properly prescribed by the Board
of Directors, the Chairman or the President.
SECTION 4.07 CHIEF FINANCIAL OFFICER. The Board of Directors may
appoint a Chief Financial Officer. Subject to the control and supervision of the
Board of Directors and the Chairman, the Chief Financial Officer shall have
general charge of establishing and overseeing all financial and accounting
policies and matters of the Corporation. The Chief Financial Officer shall also
have such other powers and duties as may from time to time be properly
prescribed by the Board of Directors or the Chairman.
SECTION 4.08 CONTROLLER. The Board of Directors may appoint a
Controller. Subject to the control and supervision of the Board of Directors,
the Chairman, or such officer as either of them may designate, the Controller
shall establish, coordinate and administer an adequate plan for the financial
control of operations, including profit planning, programs for capital investing
and for financing, sales forecasts, expense budgets and cost standards, together
with the necessary procedures to effectuate such plans. The Controller shall
compare performance with operating plans and standards and shall report and
interpret the results of operations to all levels of management.
ARTICLE V
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 5.01 INDEMNIFICATION. The Corporation shall indemnify any
person who was, is, or is threatened to be made a party to a proceeding (as
hereinafter defined) by reason of the fact that he or she (i) is or was a
director or officer of the Corporation or (ii) while a director or officer of
the Corporation, is or was serving at the request of the Corporation as a
director, officer, partner, venturer, proprietor, trustee, employee, agent, or
similar functionary of another foreign or domestic corporation, partnership,
joint venture, sole proprietorship, trust, employee benefit plan, or other
enterprise, to the fullest extent permitted under the Delaware General
Corporation Law, as the same exists or may hereafter be amended. Such right
shall be a contract right and as such shall run to the benefit of any director
or officer who is elected and accepts the position of director or officer of the
Corporation or elects to continue to serve as a director or officer of the
Corporation while this Article V. is in effect. Any repeal or amendment of this
Article V. shall be
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prospective only and shall not limit the rights of any such director or officer
or the obligations of the Corporation with respect to any claim arising from or
related to the services of such director or officer in any of the foregoing
capacities prior to any such repeal or amendment to this Article V. Such right
shall include the right to be paid by the Corporation expenses incurred in
investigating or defending any such proceeding in advance of its final
disposition to the maximum extent permitted under the Delaware Corporation Law,
as the same exists or may hereafter be amended. If a claim for indemnification
or advancement of expenses hereunder is not paid in full by the Corporation
within sixty (60) days after a written claim has been received by the
Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim, and if successful in
whole or in part, the claimant shall also be entitled to be paid the expense of
prosecuting such claim. It shall be a defense to any such action that such
indemnification or advancement of costs of defense is not permitted under the
Delaware General Corporation Law, but the burden of proving such defense shall
be on the Corporation. Neither the failure of the Corporation (including its
board of directors or any committee thereof, independent legal counsel, or
stockholders) to have made its determination prior to the commencement of such
action that indemnification of, or advancement of costs of defense to, the
claimant is permissible in the circumstances nor an actual determination by the
Corporation (including its board of directors or any committee thereof,
independent legal counsel, or stockholders) that such indemnification or
advancement is not permissible shall be a defense to the action or create a
presumption that such indemnification or advancement is not permissible. In the
event of the death of any person having a right of indemnification under the
foregoing provisions, such right shall inure to the benefit of his or her heirs,
executors, administrators, and personal representatives. The rights conferred
above shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, by-law, resolution of stockholders or
directors, agreement, or otherwise.
The Corporation may additionally indemnify any employee or agent
of the Corporation to the fullest extent permitted by law.
Without limiting the generality of the foregoing, to the extent
permitted by then applicable law, the grant of mandatory indemnification
pursuant to this Article V. shall extend to proceedings involving the negligence
of such person.
As used herein, the term "proceeding" means any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, arbitrative, or investigative, any appeal in such an action,
suit, or proceeding, and any inquiry or investigations that could lead to such
an action, suit or proceeding.
ARTICLE VI
SHARES AND THEIR TRANSFER
SECTION 6.01 CERTIFICATE FOR SHARES. Every owner of one or more
shares in this Corporation shall be entitled to a certificate, which shall be
in such form as the Board of Directors shall prescribe, certifying the number
and class of shares in the Corporation
12
<PAGE>
owned by such person. When such certificate is countersigned by an incorporated
transfer agent or registrar, the signature of any of said officers may be
facsimile, engraved, stamped or printed. The certificates for the respective
classes of such shares shall be numbered in the order in which they shall be
issued and shall be signed in the name of the Corporation by the Chairman, the
President or a Vice President and by the Secretary or the Treasurer. A record
shall be kept of the name of the person, firm, or corporation owning the shares
represented by each such certificate and the number of shares represented
thereby, the date thereof and in case of cancellation, the date of cancellation.
Every certificate surrendered to the Corporation for exchange or transfer shall
be cancelled and no new certificate or certificates shall be issued in exchange
for any existing certificates until such certificates shall have been so
cancelled. In case any officer who has signed, or whose facsimile signature has
been placed upon a certificate, shall have ceased to be such officer before such
certificate is issued, such certificate may be issued by the Corporation with
the same effect as if such person were such officer at the date of issue.
SECTION 6.02 LOST, DESTROYED OR MUTILATED CERTIFICATES. If any
certificates for shares in this Corporation become worn, defaced, or mutilated
but are still substantially intact and recognizable, the Directors, upon
production and surrender thereof, shall order the same cancelled and shall issue
a new certificate in lieu of same. The holder of any shares in the Corporation
shall immediately notify the Corporation if a certificate therefor shall be
lost, destroyed, or mutilated beyond recognition, and the Corporation may issue
a new certificate in the place of any certificate theretofore issued by it which
is alleged to have been lost or destroyed or mutilated beyond recognition.
Unless otherwise provided by the Board of Directors or an officer of the
Corporation, the owner of the certificate which has been lost, destroyed, or
mutilated beyond recognition, or his legal representative, shall give the
Corporation a bond in such sum and with such surety or sureties as may be
required to adequately indemnify the Corporation against any claim that may be
made against it on account of the alleged loss, destruction, or mutilation of
any such certificate. The Board of Directors may, however, in its discretion,
refuse to issue any such new certificate pending the resolution of any legal
proceedings involving such certificate or the loss, destruction or mutilation
thereof.
SECTION 6.03 TRANSFERS OF SHARES. Transfers of shares in the
Corporation shall be made only on the books of the Corporation by the registered
holder thereof, his or its legal guardian, executor, or administrator, or by his
or its attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the Corporation or with a transfer agent appointed
by the Board of Directors, and on surrender of the certificate or certificates
for such shares properly endorsed or accompanied by properly executed stock
powers (and any requested signature guarantees) and evidence of the payment of
all taxes imposed upon such transfer. The person in whose name shares stand on
the books of the Corporation shall, to the full extent permitted by law, be
deemed the owner thereof for all purposes as regards the Corporation, and the
Corporation shall not be bound to recognize any equitable or other claim or
interest in such
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shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as expressly provided by statute.
SECTION 6.04 STOCK LEDGERS. The stock ledgers of the Corporation
containing the names and addresses of the stockholders and the number of shares
held by them respectively shall be maintained at the principal offices of the
Corporation, or, if there be a transfer agent, at the office of such transfer
agent as the Board of Directors shall determine.
SECTION 6.05 REGULATIONS. The Board of Directors may make such
rules and regulations as it may deem expedient and not inconsistent with these
Bylaws concerning the issue, transfer, and registration of certificates for
shares in the Corporation. It may appoint one or more transfer agents or one or
more registrars, or both, and may require all certificates for shares to bear
the signature of either or both.
ARTICLE VII
FINANCES
SECTION 7.01 DIVIDENDS. Subject to any statutory provisions,
dividends upon the capital stock of the Corporation may be declared by the Board
of Directors, payable on such dates as the Board of Directors may designate.
SECTION 7.02 RESERVES. Before the payment of any dividend, there
may be set aside out of the funds of the Corporation available for dividends,
such sum or sums as the Board of Directors may from time to time in its absolute
discretion deem proper as a reserve to meet contingencies or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the Board shall deem conducive to the interests of the
Corporation. The Board of Directors may modify or abolish any such reserve in
the manner in which it was created.
SECTION 7.03 BILLS, NOTES, ETC. All checks or demands for money
and notes or other instruments evidencing indebtedness or obligations of the
Corporation shall be made in the name of the Corporation and shall be signed by
such officer or officers or such other person or persons as the Board of
Directors may from time to time designate.
ARTICLE VIII
DIVISIONS
SECTION 8.01 CREATION OF DIVISIONS. The Board of Directors may
from time to time create Divisions of the Corporation as operational units of
the Corporation, and may
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set apart to such Divisions such aspects or portions of the business, affairs
and properties of the Corporation as the Board of Directors may from time to
time determine.
SECTION 8.02 DIVISION OFFICERS. The Board of Directors of the
Corporation may appoint as officers of a Division a President, one or more Vice
Presidents, a Secretary, a Treasurer and any other officers, all of whom shall
serve at the pleasure of the Board of Directors. The same person may hold two or
more offices of a Division, and any person holding an office of a Division may
also be elected an officer of the Corporation. The officers and all other
persons who shall serve a Division in the capacities set forth in this Article
are hereby appointed agents of the Corporation with the powers and duties herein
set forth; provided, however, that the authority of said agents shall be limited
to matters related to the properties, business and affairs of the Division and
shall not extend to any other portion of the properties, business and affairs of
the Corporation. The Board of Directors may from time to time authorize the
Chairman or the President of the Corporation to appoint and remove all such
Divisional officers and agents and to prescribe their respective powers and
duties.
SECTION 8.03 DIVISION PRESIDENT. The President of a Division
shall be the Chief Executive Officer of the Division and shall have the
responsibility for the general management of the affairs of the Division,
subject to the direction of the Board of Directors and the Chairman of the
Corporation. He shall see that all orders, instructions, policies and
resolutions of the Board of Directors, the Chairman and the President of the
Corporation relating to the business and affairs of the Division are carried
into effect.
SECTION 8.04 DIVISION SECRETARY. The Division Secretary shall have
the custody of such books and papers, shall maintain such records and shall have
such other powers and duties as may from time to time be properly prescribed by
the Board of Directors, the Chairman, or the President of the Corporation and by
the Division President.
SECTION 8.05 DIVISION TREASURER. Subject to the direction of the
Treasurer of the Corporation and the Division President, the Division Treasurer
shall have custody of the funds and securities of the Division, shall keep full
and accurate accounts of receipts and disbursements in books belonging to the
Division, shall deposit all monies and other valuable effects in the name and to
the credit of the Division in such depositories as may be designated by the
Board of Directors and shall have such other powers and duties as may from time
to time be properly prescribed by the Board of Directors, the Chairman, or the
President of the Corporation and by the Division President.
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ARTICLE IX
SEAL
The Board of Directors may provide a corporate seal, which shall
be circular and contain the name of the Corporation engraved around the margin
and the words "corporate seal," the year of its organization, and the word
"Delaware."
ARTICLE X
AMENDMENTS
SECTION 10.01 POWER TO AMEND. These Bylaws may be adopted,
altered, amended or repealed by the affirmative vote of the holders of at least
67% of the issued and outstanding shares of this Corporation's Common Stock. The
Board of Directors shall also have the power to adopt, alter, amend or repeal
these Bylaws by a majority vote of the entire Board of Directors at any meeting
thereof, subject to the right of the holders of this Corporation's Common Stock
to adopt, alter, amend or repeal these Bylaws as aforesaid.
16
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EXHIBIT 10.1
------------
EMPLOYMENT AGREEMENT
---------- ---------
DSMI Corp. (the "Company") and Donald Carlberg ("Employee") enter into this
Employment Agreement ("Agreement") as of March 1st, 1995, the effective date of
this Agreement.
In consideration of the agreement and covenants contained in the Agreement, the
Company and Employee agree as follows:
1. EMPLOYMENT DUTIES. The Company shall employ Employee as its
President and Chief Executive Officer. Employee shall have the
responsibilities, duties and authority normally associated with such
titles, shall be responsible for the administration and execution of the
Company's policies, business affairs and operations and shall have such
further duties as shall, from time to time, be reasonably delegated or
assigned to him by the Board of Directors of the Company (the "Board").
Employee shall perform faithfully the duties assigned to him to the best of
his abilities and shall devote his full and undivided business time and
attention to transaction of the Company's business. In addition, during
the term of this Agreement, Employee shall serve in such other offices and
capacities to which he may be appointed or elected by the Board.
2. TERM OF EMPLOYMENT. The term of employment covered by this Agreement
shall commence as of the effective date of this Agreement and continue for
a period of one year, subject to the provisions of paragraph three below.
Upon expiration of the initial term of employment or any subsequent term,
this Agreement shall be renewed automatically for successive periods of one
year each, unless either party notifies the other of its intention not to
renew at least sixty days prior to the expiration of the term.
3. TERMINATION. Notwithstanding the provisions of Paragraph 2 of this
Agreement, the Company may terminate the Employee's employment for any
reason. Unless Employee is terminated for "cause" (as defined below), the
Company shall continue to pay Employee's compensation and fringe benefits
for a period of six months following the date of termination if termination
of Employee's employment occurs after six months from the effective date of
this Agreement. If Employee is terminated for cause or is terminated for
any reason within six months from the effective date of this Agreement,
Employee's compensation and fringe benefits shall cease immediately upon
termination. Employee may terminate this Agreement at any time upon giving
the Company 30 days prior written notice. In such event, Employee shall
continue to render services and shall be paid his regular compensation
exclusive of bonuses up to the date of termination. As used in this
<PAGE>
Agreement, "cause" shall mean (a) fraud or any illegal act by or on the
part of Employee in the performance of his duties under this Agreement, (b)
Employee's failure to perform or (c) misconduct in performing his duties
under this Agreement. Notwithstanding any other provision of this
Agreement, in the event of termination, the Employee shall receive a pro-
rated portion of the bonus stipulated in Paragraph 5 hereto.
4. COMPENSATION. As compensation for his services, the Company shall
pay Employee a base salary of $125,000 per year payable monthly in arrears
on the first day of each month. Employee's compensation shall be subject
to annual review and may, at the discretion of the Board, be adjusted to
reflect Employee's increased responsibilities, capabilities and
performance.
5. BONUSES. Employee shall receive a bonus of $25,000 payable one year
from the effective date of this Agreement, provided that Employee continues
to be employed by the Company on such date. In addition, the Employee
shall be eligible for discretionary bonuses in amounts to be determined
from time to time by the Board based upon the performance of the Company
and Employee.
6. STOCK OPTIONS. On March 1st, 1995, the Company shall issue stock
options to Employee entitling him to purchase 250,000 shares of common
stock of the Company at an exercise price of $0.10 per share. This option
shall have a five year term, with the right to exercise vesting immediately
with respect to 50,000 of these shares, and vesting 20 percent at the end
of each year through the first five years of employment with respect to the
remaining 200,000 of these shares. The option shall be exercisable for six
months following expiration of the option. Employee shall also be eligible
for additional option grants based upon his general performance. The
vested portion of the options grated herewith shall be exercisable for
ninety days following termination of Employee's employment.
7. EMPLOYEE BENEFITS. Employee shall be entitled to participate in
such employee benefit plans as the Company may make available to its senior
management.
8. SIGNING BONUS. The Employee shall receive a bonus of $15,000.00 upon
the execution of this Agreement.
9. BUSINESS EXPENSES. The Company shall reimburse Employee for all
reasonable and necessary business expenses incurred by Employee in
performance of his duties during the term of this Agreement. Employee
shall provide the Company with supporting documentation sufficient to
satisfy reporting requirements of the Internal Revenue Service and the
Company.
<PAGE>
10. ASSIGNMENTS. Employee acknowledges that the services to be rendered
by Employee, pursuant to this Agreement are unique and personal.
Accordingly, Employee may not assign any of his rights or delegate any of
his duties or obligations under this Agreement. The Company may assign its
rights, duties, or obligations under this Agreement to a subsidiary or to a
purchaser or transferee of all, or substantially all, of the assets of the
Company; provided that such assignee has the financial capacity to perform
such obligations under this Agreement and such entity shall assume the
obligations of the Company under this Agreement.
11. ENTIRE AGREEMENT. This Agreement and the Proprietary Information and
Confidentiality Agreement entered into between the Company and Employee. a
copy of which is attached hereto and which is incorporated by reference
herein, constitute the entire Agreement between the Company and the
Employee. The parties may modify this Agreement only by a written
instrument signed by the parties.
12. NOTICES. Any notice required or permitted to be given to Employee
under this Agreement shall be sufficiently given if sent to Employee by
certified mail addressed to him at the following address: 15 Shadow Creek,
Penfield, New York, 14526 or such other address as he shall designate by
notice to the Company. Any notice required or permitted to be given to the
Company under this Agreement shall be sufficiently given if sent to the
Company by certified mail addressed to the following address: 148 Oak
Lane, Rochester, New York, 14610 or at such other address as the Company
shall designate by notice to Employee.
13. INJUNCTIVE RELIEF. Employee acknowledges and agrees that, in the
event he shall violate any of the restrictions of Paragraphs 1 or 14 hereof
or contained in the Proprietary Information and Confidentiality Agreement,
the Company will be without adequate remedy at law and will therefore be
entitled to enforce such restrictions by temporary or permanent injunctive
or mandatory relief obtained in a court of competent jurisdiction without
the necessity of proving damages and without prejudice to any other
remedies which it may have at law or in equity.
14. COVENANT NOT TO COMPETE. The services of Employee are unique and
extraordinary and essential to the business of the Company, especially
since Employee shall have access to the Company's customer lists, trade
secrets and other privileged and confidential information essential to the
Company's business. Therefore, Employee agrees that if his employment
hereunder shall at any time terminate for any reason whatsoever, Employee
will not at any time
<PAGE>
within one (1) year after such termination, without the prior written
approval of the Company, directly or indirectly, engage in any business
activity which involves the measurement of clinical outcomes for patients
with acute or chronic diseases, or the measurement of patient compliance
with prescribed treatments for acute or chronic diseases; and further,
Employee agrees that during such one (1) year period he shall not solicit,
directly or indirectly, any prospective account or employee of the Company
which at the time of such termination was then actively being solicited by
the Company.
15. APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
16. SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such a manner as to be effective and valid under
applicable law, such provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
DSMI CORP.
By /s/ Derace Schaffer
-----------------------------------------------
Name: Dr. Derace Schaffer
Title: Chairman
EMPLOYEE
/s/ Donald Carlberg
- ------------------------------------------------
Donald Carlberg
<PAGE>
DSMI CORP.
STOCK OPTION PLAN
1 PURPOSE. The DSMI CORP. STOCK OPTION PLAN (hereinafter referred to
as the Plan")is designed to furnish additional incentive to both key employees
and Directors of DSMI Corp., a Delaware corporation (hereinafter referred to as
the "Company"), and its parents or subsidiaries, upon whose judgment, initiative
and efforts the successful conduct of the business of the Company largely
depends, by encouraging such persons to acquire a proprietary interest in the
Company or to increase the same, and to strengthen the ability of the Company to
attract and retain in its employ, or as a member of the Board of Directors,
persons of training, experience and ability. Such purpose will be effected
through the granting of "Incentive Stock Options" within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (hereinafter the "Code")
and options which do not qualify as incentive stock options ("Non-Qualified
Options").
2. ADMINISTRATION.
(a) The Plan shall be administered by a committee chosen by the Board
of Directors of the Company (the "Committee") and decisions of the Committee
concerning the interpretation and construction of any provisions of the Plan or
of any option granted pursuant to the Plan shall be final. In the absence of
the Committee, the Plan will be administered by the Board of Directors of the
Company. The Company shall effect the grant of options under the Plan in
accordance with the decisions of the Committee, which may, from time to time,
adopt rules and regulations for the carrying out of the Plan. For purposes of
the Plan, an option shall be deemed to be granted when a written Option Contract
is signed on behalf of the Company by a member of the Committee. Subject to the
express provisions of the Plan, the Committee shall have the authority, in its
discretion and without limitation: to determine the individuals to receive
options, the times when such individuals shall receive options, the number of
Shares to be subject to each option, the term of each option, the date(s) on
which each option shall become exercisable, whether an option is subject to
vesting pursuant to Section 5(c) hereof, whether an option shall be exercisable
in whole, in part, or in installments, the number of Shares to be subject to
each installment, the date each installment shall become exercisable, the term
of each installment, the option price of each option, and the terms of payment
for Shares purchased by the exercise of each option; to accelerate the date of
exercise of any installment; and to make all other determinations necessary or
advisable for administering the Plan.
(b) The Committee may grant Incentive Stock Options and Non-
Qualified Stock Options pursuant to a single option agreement so long as each
option is clearly identified as to its status. Notwithstanding anything else
contained in the Plan, if the Committee issues a single option agreement which
contains both Incentive Stock Options
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and Non-Qualified Stock Options, the exercise of one cannot affect the exercise
of the other.
3. ELIGIBILITY. The persons who shall be eligible to receive options
under the Plan shall be Directors and those employees of the Company, or of any
of its parents or subsidiaries within the meaning of Section 424(e) and (f) of
the Code who are exempt from the overtime provisions of the Fair Labor
Standards Act of 1938, as amended, by reason of employment in an executive,
administrative or professional capacity under 29 U.S.C. Section 213(a)(1);
provided, however, Directors, who are not employees of the Company or any of its
parents or subsidiaries, shall not be eligible to receive Incentive Stock
Options. Additionally, no Incentive Stock Option shall be granted to a person
who would, at the time of the grant of such option, own, or be deemed to own for
purposes of Section 422(b)(6) of the Code, more than 10% of the total combined
voting power of all classes of shares of stock of the Company or its parents or
subsidiaries unless at the time of the grant of the Incentive Stock Option both
of the following conditions are met:
(a) The option price is at least 110% of the fair market value of the
shares of stock subject to the Incentive Stock Option, as defined in Section
4(a) hereof, and
(b) the option is, by its terms, not exercisable after the expiration
of five years from the date the Incentive Stock Option is granted.
4. SHARES SUBJECT TO 0PTIONS.
(a) Subject to the provisions of Section 5(g) hereof, options may be
granted under the Plan to purchase in the aggregate not more than 1,500,000
shares of the $.01 par value Common Stock of the Company (hereinafter referred
to as "Shares"), which Shares may, in the discretion of the Committee, consist
either in whole or in part of authorized but unissued Shares or Shares held in
the treasury of the Company. Any Shares subject to an option which for any
reason expires or is terminated unexercised as to such Shares shall continue to
be available for options under the Plan.
(b) To the extent the aggregate fair market value, determined as of
the time the option is granted, of Shares for which stock options are
exercisable for the first time by such individual in any calendar year, under
all incentive stock option plans of the Company or in any corporation which is a
parent or subsidiary of the Company, exceeds $100,000, such options shall be
treated as Non-Qualified Options. However, the value of the Shares for which
Incentive Stock Options may be granted to such individual from the Company in a
given year may exceed $100,000.
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<PAGE>
5. TERMS AND CONDITIONS OF OPTIONS. Options shall be granted by the
Committee pursuant to the Plan and shall be subject to the following terms and
conditions:
(a) PRICE. Each option shall state the number of Shares subject to
the option and the option price, which, in the case of an Incentive Stock
Option, shall be not less than the fair market value of the Shares with respect
to which the option is granted at the time of the granting of the option. In
addition, the option price shall be at least 110% of fair market value in the
case of a grant of an Incentive Stock Option to a person who would at the time
of the grant, own, or be deemed to own for purposes of Section 422(b)(6) of the
Code, more than 10% of the total combined voting power of all classes of Shares
of the Company or its parents or subsidiaries. For purposes of this subsection,
"fair market value" shall mean:
(i) the mean between the bid and asked price for the Shares on
the business day immediately preceding the date of the grant of the option;
(ii) the most recent sale price for the Shares as of the date of
the grant of the option; or
(iii) such price as shall be determined by the Board of
Directors of the Company in an attempt made in good faith to meet the
requirements of Section 422(b)(4) of the Code.
(b) TERM. The term of each option shall be determined by the
Committee, but in no event shall an option be exercisable either in whole or in
part after the expiration of ten years from the date on which it is granted.
Notwithstanding the foregoing, the Committee and an optionee may, by mutual
agreement, terminate any option granted to such optionee under the Plan. In the
event of merger, consolidation, dissolution or liquidation which results in a
change of control as defined in Section 368(c) of the Code (using the
attribution rules of Section 318), all unexercised options will become
immediately exercisable for a period of one year, the effectiveness of such
expiration shall be conditioned upon the consummation of any such transaction.
(c) VESTING. The Committee shall determine the vesting schedule, if
any, for each issuance of options hereunder on a case-by-case basis, in its sole
discretion.
(d) NON-ASSIGNMENT DURING LIFE. During the lifetime of the
optionee, the option shall be exercisable only by him and shall not be
assignable or transferable by him, whether voluntarily or by operation of law or
otherwise, and no other person shall acquire any rights therein.
(e) DEATH OF OPTIONEE. In the event that an optionee shall die prior
to the complete exercise of options granted to hi under the Plan, such remaining
options may be exercised in whole or in part after the date of the optionee's
death only: (i) by the
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<PAGE>
optionee's estate or by or on behalf of such person or persons to whom the
optionee's rights under the option pass under the optionee's Will or the laws of
descent and distribution; (ii) to the extent that the optionee was entitled to
exercise the option at the date of his death; and (iii) prior to the expiration
of the term of the option.
(f) TERMINATION OF EMPLOYMENT. An Incentive Stock Option shall be
exercisable during the lifetime of the optionee to whom it is granted only if,
at all times during the period beginning on the date of the granting of the
option and ending on the day three months before the date of such exercise, he
is an employee of the Company or any of its parents or subsidiaries, or an
employee of a corporation or a parent or subsidiary of such corporation issuing
or assuming an option granted hereunder in a transaction to which Section 424(a)
of the Code applies; provided, however, that in the case of an optionee who is
disabled within the meaning of Section 22(e)(3) of the Code, the three month
period after cessation of employment during which an Incentive Stock Option
Shall be exercisable shall be one year. Notwithstanding the foregoing, no
option shall be exercisable after the expiration of its term thereof. For
purposes of this subsection, an employment relationship will be treated as
continuing intact while the optionee is on military duty, sick leave or other
bona fide leave of absence, such as temporary employment by the Government, if
the period of such leave does not exceed 90 days, or, if longer, so long as a
statute or contract guarantees the optionee's right to re-employment with the
Company, or any of its parents or subsidiaries, or another corporation issuing
or assuming an option granted hereunder in a transaction to which Section 424(a)
of the Code applies. When the period of leave exceeds 90 days and the
individual's right to re-employment is not guaranteed either by statute or by
contract, the employment relationship will be deemed to have terminated on the
91st day of such leave.
(g) ANTI-DILUTION PROVISIONS. Subject to the provisions of Section
422 of the Code and the regulations promulgated thereunder, the aggregate number
and kind of Shares available for options under the Plan, and the number and kind
of Shares subject to, and the option price of, each outstanding option shall be
proportionately adjusted by the Committee for any increase, decrease or change
in the total outstanding Shares of the Company resulting from a stock dividend,
recapitalization, merger, consolidation, combination, exchange of Shares or
similar transaction (but not by reason of the issuance or purchase of Shares by
the Company in consideration for money, services or property)
(h) POWER TO ESTABLISH OTHER PROVISIONS. Subject to the provisions
of Section 422 of the Code and the regulations promulgated thereunder, options
granted under the Plan shall contain such other terms and conditions as the
Committee shall deem advisable.
6. EXERCISE OF OPTION. Options shall be exercised as follows'.
(a) NOTICE AND PAYMENT. Each option, or any installment thereof,
shall be exercised, whether in whole or in part, by giving written notice to the
Company at its
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<PAGE>
principal office, specifying the number of Shares purchased and the purchase e
price being paid, and accompanied by the payment of all or such part of the
purchase price as shall be specified in the option, by cash or by certified or
bank check payable to the order of the Company. Each such notice shall also
contain representations on behalf of the optionee that:
(i) the optionee acknowledges that the Company is selling the
Shares being acquired by him under a claim of exemption from registration under
the Securities Act of 1933 as amended (hereinafter referred to as the "Act"), as
a transaction not involving any public offering;
(ii) the optionee is acquiring the Shares without a view to
distribution or resale;
(iii) the optionee understands and agrees that the Shares
purchased may not be thereafter transferred unless (A) a registration statement
with respect thereto shall then be effective under the Act, and the Company will
have complied with any other applicable laws, or (B) the optionee shall have
obtained an opinion of counsel, in form and content reasonably satisfactory to
the Company and to its counsel, to the effect that the proposed transfer will
be exempt from the registration provisions of the Act, will comply with
applicable state laws, and will not result in any violation of the Act or of any
other applicable laws;
(iv) because any Shares purchased will not have been
registered under the Act, they must be held indefinitely unless and until they
are subsequently registered under the Act or an exemption from such a
registration is available;
(v) any routine sales of the Shares purchased made in reliance
upon Rule 144 promulgated under the Act can be made only in limited amounts and
in accordance with all the terms and conditions of that Rule, and in case the
Rule is not applicable, compliance with Regulation A or some other disclosure
exemption may be required; and
(vi) the Company has no obligation to register the Shares, to
comply with any disclosure exemption, or to take such action as may be necessary
to meet the requirements of Rule 144.
Appropriate legends may be placed on any certificate for Shares received by an
optionee pursuant to the exercise of an option in order to give notice of the
transfer restrictions set forth herein, and the Company may cause stop transfer
orders to be placed against such certificates. It shall be a further condition
to any exercise of the option and the purchase of Shares pursuant thereto that
the Company counsel be satisfied that the issuance of such shares will be in
compliance with the Act and any other laws applicable thereto, and the Company
shall be entitled to receive such other information, assurances, documents,
- 5 -
<PAGE>
representations or warranties as it or its counsel may reasonably require with
respect to such compliance.
(b) ISSUANCE OF CERTIFICATES. Certificates representing the Shares
purchased by the optionee shall be issued as soon as practicable after the
optionee has complied with the provisions of Section 6(a) hereof.
(c) RIGHTS AS A SHAREHOLDER. The optionee shall have no rights as a
Shareholder with respect to the Shares purchased until the date of the issuance
to him of a Certificate representing such Shares.
(d) DISPOSITION OF SHARES. Subject to the provisions of Section 6(a)
hereof, any disposition, within the meaning of Section 424(c) of the Code, of
Shares acquired by the exercise of an Incentive Stock Option within two years
from the date of grant of the option or within one year after the transfer of
the Shares to the optionee shall be a disqualifying disposition as defined in
Section 421(b) of the Code; provided, however, that the foregoing holding
periods shall not apply to the disposition of Shares after the death of the
optionee by the estate of the optionee, or by a person who acquired the Shares
by bequest or inheritance or by reason of the death of the optionee. For
purposes of the preceding sentence, in the case of a transfer of Shares by an
insolvent optionee to a trustee, receiver or similar fiduciary in any proceeding
under Title 11 of the United States Code or any similar insolvency proceeding,
neither the transfer, nor any other transfer of such Shares for the benefit of
his creditors in such proceeding, shall constitute a disposition.
(e) ORDER OF 0PTION EXERCISE. An optionee may exercise the options
granted by the Company under the Plan in any order the optionee chooses
regardless of the chronological order in which the options were granted by the
Company.
7. SPECIAL PROVISIONS REGARDING OPTION GRANTS TO NON-EMPLOYEE DIRECTORS.
Pursuant to the terms of this Plan, each non-employee Director of this
Corporation shall be entitled to receive a one-time grant of a Non-Qualified
Option, effective upon the date of his/her initial election to the Board of
Directors of the Corporation, to purchase 50,000 Shares. The exercise price for
such option shall equal the fair market value of the Corporation's Common Stock
on the grant date. Each such option shall vest as to exercisability with
respect to the first 20% of the shares subject thereto on the first anniversary
date of the grant date of such option, and as to an additional 20% of the shares
subject thereto on each of the second, third, fourth and fifth anniversary dates
of the grant date. Any such options granted to non-employee Directors of the
Corporation shall be exercisable only during the holders term as a Director of
the Corporation, and shall automatically expire upon the date that a Director is
no longer serving as a Director, except that an option may be exercisable after
the death, disability, as defined in Section 22(e)(3) of the Code
("Disability"), or retirement from the Board at the age of 65 or thereafter
("Retirement"), of a holder while a Director of the Company at any time until
the
- 6 -
<PAGE>
earlier to occur of (i) the one year anniversary of the date of death,
Disability, or Retirement and (ii) the expiration of the term of such option.
No shares Of Common Stock issuable upon the exercise of an option may be sold,
assigned, pledged or otherwise transferred for a period of six months after the
later to occur of (x) the adoption of the Plan by the Company's shareholders and
(y) the grant of the option, as is specified in Rule 16b-3 (or other period of
time specified in such rule as such rule may be amended from time to time) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). It is
intended that this part of the Plan as it applies to option grants to non-
employee Directors will constitute a "formula plan" within the meaning of Rule
16b-3 under the Exchange Act, and the provisions of the Plan and of any option
agreement made pursuant to the Plan will be interpreted and applied accordingly.
At any time the Committee may suspend or terminate this part of the Plan and
make such additions or amendments thereto as it deems advisable; provided, that
such additions or amendments are made in compliance with Rule 16b-3 of the
Exchange Act (as such rule may be amended from time to time); and provided,
further, that the terms of this paragraph shall not be amended more than once
every six months (other than to comply with the federal securities laws, the
Code, or ERISA).
8. TERM OF PLAN. Options may be granted pursuant to the Plan from time
to time within a period of ten years after the date the Plan is adopted by the
Board of Directors of the Company or the date the Plan is approved by the
holders of a majority of the outstanding Shares of the Company, whichever date
is earlier. However, the Plan shall not take effect until approved by the
holders of a majority of the outstanding Shares of the Company, at a duly
constituted meeting thereof, held within 12 months before or after the date the
Plan is adopted by the Board of Directors.
9. AMENDMENT AND TERMINATION OF PLAN. The Committee, without further
approval of the Shareholders of the Company, may at any time suspend or
terminate the Plan, or may amend it from time to time in any manner, provided,
however, that no amendment shall be effective without prior approval of the
Shareholders of the Company which would: (i) except as provided in Section 5(g)
hereof, increase the maximum number of Shares for which options may be granted
under the Plan; (ii) change the eligibility requirements for individuals
entitled to receive options under the Plan; or (iii) cause Incentive Stock
Options granted or to be granted under the Plan to fail to qualify as Incentive
Stock Options under Section 422 of the Code and the regulations promulgated
thereunder.
10. SHARES RESERVED. The Board of Directors of the Company shall at all
times during the term of this Plan reserve and keep available such number of
Shares as will be sufficient to satisfy the requirements of this Plan, and shall
pay all original issue taxes on the exercise of options, and all other fees and
expenses necessarily incurred by the Company in connection therewith.
- 7 -
<PAGE>
11. APPLICATION OF PROCEEDS. The proceeds of the sale of Shares by the
Company under the Plan will constitute general funds of the Company and may be
used by the Company for any purpose.
Date approved by
Board of Directors - October 13, 1995
--------------------
Shareholders - October 13, 1995
--------------------
<PAGE>
Disease State Management, Inc.
-- Option Certificate --
DISEASE STATE MANAGEMENT, INC. STOCK OPTION PLAN
This certifies the grant of Non-Qualified Stock Options as specified below
which has been made under and pursuant to the Disease State Management, Inc.
Stock Option Plan (the "Plan"), all of the provisions of which are hereby
incorporated by reference and made a part hereof. In addition, the awards shown
in this certificate are nontransferable and subject to the terms and conditions
set forth in the attached Schedule of Terms.
Participant's Name:
Date of Grant:
Stock Option Terms
* Shares Awarded:
* Exercise Price:
* Vesting Dates: _____ Shares on First Anniversary of Date of Grant;
_____ Shares on Second Anniversary of Date of Grant; _____ Shares
on Third Anniversary of Date of Grant; _____ Shares on Fourth
Anniversary of Date of Grant; and _____ Shares on Fifth
Anniversary of Date of Grant.
* Expiration Date: Tenth Anniversary of Date of Grant
IN WITNESS WHEREOF, this Certificate has been executed on behalf of the
Committee of the Board of Directors appointed to administer the Plan.
- ----------------------------------------------- ------------------
Corporate Secretary Date
I acknowledge receipt of this Option Certificate and the attached Schedule of
Terms describing my Option. I accept this Option subject to the Plan and the
Schedule of Terms applicable thereto.
- ----------------------------------------------- ------------------
Participant Date
<PAGE>
DISEASE STATE MANAGEMENT, INC. STOCK OPTION PLAN
INCENTIVE STOCK OPTION SCHEDULE OF TERMS
INCENTIVE STOCK OPTION GRANT
This Schedule of Terms and the attached Option Certificate constitute the grant
by Disease State Management, Inc. (the "Company") of the right (the "Option") to
purchase, at a future date, a specified number of shares of Company Common Stock
(the "Shares") at a specified price, subject to the terms set forth herein and
in the Disease State Management, Inc. Stock Option Plan (the "Plan"), all of
the provisions of which are hereby incorporated by reference and made a part
hereof. The recipient of the Option (the "Participant"), the number of Shares
for which the Option is granted and the Option price per share are set forth in
the attached Option Certificate issued to the Participant. The Company intends
that the Option shall be an Incentive Stock Option governed by the provisions of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). The
terms of the Plan and the Option shall be interpreted and administered so as to
satisfy the requirements of the Code.
EXERCISE AND PAYMENT
Options will vest in increments. So long as the Participant remains an employee
of the Company the vested portion of each Option may be exercised on and after
its Vesting Date through the Expiration Date, with the Vesting Date and the
Expiration Date being set forth in the Option Certificate.
It is the sole responsibility of the Participant, or the Participant's
representative, to exercise the Option in a timely manner. The Company assumes
no responsibility for, and will make no adjustments with respect to, Options
that expire. The Participant may exercise the Option by notifying the Company,
in writing, of the number of Shares the Participant wishes to purchase, the
Option price, the date of the Option, and by paying the required Option price..
The date of exercise will be the date of the Company's receipt of the notice,
accompanied by the payment of the Option price.
The Participant shall pay the Option price in cash. The Company shall deliver
the requisite number of Shares to the Participant as soon as administratively
practicable following the date of exercise and receipt of payment. If the
Participant disposes of any Shares acquired upon exercise of the option within
two (2) years from the date the Option was granted or within one (1) year after
the date of exercise of the Option the Participant must promptly notify the
Company of the dates of acquisition and disposition of such Shares, the number
of Shares so disposed of, and the consideration, if any, received for such
Shares.
VESTING
A Participant's right to exercise an Option shall vest on the Vesting Dates
specified in the Option Certificate. Once all or part of an Option is vested,
that portion which is vested may be exercised anytime thereafter until the
earlier of: (i) the Expiration Date specified in the Option Certificate, at
which time the Option and all associated rights lapse without value; or (ii)
termination of employment with the Company or an Affiliate in which case the
right to exercise may be for a specified period of time, as described below,
following the date of termination. No portion of any Option shall become vested
at any time after the Participant's employment with the Company or any Affiliate
has terminated. Termination of employment means termination from the Company
and any Affiliate.
<PAGE>
TERMINATION OF EMPLOYMENT
Period Following
Reason For Portion of Option Termination Vested
Termination Deemed Vested Options May Be Exercised
----------- ------------- ------------------------
Death Portion actually vested Not beyond the Expiration
Date of the Option
Permanent Disability Portion actually vested One year, but not beyond
the Expiration Date of
the Option
Severance from Portion actually vested Three months, but not
employment for any beyond the Expriation
reason other than Date of the Option
Death or Permanent
Disability
A Participant who stops rendering services to the Company as a result of an
authorized leave of absence shall not be considered to have terminated
employment. If a Participant does not resume employment at the conclusion of an
authorized leave of absence, the Participant shall be deemed to have terminated
employment as of the last date of such leave of absence.
NON-ASSIGNABILITY
No assignment or transfer of any interest of the Participant in any of the
rights presented by the Option, whether voluntary or involuntary, by operation
of law or otherwise, shall be permitted except by will, by the laws of descent
and distribution, or pursuant to an unqualified domestic relations order as
defined by the Code.
ADJUSTMENTS
In the event of a recapitalization, stock split, reorganization, or other
restructuring of the Company, the terms of the Option may be equitably adjusted
in accordance with the Plan and as deemed appropriate by the Committee, in its
discretion.
CHANGE OF CONTROL
In the event of merger, consolidation, dissolution or liquidation which results
in a change of control as defined in Section 368(c) of the Code (using the
attribution rules of Section 318), all unexercised options will become
immediately exercisable for a period of one year. The effectiveness of such
expiration shall be conditioned upon the consummation of any such transaction.
OPTIONS NOT TO AFFECT OR BE AFFECTED BY CERTAIN TRANSACTIONS
Options shall not affect in any way the right or power of the Company or an
Affiliate or the shareholders of either to make or authorize (a) any or all
adjustments, recapitalizations, reorganizations or other changes in the
Company's or an Affiliate's capital structure of its business; (b) any merger or
consolidation of the Company or an Affiliate; (c) any issue of bonds,
debentures, preferred or prior preference stock holding any priority or
preferred to, or otherwise affecting in any respect the Common Stock of the
Company or rights of the holders of such Common Stock; (d) the dissolution or
liquidation of the Company or an Affiliate; (e) any sale or transfer of all or
any part of the assets or business of the Company or an Affiliate; or (f) any
other corporate act or proceeding.
<PAGE>
NOTICES
Every notice or other communication relating to the Plan, any Option and this
Schedule of Terms shall be in writing, and shall be mailed to or delivered to
the party for whom it is intended at such address as may from time to time be
designated by such party. Unless and until some other address has been so
designated, all notices by the Participant to the Company shall be mailed to or
delivered to the Company at its office at 46 Prince Street, Rochester, New York
14607, Attention: Corporate Secretary. All notices by the Company to the
Participant shall be given to the Participant personally or be mailed to the
Participant at the Participant's address as shown on the records of the Company.
ADMINISTRATION
Options granted pursuant to the Plan shall be interpreted and administered by
the Committee appointed by the Company's Board of Directors (the "Committee").
The Committee shall establish such procedures as it deems necessary and
appropriate to administer the Options in a manner that is consistent with the
terms of the Plan.
TAXES/WITHHOLDING
The Participants shall be responsible for any income or other tax liability
attributable to the exercise of any Option. The Company shall take such steps
as are appropriate to assure compliance with applicable federal, state and local
tax withholding requirements by the Company. The Company shall, to the extent
permitted by law, have the right to deduct directly from any payment or delivery
of Shares due the Participant, or from the Participant's regular compensation,
all federal, state and local taxes of any kind required by law to be withheld
with respect to the exercise of any Option.
INVESTMENT REPRESENTATION
The Option is granted upon the condition that, if and when requested,
Participant will represent and agree that any Shares which Participant may
acquire pursuant to the exercise of the Option will be acquired for long-term
investment purposes and not with the view toward the distribution or sale
thereof in a public offering within the meaning of the Federal Securities Act of
1933. The Shares may not, at the time that they are acquired by Participant, be
registered under either the federal or applicable state securities laws, and, in
that event, the Company will be relying upon the Participant's investment
representation in agreeing to issue such shares to the Participant. If the
Shares acquired by the Participant pursuant to the Option are not registered
they will be subject to restrictions imposed by applicable federal and state
securities laws and the certificates evidencing the Shares may be imprinted with
an appropriate legend setting forth the restrictions on transferability.
RIGHT OF DISCHARGE RESERVED
Nothing in the Plan or in any Option granted pursuant thereto shall confer upon
any Participant the right to continue in the employment or service of the
Company or any Affiliate thereof for any period of time or affect any right that
the Company or any Affiliate may have to terminate the employment or service of
such Participant at any time for any reason.
<PAGE>
NATURE OF PAYMENTS
All Options granted pursuant to the Plan are in consideration of the services
performed for the Company or the Affiliate employing the Participant. Any gains
realized pursuant to such Options constitute a special incentive payment to the
Participant and shall not be taken into account as compensation for purposes of
any of the employee benefit plan of the Company or any Affiliate.
INTERPRETATIONS
This Schedule of Terms and each Option Certificate are subject in all respects
to the terms of the Plan. In the event that any provision of this Schedule of
Terms or any Option Certificate is inconsistent with the terms of the Plan, the
terms of the Plan shall govern. Any question of administration or
interpretation arising under this Schedule of Terms or any Option Certificate
shall be determined by the Committee. Such determination shall be final and
conclusive upon all interested parties.
GOVERNING LAW
The Plan, this Schedule of Terms, and the Option Certificate shall be governed
by and construed in accordance with the laws of the State of New York.
<PAGE>
Disease State Management, Inc.
-- Option Certificate --
DISEASE STATE MANAGEMENT, INC. STOCK OPTION PLAN
This certifies the grant of Non-Qualified Stock Options as specified below
which has been made under and pursuant to the Disease State Management, Inc.
Stock Option Plan (the "Plan"), all of the provisions of which are hereby
incorporated by reference and made a part hereof. In addition, the awards shown
in this certificate are nontransferable and subject to the terms and conditions
set forth in the attached Schedule of Terms.
Participant's Name:
Date of Grant:
Stock Option Terms
* Shares Awarded:
* Exercise Price:
* Vesting Dates: _____ Shares on First Anniversary of Date of Grant;
_____ Shares on Second Anniversary of Date of Grant; _____ Shares
on Third Anniversary of Date of Grant; _____ Shares on Fourth
Anniversary of Date of Grant; and _____ Shares on Fifth
Anniversary of Date of Grant.
* Expiration Date: Tenth Anniversary of Date of Grant
IN WITNESS WHEREOF, this Certificate has been executed on behalf of the
Committee of the Board of Directors appointed to administer the Plan.
- ----------------------------------------------- ------------------
Corporate Secretary Date
I acknowledge receipt of this Option Certificate and the attached Schedule of
Terms describing my Option. I accept this Option subject to the Plan and the
Schedule of Terms applicable thereto.
- ----------------------------------------------- ------------------
Participant Date
<PAGE>
DISEASE STATE MANAGEMENT, INC. STOCK OPTION PLAN
NON-QUALIFIED STOCK OPTION SCHEDULE OF TERMS
NON-QUALIFIED STOCK OPTION GRANT
This Schedule of Terms and the attached Option Certificate constitute the grant
by Disease State Management, Inc. (the "Company") of the right (the "Option") to
purchase, at a future date, a specified number of shares of Company Common Stock
(the "Shares") at a specified price, subject to the terms set forth herein and
in the Disease State Management, Inc. Stock Option Plan (the "Plan"), all of
the provisions of which are hereby incorporated by reference and made a part
hereof. The recipient of the Option (the "Participant"), the number of Shares
for which the Option is granted and the Option price per share are set forth in
the attached Option Certificate issued to the Participant.
EXERCISE AND PAYMENT
Options will vest in increments. So long as the Participant remains an employee
of the Company the vested portion of each Option may be exercised on and after
its Vesting Date through the Expiration Date, with the Vesting Date and the
Expiration Date being set forth in the Option Certificate.
It is the sole responsibility of the Participant, or the Participant's
representative, to exercise the Option in a timely manner. The Company assumes
no responsibility for, and will make no adjustments with respect to, Options
that expire. The Participant may exercise the Option by notifying the Company,
in writing, of the number of Shares the Participant wishes to purchase, the
Option price, the date of the Option, and by paying the required Option price..
The date of exercise will be the date of the Company's receipt of the notice,
accompanied by the payment of the Option price.
The Participant shall pay the Option price in cash. The Company shall deliver
the requisite number of Shares to the Participant as soon as administratively
practicable following the date of exercise and receipt of payment. If the
Participant disposes of any Shares acquired upon exercise of the option within
two (2) years from the date the Option was granted or within one (1) year after
the date of exercise of the Option the Participant must promptly notify the
Company of the dates of acquisition and disposition of such Shares, the number
of Shares so disposed of, and the consideration, if any, received for such
Shares.
VESTING
A Participant's right to exercise an Option shall vest on the Vesting Dates
specified in the Option Certificate. Once all or part of an Option is vested,
that portion which is vested may be exercised anytime thereafter until the
earlier of: (i) the Expiration Date specified in the Option Certificate, at
which time the Option and all associated rights lapse without value; or (ii)
termination of employment with the Company or an Affiliate in which case the
right to exercise may be for a specified period of time, as described below,
following the date of termination. No portion of any Option shall become vested
at any time after the Participant's employment with the Company or any Affiliate
has terminated. Termination of employment means termination from the Company
and any Affiliate.
<PAGE>
TERMINATION OF EMPLOYMENT
Period Following
Reason For Portion of Option Termination Vested
Termination Deemed Vested Options May Be Exercised
----------- ------------- ------------------------
Death Portion actually vested Not beyond the Expiration
Date of the Option
Permanent Disability Portion actually vested One year, but not beyond
the Expiration Date of
the Option
Severance from Portion actually vested Three months, but not
employment for any beyond the Expriation
reason other than Date of the Option
Death or Permanent
Disability
A Participant who stops rendering services to the Company as a result of an
authorized leave of absence shall not be considered to have terminated
employment. If a Participant does not resume employment at the conclusion of an
authorized leave of absence, the Participant shall be deemed to have terminated
employment as of the last date of such leave of absence.
NON-ASSIGNABILITY
No assignment or transfer of any interest of the Participant in any of the
rights presented by the Option, whether voluntary or involuntary, by operation
of law or otherwise, shall be permitted except by will, by the laws of descent
and distribution, or pursuant to an unqualified domestic relations order as
defined by the Code.
ADJUSTMENTS
In the event of a recapitalization, stock split, reorganization, or other
restructuring of the Company, the terms of the Option may be equitably adjusted
in accordance with the Plan and as deemed appropriate by the Committee, in its
discretion.
CHANGE OF CONTROL
In the event of merger, consolidation, dissolution or liquidation which results
in a change of control as defined in Section 368(c) of the Code (using the
attribution rules of Section 318), all unexercised options will become
immediately exercisable for a period of one year. The effectiveness of such
expiration shall be conditioned upon the consummation of any such transaction.
OPTIONS NOT TO AFFECT OR BE AFFECTED BY CERTAIN TRANSACTIONS
Options shall not affect in any way the right or power of the Company or an
Affiliate or the shareholders of either to make or authorize (a) any or all
adjustments, recapitalizations, reorganizations or other changes in the
Company's or an Affiliate's capital structure of its business; (b) any merger or
consolidation of the Company or an Affiliate; (c) any issue of bonds,
debentures, preferred or prior preference stock holding any priority or
preferred to, or otherwise affecting in any respect the Common Stock of the
Company or rights of the holders of such Common Stock; (d) the dissolution or
liquidation of the Company or an Affiliate; (e) any sale or
<PAGE>
transfer of all or any part of the assets or business of the Company or an
Affiliate; or (f) any other corporate act or proceeding.
NOTICES
Every notice or other communication relating to the Plan, any Option and this
Schedule of Terms shall be in writing, and shall be mailed to or delivered to
the party for whom it is intended at such address as may from time to time be
designated by such party. Unless and until some other address has been so
designated, all notices by the Participant to the Company shall be mailed to or
delivered to the Company at its office at 46 Prince Street, Rochester, New York
14607, Attention: Corporate Secretary. All notices by the Company to the
Participant shall be given to the Participant personally or be mailed to the
Participant at the Participant's address as shown on the records of the Company.
ADMINISTRATION
Options granted pursuant to the Plan shall be interpreted and administered by
the Committee appointed by the Company's Board of Directors (the "Committee").
The Committee shall establish such procedures as it deems necessary and
appropriate to administer the Options in a manner that is consistent with the
terms of the Plan.
TAXES/WITHHOLDING
The Participants shall be responsible for any income or other tax liability
attributable to the exercise of any Option. The Company shall take such steps
as are appropriate to assure compliance with applicable federal, state and local
tax withholding requirements by the Company. The Company shall, to the extent
permitted by law, have the right to deduct directly from any payment or delivery
of Shares due the Participant, or from the Participant's regular compensation,
all federal, state and local taxes of any kind required by law to be withheld
with respect to the exercise of any Option.
INVESTMENT REPRESENTATION
The Option is granted upon the condition that, if and when requested,
Participant will represent and agree that any Shares which Participant may
acquire pursuant to the exercise of the Option will be acquired for long-term
investment purposes and not with the view toward the distribution or sale
thereof in a public offering within the meaning of the Federal Securities Act of
1933. The Shares may not, at the time that they are acquired by Participant, be
registered under either the federal or applicable state securities laws, and, in
that event, the Company will be relying upon the Participant's investment
representation in agreeing to issue such shares to the Participant. If the
Shares acquired by the Participant pursuant to the Option are not registered
they will be subject to restrictions imposed by applicable federal and state
securities laws and the certificates evidencing the Shares may be imprinted with
an appropriate legend setting forth the restrictions on transferability.
RIGHT OF DISCHARGE RESERVED
Nothing in the Plan or in any Option granted pursuant thereto shall confer upon
any Participant the right to continue in the employment or service of the
Company or any Affiliate thereof for any period of time or affect any right that
the Company or any Affiliate may have to terminate the employment or service of
such Participant at any time for any reason.
<PAGE>
NATURE OF PAYMENTS
All Options granted pursuant to the Plan are in consideration of the services
performed for the Company or the Affiliate employing the Participant. Any gains
realized pursuant to such Options constitute a special incentive payment to the
Participant and shall not be taken into account as compensation for purposes of
any of the employee benefit plan of the Company or any Affiliate.
INTERPRETATIONS
This Schedule of Terms and each Option Certificate are subject in all respects
to the terms of the Plan. In the event that any provision of this Schedule of
Terms or any Option Certificate is inconsistent with the terms of the Plan, the
terms of the Plan shall govern. Any question of administration or
interpretation arising under this Schedule of Terms or any Option Certificate
shall be determined by the Committee. Such determination shall be final and
conclusive upon all interested parties.
GOVERNING LAW
The Plan, this Schedule of Terms, and the Option Certificate shall be governed
by and construed in accordance with the laws of the State of New York.
<PAGE>
SERVICES AGREEMENT
This Agreement is effective this 18th day of September, 1995, (the "Effective
Date") between -Disease State Management, Inc., 46 Prince Street, Rochester, New
York 14607 ("Vendor") and Bristol-Myers Squibb U.S. Pharmaceuticals, a division
of Bristol-Myers Squibb Company, P.O. Box 4500, Princeton, New Jersey 08543-4500
(hereinafter called "BMSUSP"). Vendor agrees to provide services to BMSUSP
under the terms set forth below.
A. SERVICES
Vendor will provide the product(s) or service(s) set forth, and to the
specifications set forth in the proposal incorporated herein as
Attachment A.
The product and all elements as set forth on Attachment A are subject
to prior approval by BMSUSP, such approval not to be unreasonably
withheld.
B. COMPENSATION
BMSUSP will pay Vendor according to the terms or payment schedule set
forth in Attachment A hereto.
In the event that BMSUSP shall request any changes in the concept,
specifications or scope of the product(s) or service(s) described on
Attachment A hereto, Vendor will notify BMSUSP of the cost of such
revisions and will not proceed without prior written approval.
If the compensation provision on Attachment A hereto is other than a
flat fee amount per element or for the entire project, Vendor will
provide such documentation in support of all billings as BMSUSP may
reasonably require.
C. CONFIDENTIALITY
Vendor shall treat as confidential and secret any and all BMSUSP
Confidential Information. "BMSUSP Confidential Information" shall
include, but not be limited to, information relating to BMSUSP's past,
present and future marketing and research and development activities
that may be disclosed to Vendor by BMSUSP and/or BMSUSPs parent,
subsidiary or affiliate companies and which are identified in writing
by BMSUSP as confidential. BMSUSP Confidential information shall not
include (i) information known by Vendor prior to disclosure
<PAGE>
from BMSUSP. (ii) information which is or becomes publicly known
through no wrongful act of Vendor, (iii) information that is
independently developed by Vendor, without use of information that
otherwise constitutes BMSUSP Confidential Information, or (iv)
information disclosed pursuant to law, rule, regulation or pursuant to
a court order, provided that BMSUSP is given 10 days prior notice of
such disclosure. Vendor expressly agrees that any information it
discovers or develops under this Agreement for the benefit of BMSUSP
shall not be used by Vendor or disclosed by Vendor to any third
party, nor shall Vendor show this Agreement or disclose the existence,
nature or subject matter of this Agreement to any third. party without
the prior written consent of BMSUSP. Vendors obligations not to
disclose BMSUSP Confidential Information to third parties and not to
otherwise use BMSUSP Confidential Information shall survive the
termination of this Agreement for a period of five years. Vendor
shall not duplicate any material containing BMSUSP Confidential
Information, except in the direct performance of its services under
this Agreement. Vendor shall return all copies of materials
containing BMSUSP Confidential Information upon Vendor's completion of
services under this Agreement or upon any earlier termination of this
Agreement for any reason whatsoever.
BMSUSP shall treat as confidential and secret any and all Vendor
Confidential Information. "Vendor Confidential Information" shall
include, but not be limited to, information relating to Vendor's past,
present and future systems development activities that may be
disclosed to BMSUSP and/or BMSUSP's parent, subsidiary or affiliate
companies and which are identified in writing by Vendor as
confidential, except that in no event shall Vendor Confidential
Information include information relating to Vendor deliverables under
this agreement. Vendor Confidential information shall not include (i)
information known by BMSUSP prior to disclosure from Vendor, (ii)
information which is or becomes publicly known through no wrongful act
of BMSUSP, (iii) information that is independently developed by
BMSUSP, without use of information that otherwise constitutes Vendor
Confidential Information, or (iv) information disclosed pursuant to
law, rule, regulation or pursuant to a court order, provided that
Vendor is given 10 days prior notice of such disclosure. BMSUSP
expressly agrees that any Confidential Information it discovers under
this Agreement shall not be disclosed by BMSUSP to any third party
without the prior written consent of Vendor. BMSUSP's obligations not
to disclose Vendor Confidential Information shall survive the
termination of this Agreement for a period of five years.
D. INDEMNIFICATION
Each party shall indemnify and hold the other party harmless from and
against all liability, damages, penalties, losses, costs or expenses,
including attorneys' fees,
2
<PAGE>
arising from or in any way related to its willful or negligent actions
or omissions in performing the responsibilities as described in this
Agreement, or for any willful or negligent breach of this Agreement.
E. PROFESSIONAL STANDARDS
Vendor represents that it has facilities, personnel, experience and
expertise sufficient in quality and quantity to perform all such
assignments and projects given it by BMSUSP hereunder and agrees that
it will perform all such assignments and projects in a manner
commensurate with professional standards generally applicable to its
industry.
F. OWNERSHIP OF MATERIALS
Any and all reports, information, data or other works created by
Vendor for BMSUSP in connection with this Agreement (with the
exception of customization of the Vendor's basic software and systems
for BMSUSP) shall be the sole and exclusive property of BMSUSP.
BMSUSP may use such work wherever and whenever it chooses. This
Agreement shall be deemed a transfer of copyright and any
copyrightable subject matter created by Vendor in such works. Vendor
shall execute any and all documents necessary to demonstrate or
perfect such transfer. Vendor shall not at any time, in any manner,
during or after this Agreement, under any circumstances, be entitled
to or claim any right, title or interest herein or any commission, fee
or other direct or indirect benefit from BMSUSP or BMSUSP's parent,
subsidiary or affiliate companies, in respect of such reports, data,
information or other works created by Vendor hereunder. Vendor agrees
to execute or cause its agents and/or employees to execute any
documents necessary or desirable to secure or perfect BMSUSP's legal
rights and worldwide ownership in such works, including, but not
limited to, documents relating to patent, trademark and copyright
applications.
Nothing in the preceding paragraph shall preclude Vendor from
referring to the general results of the project performed pursuant to
this Agreement in making marketing presentations to other potential
customers. In addition, BMSUSP agrees to provide Vendor with
reasonable access to data generated by the project performed pursuant
to this Agreement for the sole purpose of supplementing or supporting
marketing presentations to other potential customers, provided,
however, that all such supplemental or supporting presentations,
insofar as they disclose data from the project, must be pre-approved
by BMSUSP.
3
<PAGE>
G. RELEASES
Any materials furnished hereunder which have not been created for
BMSUSP and are subject to the rights of third parties shall be
specifically identified to BMSUSP in writing. Vendor shall obtain
(and deliver upon request to BMSUSP) releases for all names,
photographs, illustrations, testimonials, and any and all other
materials used in works which Vendor prepares or uses. All such
releases shall run to BMSUSP, its agents and employees where
appropriate and customary. Vendor's failure to obtain such releases
or the obtaining of such releases by Vendor shall in no way relieve
Vendor of its obligations in Paragraph F above except where the
releases have been obtained directly by BMSUSP. Except for works that
have been secured by permission, Vendor warrants and covenants that
all works provided by Vendor shall be original and shall not infringe
any copyright or violate any rights of any persons or entities
whatsoever.
H. DURATION OF AGREEMENT
1. Term
This Agreement is effective as of the Effective Date and shall
continue in full force and effect until the earlier of (i) completion
of the project assigned hereunder, (ii) terminated by at least thirty
(30) days written notice by either party to the other, sent by
registered mail to the address for each party first set forth above,
or to such other address which a party may designate for its receipt
of notices hereunder.
2. Payment on Termination
Upon termination of this Agreement BMSUSP is to pay for all authorized
work in process, and BMSUSP shall assume Vendor's liability under and
indemnify Vendor with respect to all outstanding contracts made on
BMSUSP's behalf. Upon written notice of termination Vendor shall
take all steps necessary to wind up the work under this Agreement and
to mitigate BMSUSP's liability therefore.
3. Transfer Upon Termination
Vendor shall transfer, assign and make available to BMSUSP or BMSUSP's
representative all property and materials in Vendor's possession or
control belonging to and paid for by BMSUSP, and all information
regarding BMSUSP's project(s) covered by this Agreement, as set forth
in Paragraph C herein. Vendor also agrees to give all reasonable
cooperation toward transferring with approval of third parties
4
<PAGE>
in interest all contracts and arrangements, if any, properly entered
into by Vendor in the performance of this Agreement, and all rights
and claims thereto and therein, upon being duly released from the
obligation thereof.
I. INDEPENDENT CONTRACTORS
The parties to this Agreement are independent contractors and nothing
contained in this Agreement shall be construed to place the parties in
the relationship of employer and employee, partners, principal and
agent, or joint ventures. Neither party shall have the power to bind
or obligate the other party nor shall either party hold itself out as
having such authority.
J. THIRD PARTY OBLIGATIONS
In connection with this Agreement, Vendor shall make no commitments or
disbursements, incur no obligations nor place any advertising, public
relations or promotional material for BMSUSP's parent, subsidiary or
affiliate companies, nor disseminate any material of any kind using
the name of BMSUSP and/or BMSUSP's parent, subsidiary or affiliate
companies or using their trademarks, without the prior written
approval of BMSUSP.
K. GOVERNING LAW
This Agreement is entered into in the State of New Jersey and shall be
constructed and governed under and in accordance with the laws of that
State.
L. MISCELLANEOUS
(1) The terms of this Agreement shall be binding upon BMSUSP and
Vendor and their respective successors and permitted assigns.
Notwithstanding the foregoing, this Agreement is not assignable in
whole or in part by Vendor without the prior written consent of
BMSUSP. Factoring of accounts receivable is not permitted.
(2) The failure of either party to take action as a result of a
breach of this Agreement by the other party shall constitute neither a
waiver of the particular breach involved nor a waiver of either
party's right to enforce any or all provisions of this Agreement
through any remedy granted by law or this Agreement.
(3) BMSUSP is an Equal Opportunity Employer and does not discriminate
against any person because of race, color, creed, age, sex, or
national
5
<PAGE>
origin. Vendor represents that it has the same policy of Equal
Opportunity Employment.
(4) The policy of BMSUSP is to protect the health, safety and quality
of life of its employees and the public, and to exercise responsible
stewardship of natural resources that may be impacted by its
activities. To realize this, BMSUSP is committed to maintaining
programs and procedures for the environmentally responsible management
of facilities, materials, production processes, products and
packaging, transportation and distribution, waste and ft minimization,
energy, general business operations and contracted goods and services.
Vendor agrees with this policy and further acknowledges that its
performance under this Agreement shall be in strict compliance with
all applicable governmental laws and regulations and in accordance
with and in furtherance of this policy.
(5) This Agreement contains the entire understanding of the parties
with respect to the subject matter contained herein, supersedes any
prior written or oral communications and may be modified in writing
subject to mutual agreement of the parties hereto.
(6) The headings of each paragraph are for reference only and shall
not be construed as part of this Agreement.
6
<PAGE>
(7) Except for the obligation to pay money property due and owing,
either party shall be excused from any delay or failure in performance
hereunder caused by reason of any occurrence or contingency beyond its
reasonable control, including. but not limited to, failure of
performance by the other party, earthquake, labor disputes, riots,
governmental requirements, inability to secure materials on a timely
basis, failure of computer equipment, failures or delays of sources
from which information or data is obtained and transportation
difficulties.
IN WITNESS WHEREOF, the parties hereto, each by a duly authorized officer, have
entered in to this Agreement this 18th day of September, 1995
Bristol-Myers Squibb DSMI Corp.
U.S. Pharmaceuticals 46 Prince Street
a division of Bristol-Myers Rochester, New York 14607
Squibb Company
/s/ Ray Joske
By: /s/ Rose Crane By: /s/ Donald A. Carlberg
----------------------------- ------------------------
Title: HEALTHCARE MANAGEMENT Title: President & CEO
7
<PAGE>
Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked by [****], have been
separately filed with the Commission.
DSMI PROPOSAL TO BRISTOL-MYERS SQUIBB COMPANY
CARDIOVASCULAR DISEASE PROGRAM
SEPTEMBER 18, 1995
[****]
<PAGE>
SERVICES AGREEMENT
This Agreement is effective this 1 day of February, 1996, (the "Effective
Date") between -Disease State Management, Inc., 46 Prince Street, Rochester, New
York 14607 ("Vendor") and Bristol-Myers Squibb U.S. Pharmaceuticals, a division
of Bristol-Myers Squibb Company, P.O. Box 4500, Princeton, New Jersey 08543-4500
(hereinafter called "BMSUSP"). Vendor agrees to provide services to BMSUSP
under the terms set forth below.
A. SERVICES
Vendor will provide the product(s) or service(s) set forth, and to the
specifications set forth in the proposal incorporated herein as Attachment
A.
The product and all elements as set forth on Attachment A are subject to
prior approval by BMSUSP, such approval not to be unreasonably withheld.
B. COMPENSATION
BMSUSP will pay Vendor according to the terms or payment schedule set forth
in Attachment A hereto.
In the event that BMSUSP shall request any changes in the concept,
specifications or scope of the product(s) or service(s) described on
Attachment A hereto, Vendor will notify BMSUSP of the cost of such
revisions and will not proceed without prior written approval.
If the compensation provision on Attachment A hereto is other than a flat
fee amount per element or for the entire project, Vendor will provide such
documentation in support of all billings as BMSUSP may reasonably require.
C. CONFIDENTIALITY
Vendor shall treat as confidential and secret any and all BMSUSP
Confidential Information. "BMSUSP Confidential Information" shall include,
but not be limited to, information relating to BMSUSP's past, present and
future marketing and research and development activities that may be
disclosed to Vendor by BMSUSP and/or BMSUSPs parent, subsidiary or
affiliate companies and which are identified in writing by BMSUSP as
confidential. BMSUSP Confidential information shall not include (i)
information known by Vendor prior to disclosure from BMSUSP. (ii)
information which is or becomes publicly known through no wrongful act of
Vendor, (iii) information that is independently developed by Vendor,
without use of information that otherwise constitutes BMSUSP Confidential
Information, or (iv) information disclosed pursuant to law, rule,
regulation or pursuant to a court order, provided that BMSUSP is given 10
days prior notice of such disclosure. Vendor expressly agrees that any
information it discovers or develops under this Agreement for the benefit
of BMSUSP shall not be used by Vendor or disclosed by Vendor to any third
party, nor shall Vendor show this Agreement or disclose the existence,
nature or subject matter of this
1
<PAGE>
Agreement to any third. party without the prior written consent of BMSUSP.
Vendors obligations not to disclose BMSUSP Confidential Information to
third parties and not to otherwise use BMSUSP Confidential Information
shall survive the termination of this Agreement for a period of five years.
Vendor shall not duplicate any material containing BMSUSP Confidential
Information, except in the direct performance of its services under this
Agreement. Vendor shall return all copies of materials containing BMSUSP
Confidential Information upon Vendor's completion of services under this
Agreement or upon any earlier termination of this Agreement for any reason
whatsoever.
BMSUSP shall treat as confidential and secret any and all Vendor
Confidential Information. 'Vendor Confidential Information" shall include,
but not be limited to, information relating to Vendor's past, present and
future systems development activities that may be disclosed to BMSUSP
and/or BMSUSP's parent, subsidiary or affiliate companies and which are
identified in writing by Vendor as confidential, except that in no event
shall Vendor Confidential Information include information relating to
Vendor deliverables under this agreement. Vendor Confidential information
shall not include (i) information known by BMSUSP prior to disclosure from
Vendor, (ii) information which is or becomes publicly known through no
wrongful act of BMSUSP, (iii) information that is independently developed
by BMSUSP, without use of information that otherwise constitutes Vendor
Confidential Information, or (iv) information disclosed pursuant to law,
rule, regulation or pursuant to a court order, provided that Vendor is
given 10 days prior notice of such disclosure. BMSUSP expressly agrees
that any Confidential Information it discovers under this Agreement shall
not be disclosed by BMSUSP to any third party without the prior written
consent of Vendor. BMSUSP's obligations not to disclose Vendor
Confidential Information shall survive the termination of this Agreement
for a period of five years.
D. INDEMNIFICATION
Each party shall indemnify and hold the other party harmless from and
against all liability, damages, penalties, losses, costs or expenses,
including attorneys' fees, arising from or in any way related to its
willful or negligent actions or omissions in performing the
responsibilities as described in this Agreement, or for any willful or
negligent breach of this Agreement.
E. PROFESSIONAL STANDARDS
Vendor represents that it has facilities, personnel, experience and
expertise sufficient in quality and quantity to perform all such
assignments and projects given it by BMSUSP hereunder and agrees that it
will perform all such assignments and projects in a manner commensurate
with professional standards generally applicable to its industry.
2
<PAGE>
F. OWNERSHIP OF MATERIALS
Any and all reports, information, data or other works created by Vendor for
BMSUSP in connection with this Agreement (with the exception of
customization of the Vendor's basic software and systems for BMSUSP as well
as the Vendor's basic software and systems themselves) shall be the sole
and exclusive property of BMSUSP. BMSUSP may use such work wherever and
whenever it chooses. This Agreement shall be deemed a transfer of
copyright and any copyrightable subject matter created by Vendor in such
works. Vendor shall execute any and all documents necessary to demonstrate
or perfect such transfer. Vendor shall not at any time in any manner
during or after this Agreement, under any circumstances, be entitled to or
claim any right, title or interest herein or any commission, fee or other
direct or indirect benefit from BMSUSP or BMSUSP's parent, subsidiary or
affiliate companies, in respect of such reports, data, information or other
works created by Vendor hereunder. Vendor agrees to execute or cause its
agents and/or employees to execute any documents necessary or desirable to
secure or perfect BMSUSP's legal rights and worldwide ownership in such
works, including, but not limited to documents relating to patent,
trademark and copyright applications.
Nothing in the preceding paragraph shall preclude Vendor from referring to
the general results of the project performed pursuant to this Agreement in
making marketing presentations to other potential customers. In addition,
BMSUSP agrees to provide Vendor with reasonable access to data generated by
the project performed pursuant to this Agreement for the sole purpose of
supplementing or supporting marketing presentations to other potential
customers, provided, however, that all such supplemental or supporting
presentations, insofar as they disclose data from the project, must be pre-
approved by BMSUSP. Such approval shall not be unreasonably withheld.
G. RELEASES
Any materials furnished hereunder which have not been created for BMSUSP
and are subject to the rights of third parties shall be specifically
identified to BMSUSP in writing. Vendor shall obtain (and deliver upon
request to BMSUSP) releases for all names, photographs, illustrations,
testimonials, and any and all other materials used in works which Vendor
prepares or uses. All such releases shall run to BMSUSP, its agents and
employees where appropriate and customary. Vendor's failure to obtain such
releases or the obtaining of such releases by Vendor shall in no way
relieve Vendor of its obligations in Paragraph F above except where the
releases have been obtained directly by BMSUSP. Except for works that have
been secured by permission, Vendor warrants and covenants that all works
provided by Vendor shall be original and shall not infringe any copyright
or violate any rights of any persons or entities whatsoever.
3
<PAGE>
H. DURATION OF AGREEMENT
1. Term
This Agreement is effective as of the Effective Date and shall continue
in full force and effect until the earlier of (i) completion of the
project assigned hereunder, (ii) terminated by at least thirty (30)
days written notice by either party to the other, sent by registered
mail to the address for each party first set forth above, or to such
other address which a party may designate for its receipt of notices
hereunder.
2. Payment on Termination
Upon termination of this Agreement BMSUSP is to pay for all authorized
work in process, and BMSUSP shall assume Vendor's liability under and
indemnify Vendor with respect to all outstanding contracts made on
BMSUSP's behalf. Upon written notice of termination Vendor shall take
all steps necessary to wind up the work under this Agreement and to
mitigate BMSUSP's liability therefore.
3. Transfer Upon Termination
Vendor shall transfer, assign and make available to BMSUSP or BMSUSP's
representative all property and materials in Vendor's possession or
control belonging to and paid for by BMSUSP, and all information
regarding BMSUSP's project(s) covered by this Agreement, as set forth
in Paragraph C herein. Vendor also agrees to give all reasonable
cooperation toward transferring with approval of third parties in
interest all contracts and arrangements, if any, properly entered into
by Vendor in the performance of this Agreement, and all rights and
claims thereto and therein, upon being duly released from the
obligation thereof.
I. INDEPENDENT CONTRACTORS
The parties to this Agreement are independent contractors and nothing
contained in this Agreement shall be construed to place the parties in the
relationship of employer and employee, partners, principal and agent, or
joint ventures. Neither party shall have the power to bind or obligate the
other party nor shall either party hold itself out as having such authority.
J. THIRD PARTY OBLIGATIONS
In connection with this Agreement, Vendor shall make no commitments or
disbursements, incur no obligations nor place any advertising, public
relations or promotional material for BMSUSP's parent, subsidiary or
affiliate companies, nor disseminate any material of any kind using the
name of BMSUSP and/or BMSUSP's parent, subsidiary or affiliate companies or
using their trademarks, without the prior written approval of BMSUSP.
4
<PAGE>
K. GOVERNING LAW
This Agreement is entered into in the State of New Jersey and shall be
constructed and governed under and in accordance with the laws of that
State.
L. MISCELLANEOUS
1) The terms of this Agreement shall be binding upon BMSUSP and
Vendor and their respective successors and permitted assigns.
Notwithstanding the foregoing, this Agreement is not assignable in whole or
in part by Vendor without the prior written consent of BMSUSP. Factoring
of accounts receivable is not permitted.
2) The failure of either party to take action as a result of a
breach of this Agreement by the other party shall constitute neither a
waiver of the particular breach involved nor a waiver of either party's
right to enforce any or all provisions of this Agreement through any remedy
granted by law or this Agreement.
3) BMSUSP is an Equal Opportunity Employer and does not discriminate
against any person because of race, color, creed, age, sex, or national
origin. Vendor represents that it has the same policy of Equal Opportunity
Employment.
4) The policy of BMSUSP is to protect the health, safety and quality
of life of its employees and the public, and to exercise responsible
stewardship of natural resources that may be impacted by its activities.
To realize this, BMSUSP is committed to maintaining programs and procedures
for the environmentally responsible management of facilities, materials,
production processes, products and packaging, transportation and
distribution, waste and ft minimization, energy, general business
operations and contracted goods and services. Vendor agrees with this
policy and further acknowledges that its performance under this Agreement
shall be in strict compliance with all applicable governmental laws and
regulations and in accordance with and in furtherance of this policy.
5) This Agreement contains the entire understanding of the parties
with respect to the subject matter contained herein, supersedes any prior
written or oral communications and may be modified in writing subject to
mutual agreement of the parties hereto.
6) The headings of each paragraph are for reference only and shall
not be construed as part of this Agreement.
5
<PAGE>
7) Except for the obligation to pay money property due and owing,
either party shall be excused from any delay or failure in performance
hereunder caused by reason of any occurrence or contingency beyond its
reasonable control, including. but not limited to, failure of performance
by the other party, earthquake, labor disputes, riots, governmental
requirements, inability to secure materials on a timely basis, failure of
computer equipment, failures or delays of sources from which information or
data is obtained and transportation difficulties.
IN WITNESS WHEREOF, the parties hereto, each by a duly authorized officer, have
entered in to this Agreement this 1 day of February, 1996
Bristol-Myers Squibb Disease State Management, Inc..
U.S. Pharmaceuticals 46 Prince Street
a division of Bristol-Myers Rochester, New York 14607
Squibb Company
By: /s/ Sharon Henry By: /s/ Donald A. Carlberg
--------------------------- -----------------------------------
Title: Vice President HealthCare Title: President & CEO
Management --------------------------------
-------------------------
6
<PAGE>
Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked by [****], have been
separately filed with the Commission.
PROGRAM OVERVIEW
[****]
<PAGE>
SERVICES AGREEMENT
This Agreement is effective this 30 day of March 1996, (the "Effective Date")
between Disease State Management, Inc., 46 Prince Street, Rochester, New York
14607 ("DSMi" or "Vendor") and Bristol-Myers Squibb Oncology, a division of
Bristol-Myers Squibb Company, P.O. Box 4500, Princeton, New Jersey 08543-4500
(hereinafter called "BMS"). Vendor agrees to provide services to BMS under the
terms set forth below.
A. SERVICES
Vendor will provide the product(s) or service(s) set forth, and to the
specifications set forth in the proposal incorporated herein as Attachment
A.
The product and all material elements as set forth on Attachment A are
subject to prior approval by BMS, such approval not to be unreasonably
withheld.
B. COMPENSATION
BMS will pay Vendor according to the terms or payment schedule set forth in
Attachment A hereto.
In the event that BMS shall request any changes in the concept,
specifications or scope of the product(s) or service(s) described on
Attachment A hereto, Vendor will notify BMS of the cost of such revisions
and will not proceed without prior approval.
If the compensation provision on Attachment A hereto is other than a flat
fee amount per element or for the entire project, Vendor will provide such
documentation in support of all billings as BMS may reasonably require.
C. CONFIDENTIALITY
Vendor shall treat as confidential and secret any and all BMS Confidential
Information. "BMS Confidential Information" shall include, but not be
limited to, information relating to BMS' past, present and future marketing
and research and development activities that may be disclosed to Vendor by
BMS and/or BMS' parent, subsidiary or affiliate companies and which are
identified in writing by BMS as confidential. BMS Confidential information
shall not include (i) information known by Vendor prior to disclosure from
BMS, (ii) information which is or becomes publicly known through no
wrongful act of Vendor, (iii) information that is independently developed
by Vendor, without use of information that otherwise constitutes BMS
Confidential Information, or (iv) information disclosed pursuant to law,
rule, regulation or pursuant to a court order, provided that BMS is given
10 days prior notice of such disclosure. Vendors obligations not to
disclose BMS Confidential Information to third parties shall survive the
termination of this Agreement for a period of five years. Vendor shall not
duplicate any material containing BMS Confidential Information, except in
the direct performance of its services under this Agreement. Vendor
<PAGE>
shall return all copies of materials containing BMS Confidential
Information upon Vendor's completion of services under this Agreement or
upon any earlier termination of this Agreement for any reason whatsoever.
BMS shall treat as confidential and secret any and all Vendor Confidential
Information. "Vendor Confidential Information" shall include, but not be
limited to, information relating to Vendor's past, present and future
systems development activities that may be disclosed to BMS and/or BMS'
parent, subsidiary or affiliate companies and which are identified in
writing by Vendor as confidential, except that in no event shall Vendor
Confidential Information include information relating to Vendor
deliverables under this agreement. Vendor Confidential lnformation shall
not include (i) information known by BMS prior to disclosure from Vendor,
(ii) information which is or becomes publicly known through no wrongful act
of BMS, (iii) information that is independently developed by BMS, without
use of information that otherwise constitutes Vendor Confidential
Information, or (iv) information disclosed pursuant to law, rule,
regulation or pursuant to a court order, provided that Vendor is given 10
days prior notice of such disclosure. BMS' obligations not to disclose
Vendor Confidential Information shall survive the termination of this
Agreement for a period of five years. BMS shall return all copies of
materials containing Vendor Confidential Information upon Vendor's
completion of services under this Agreement or upon any earlier termination
of this Agreement for any reason whatsoever.
D. INDEMNIFICATION
Each party shall indemnify and hold the other party harmless from and
against all liability, damages, penalties, losses, costs or expenses,
including attorneys' fees, arising from or in any way related to its
willful or negligent actions or omissions in performing the
responsibilities as described in this Agreement, or for any willful or
negligent breach of this Agreement.
E. PROFESSIONAL STANDARDS
Vendor represents that it has facilities, personnel, experience and
expertise sufficient in quality and it will perform all such assignments
and projects given it by BMS hereunder and agrees that it will perform all
such assignments and projects in a manner commensurate with professional
standards generally applicable to its industry.
F. OWNERSHIP OF MATERIALS
Any and all telephone scripts or written materials created by Vendor for
BMS in connection with this Agreement shall be the sole and exclusive
property of BMS. BMS may use such work wherever and whenever it chooses.
This Agreement shall be deemed a transfer of copyright and any
copyrightable subject matter created by Vendor in such
<PAGE>
works. Vendor shall execute any and all documents necessary to demonstrate
or perfect such transfer. Vendor shall not at any time in any manner
during or after this Agreement, under any circumstances, be entitled to or
claim any right, title or interest herein or any commission, fee or other
direct or indirect benefit from BMS or BMS' parent, subsidiary or affiliate
companies, in respect of such works created by Vendor hereunder. Vendor
agrees to execute or cause its agents and/or employees to execute any
documents necessary or desirable to secure or perfect BMS' legal rights and
worldwide ownership in such works, including, but not limited to documents
relating to trademark and copyright applications.
G. RELEASES
Any materials furnished hereunder which have not been created for BMS and
are subject to the rights of third parties shall be specifically identified
to BMS in writing. Vendor shall obtain (and deliver upon request to BMS)
releases for all names, photographs, illustrations, testimonials, and any
and all other materials used in works which Vendor prepares or uses. All
such releases shall run to BMS, its agents and employees where appropriate
and customary. Vendor's failure to obtain such releases or the obtaining
of such releases by Vendor shall in no way relieve Vendor of its
obligations in Paragraph F above except where the releases have been
obtained directly by BMS. Except for works that have been secured by
permission, Vendor warrants and covenants that all works provided by Vendor
shall be original and shall not infringe any copyright or violate any
rights of any persons or entities whatsoever.
H. DURATION OF AGREEMENT
1. Term
This Agreement is effective as of the Effective Date and shall continue in
full force and effect through December 31, 2001 unless terminated by at
least ninety (90) days written notice by either party to the other, sent by
registered mail to the address for each party first set forth above, or to
such other address which a party may designate for its receipt of notices
hereunder. The Agreement will automatically renew for two successive five
year terms unless either party provides the other party with written notice
no less than 90 days prior to the expiration of the Agreement of its intent
not to renew the Agreement.
2. Payment on Termination
Upon termination of this Agreement BMS is to pay for all authorized work in
process, and BMS shall assume Vendor's liability under and indemnify Vendor
with respect to all outstanding contracts made in connection with Vendor
services under this Agreement. Upon written notice of termination Vendor
shall take all steps necessary to wind up the work under this Agreement and
to mitigate BMS' liability therefore. Should Vendor terminate the
agreement, during a period of time during which BMS has the exclusive right
to the program as described in the Exclusivity section of this Agreement,
it shall not engage or participate in any other project involving the
development or implementation
<PAGE>
of an interactive program in pain management for twelve months from the
date of termination. Vendor also agrees to perform services under this
Agreement the shorter of six months or until an alternative source for
those services can be obtained should it terminate this Agreement.
3. Transfer Upon Termination
Vendor shall transfer, assign and make available to BMS or BMS'
representative all property and materials in Vendor's possession or control
belonging to and paid for by BMS, and all information regarding BMS'
project(s) covered by this Agreement, as set forth in Paragraph C herein.
Vendor also agrees to give all reasonable cooperation toward transferring
with approval of third parties in interest all contracts and arrangements,
if any, properly entered into by Vendor in the performance of this
Agreement, and all rights and claims thereto and therein, upon being duly
released from the obligation thereof.
I. INDEPENDENT CONTRACTORS
The parties to this Agreement are independent contractors and nothing
contained in this Agreement shall be construed to place the parties in the
relationship of employer and employee, partners, principal and agent, or
joint venture. Neither party shall have the power to bind or obligate the
other party nor shall either party hold itself out as having such
authority.
J. THIRD PARTY OBLIGATIONS
In connection with this Agreement, Vendor shall make no commitments or
disbursements, incur no obligations nor place any advertising, public
relations or promotional material for BMS' parent, subsidiary or affiliate
companies, nor disseminate any material of any kind using the name of BMS
and/or BMS' parent, subsidiary or affiliate companies or using their
trademarks, without the prior written approval of BMS.
K. GOVERNING LAW
This Agreement is entered into in the State of New Jersey and shall be
construed and governed under and in accordance with the laws of that State.
L. MISCELLANEOUS
1) The terms of this Agreement shall be binding upon BMS and Vendor and
their respective successors and permitted assigns. Notwithstanding the
foregoing, this Agreement is not assignable in whole or in part by Vendor
without the prior written consent of BMS. Factoring of accounts receivable
is not permitted.
<PAGE>
2) The failure of either party to take action as a result of a breach of
this Agreement by the other party shall constitute neither a waiver of the
particular breach involved nor a waiver of either party's right to enforce
any or all provisions of this Agreement through any remedy granted by law
or this Agreement.
3) BMS is an Equal Opportunity Employer and does not discriminate against
any person because of race, color, creed, age, sex, or national origin.
Vendor represents that it has the same policy of Equal Opportunity
Employment.
4) The policy of BMS is to protect the health, safety and quality of life
of its employees and the public, and to exercise responsible stewardship of
natural resources that may be impacted by its activities. To realize this,
BMS is committed to maintaining programs and procedures for the
environmentally responsible management of facilities, materials, production
processes, products and packaging, transportation and distribution, waste
and ft minimization, energy, general business operations and contracted
goods and services. Vendor agrees with this policy and further
acknowledges that its performance under this Agreement shall be in strict
compliance with all applicable governmental laws and regulations and in
accordance with and in furtherance of this policy.
5) This Agreement contains the entire understanding of the parties with
respect to the subject matter contained herein, supersedes any prior
written or oral communications and may be modified in writing subject to
mutual agreement of the parties hereto.
6) The headings of each paragraph are for reference only and shall not be
construed as part of this Agreement.
7) Except for the obligation to pay money property due and owing, either
party shall be excused from any delay or failure in performance hereunder
caused by reason of any occurrence or contingency beyond its reasonable
control, including, but not limited to, failure of performance by the other
party, earthquake, labor disputes, riots, governmental requirements,
judicial requirements, inability to secure materials on a timely basis,
failure of computer equipment, failures or delays of sources from which
information or data is obtained and transportation difficulties.
<PAGE>
IN WITNESS WHEREOF, the parties hereto, each by a duly authorized officer, have
entered into this Agreement this ____ day of ______________, 1996.
Bristol-Myers Squibb Oncology Disease State Management, Inc.
a division of Bristol-Myers 46 Prince Street
Squibb Company Rochester, New York 14607
By: /s/ Brian Markison By: /s/ George T. Witter
-------------------------------- -----------------------------------
Title: Vice President Title: Vice President Sales
----------------------------- --------------------------------
<PAGE>
Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked by [****], have been
separately filed with the Commission.
PROGRAM OVERVIEW
[****]
<PAGE>
SERVICES AGREEMENT
This Agreement is effective this 23rd day of April, 1996, (the "Effective
Date") between Disease State Management, Inc., 46 Prince Street, Rochester, New
York 14607 ("DSMi" or "Vendor") and Bristol-Myers Squibb Oncology/Immunology, a
division of Bristol-Myers Squibb Company, P.O. Box 4500, Princeton, New Jersey
08543-4500 (hereinafter called "BMS"). Vendor agrees to provide services to BMS
under the terms set forth below.
A. SERVICES
Vendor will provide the product(s) or service(s) set forth, and to the
specifications set forth in the proposal incorporated herein as Attachment
A.
The product and all material elements as set forth on Attachment A are
subject to prior approval by BMS, such approval not to be unreasonably
withheld.
B. COMPENSATION
BMS will pay Vendor according to the terms or payment schedule set forth in
Attachment A hereto.
In the event that BMS shall request any changes in the concept,
specifications or scope of the product(s) or service(s) described on
Attachment A hereto, Vendor will notify BMS of the cost of such revisions
and will not proceed without prior approval.
If the compensation provision on Attachment A hereto is other than a flat
fee amount per element or for the entire project, Vendor will provide such
documentation in support of all billings as BMS may reasonably require.
C. CONFIDENTIALITY
Vendor shall treat as confidential and secret any and all BMS Confidential
Information. "BMS Confidential Information" shall include, but not be
limited to, information relating to BMS' past, present and future marketing
and research and development activities that may be disclosed to Vendor by
BMS and/or BMS' parent, subsidiary or affiliate companies and which are
identified in writing by BMS as confidential. BMS Confidential information
shall not include (i) information known by Vendor prior to disclosure from
BMS. (ii) information which is or becomes publicly known through no
wrongful act of Vendor, (iii) information that is independently developed
by Vendor, without use of information that otherwise constitutes BMS
Confidential Information, or (iv) information disclosed pursuant to law,
rule, regulation or pursuant to a court order, provided that BMS is given
10 days prior notice of such disclosure. Vendors obligations not to
disclose BMS Confidential Information to third parties shall survive the
termination of this Agreement for a period of five years. Vendor shall not
duplicate any material containing BMS Confidential
<PAGE>
Information, except in the direct performance of its services under this
Agreement. Vendor shall return all copies of materials containing BMS
Confidential Information upon Vendor's completion of services under this
Agreement or upon any earlier termination of this Agreement for any reason
whatsoever.
BMS shall treat as confidential and secret any and all Vendor Confidential
Information. "Vendor Confidential Information" shall include, but not be
limited to, information relating to Vendor's past, present and future
systems development activities that may be disclosed to BMS and/or BMS'
parent, subsidiary or affiliate companies and which are identified in
writing by Vendor as confidential, except that in no event shall Vendor
Confidential Information include information relating to Vendor
deliverables under this agreement. Vendor Confidential lnformation shall
not include (i) information known by BMS prior to disclosure from Vendor,
(ii) information which is or becomes publicly known through no wrongful act
of BMS, (iii) information that is independently developed by BMS, without
use of information that otherwise constitutes Vendor Confidential
Information, or (iv) information disclosed pursuant to law, rule,
regulation or pursuant to a court order, provided that Vendor is given 10
days prior notice of such disclosure. BMS' obligations not to disclose
Vendor Confidential Information shall survive the termination of this
Agreement for a period of five years. BMS shall return all copies of
materials containing Vendor Confidential Information upon Vendor's
completion of services under this Agreement or upon any earlier termination
of this Agreement for any reason whatsoever.
D. INDEMNIFICATION
Each party shall indemnify and hold the other party harmless from and
against all liability, damages, penalties, losses, costs or expenses,
including attorneys' fees, arising from or in any way related to its
willful or negligent actions or omissions in performing the
responsibilities as described in this Agreement, or for any willful or
negligent breach of this Agreement. BMS shall indemnify and hold Vendor
harmless from and against all liability, damages, penalties, losses, costs
or expenses, including attorney's fees, arising from or in any way related
to any and all medical malpractice claims or litigations involving Vendor
arising from a patient's use of Megace-Registered Trademark-Oral
Suspension.
E. PROFESSIONAL STANDARDS
Vendor represents that it has facilities, personnel, experience and
expertise sufficient in quality and it will perform all such assignments
and projects given it by BMS hereunder and agrees that it will perform all
such assignments and projects in a manner commensurate with professional
standards generally applicable to its industry.
F. OWNERSHIP OF MATERIALS
Any and all telephone scripts or written materials created by Vendor for
BMS in connection with this Agreement shall be the sole and exclusive
property of BMS. BMS
<PAGE>
may use such work wherever and whenever it chooses. This Agreement shall
be deemed a transfer of copyright and any copyrightable subject matter
created by Vendor in such works. Vendor shall execute any and all
documents necessary to demonstrate or perfect such transfer. Vendor shall
not at any time in any manner during or after this Agreement, under any
circumstances, be entitled to or claim any right, title or interest herein
or any commission, fee or other direct or indirect benefit from BMS or BMS'
parent, subsidiary or affiliate companies, in respect of such works created
by Vendor hereunder. Vendor agrees to execute or cause its agents and/or
employees to execute any documents necessary or desirable to secure or
perfect BMS' legal rights and worldwide ownership in such works, including,
but not limited to documents relating to trademark and copyright
applications.
G. RELEASES
Any materials furnished hereunder which have not been created for BMS and
are subject to the rights of third parties shall be specifically identified
to BMS in writing. Vendor shall obtain (and deliver upon request to BMS)
releases for all names, photographs, illustrations, testimonials, and any
and all other materials used in works which Vendor prepares or uses. All
such releases shall run to BMS, its agents and employees where appropriate
and customary. Vendor's failure to obtain such releases or the obtaining
of such releases by Vendor shall in no way relieve Vendor of its
obligations in Paragraph F above except where the releases have been
obtained directly by BMS. Except for works that have been secured by
permission, Vendor warrants and covenants that all works provided by Vendor
shall be original and shall not infringe any copyright or violate any
rights of any persons or entities whatsoever.
H. DURATION OF AGREEMENT
1. Term
This Agreement is effective as of the Effective Date and shall continue in
full force and effect for twelve (12) months unless terminated by at least
ninety (90) days written notice by either party to the other, sent by
registered mail to the address for each party first set forth above, or to
such other address which a party may designate for its receipt of notices
hereunder.
2. Payment on Termination
Upon termination of this Agreement BMS is to pay for all authorized work in
process, and BMS shall assume Vendor's liability under and indemnify Vendor
with respect to all outstanding contracts made in connection with Vendor
services under this Agreement. Upon written notice of termination Vendor
shall take all steps necessary to wind up the work under this Agreement and
to mitigate BMS' liability therefore. Should Vendor terminate the
agreement, during a period of time during which BMS has the exclusive right
to the program as described in the Exclusivity section of this Agreement,
it shall not engage or participate in any other project involving the
development or implementation
<PAGE>
of an interactive program primarily focused on Weight Enhancement for
patients with Cancer or AIDS for twelve months from the date of
termination. Vendor also agrees to perform services under this Agreement
the shorter of six months or until an alternative source for those services
can be obtained should it terminate this Agreement.
3. Transfer Upon Termination
Vendor shall transfer, assign and make available to BMS or BMS'
representative all property and materials in Vendor's possession or control
belonging to and paid for by BMS, and all information regarding BMS'
project(s) covered by this Agreement, as set forth in Paragraph C herein.
Vendor also agrees to give all reasonable cooperation toward transferring
with approval of third parties in interest all contracts and arrangements,
if any, properly entered into by Vendor in the performance of this
Agreement, and all rights and claims thereto and therein, upon being duly
released from the obligation thereof.
I. INDEPENDENT CONTRACTORS
The parties to this Agreement are independent contractors and nothing
contained in this Agreement shall be construed to place the parties in the
relationship of employer and employee, partners, principal and agent, or
joint venture. Neither party shall have the power to bind or obligate the
other party nor shall either party hold itself out as having such
authority.
J. THIRD PARTY OBLIGATIONS
In connection with this Agreement, Vendor shall make no commitments or
disbursements, incur no obligations nor place any advertising, public
relations or promotional material for BMS' parent, subsidiary or affiliate
companies, nor disseminate any material of any kind using the name of BMS
and/or BMS' parent, subsidiary or affiliate companies or using their
trademarks, without the prior written approval of BMS.
K. GOVERNING LAW
This Agreement is entered into in the State of New Jersey and shall be
construed and governed under and in accordance with the laws of that State.
L. MISCELLANEOUS
1) The terms of this Agreement shall be binding upon BMS and Vendor and
their respective successors and permitted assigns. Notwithstanding the
foregoing, this Agreement is not assignable in whole or in part by Vendor
without the prior written consent of BMS. Factoring of accounts receivable
is not permitted.
<PAGE>
2) The failure of either party to take action as a result of a breach of
this Agreement by the other party shall constitute neither a waiver of the
particular breach involved nor a waiver of either party's right to enforce
any or all provisions of this Agreement through any remedy granted by law
or this Agreement.
3) BMS is an Equal Opportunity Employer and does not discriminate against
any person because of race, color, creed, age, sex, or national origin.
Vendor represents that it has the same policy of Equal Opportunity
Employment.
4) The policy of BMS is to protect the health, safety and quality of life
of its employees and the public, and to exercise responsible stewardship of
natural resources that may be impacted by its activities. To realize this,
BMS is committed to maintaining programs and procedures for the
environmentally responsible management of facilities, materials, production
processes, products and packaging, transportation and distribution, waste
and ft minimization, energy, general business operations and contracted
goods and services. Vendor agrees with this policy and further
acknowledges that its performance under this Agreement shall be in strict
compliance with all applicable governmental laws and regulations and in
accordance with and in furtherance of this policy.
5) This Agreement contains the entire understanding of the parties with
respect to the subject matter contained herein, supersedes any prior
written or oral communications and may be modified in writing subject to
mutual agreement of the parties hereto.
6) The headings of each paragraph are for reference only and shall not be
construed as part of this Agreement.
7) Except for the obligation to pay money property due and owing, either
party shall be excused from any delay or failure in performance hereunder
caused by reason of any occurrence or contingency beyond its reasonable
control, including, but not limited to, failure of performance by the other
party, earthquake, labor disputes, riots, governmental requirements,
judicial requirements, inability to secure materials on a timely basis,
failure of computer equipment, failures or delays of sources from which
information or data is obtained and transportation difficulties.
<PAGE>
IN WITNESS WHEREOF, the parties hereto, each by a duly authorized officer, have
entered in to this Agreement this 23 day of April, 1996.
Bristol-Myers Squibb Disease State Management, Inc.
Oncology/Immunology 46 Prince Street
a division of Bristol-Myers Rochester, New York 14607
Squibb Company
P.O. Box 4500
Princeton, New Jersey 08543
By: /s/ Brian Markison By: /s/ George T. Witter
--------------------------- ---------------------------
Title: Vice President Title: Vice President, Sales
------------------------ ------------------------
<PAGE>
Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked by [****], have been
separately filed with the Commission.
WEIGHT ENHANCEMENT
PATIENT INTERVENTION PROGRAM
-----------------------------
FOR
BRISTOL-MYERS SQUIBB
ONCOLOGY/IMMUNOLOGY
PRESENTED BY
DISEASE STATE MANAGEMENT,-SM- INC.
46 PRINCE STREET
ROCHESTER, NEW YORK 14607
716-244-1360
[****]
<PAGE>
Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked by [****], have been
separately filed with the Commission.
SERVICES AGREEMENT
This Agreement is effective this 16th day of October, 1995, (the "Effective
Date") between DSMI Corp., 46 Prince Street, Rochester, New York 14607
("Vendor") and Bristol-Myers Squibb U. S. Pharmaceuticals, a division of
Bristol-Myers Squibb Company, P.O. Box 4500, Princeton, New Jersey 08543-4500
(hereinafter called "BMSUSP"). Vendor agrees to provide services to BMSUSP
under the terms set forth below.
A. SERVICES
Vendor will provide the product(s) or service(s) set forth, and to the
specifications set forth in the proposal incorporated herein as
Attachment A.
The product and all elements as set forth on Attachment A are subject to
prior approval by BMSUSP, such approval not to be unreasonably withheld.
B. COMPENSATION
All fees for program development will be payable according to the
following schedule:
50% upon execution of this Services Agreement
50% upon completion of development work, defined as the point in time
when the services contemplated hereunder can be delivered.
All fees for program operation will be payable according to the following
schedule:
Satisfaction survey fees payable at the time of identification of
survey participants by BMSUSP.
Compliance program fees are payable at the time that the initial
service included within a particular phase of the program is
delivered. Phase I fees will be payable upon the identification of
the patient by [*****]. Phase II fees are payable upon
identification of a patient as requiring the additional services
based upon the results of the Phase I intervention. Phase III fees
are payable upon identification of a patient as requiring the
additional services based upon the results of the Phase II
intervention.
In the event that BMSUSP shall request any changes in the concept,
specifications or scope of the product(s) or service(s) described on
Attachment A hereto, Vendor will notify BMSUSP of the cost of such
revisions and will not proceed without prior written approval.
If the compensation provision on Attachment A hereto is other than a flat
fee amount per element or for the entire project, Vendor will provide
such documentation in support of all billings as BMSUSP may reasonably
require.
<PAGE>
C. CONFIDENTIALITY.
Vendor shall treat as confidential and secret any and all BMSUSP
Confidential Information. "BMSUSP Confidential Information" shall include,
but not be limited to, information relating to BMSUSP's past, present and
future marketing and research and development activities that may be
disclosed to Vendor by BMSUSP and/or BMSUSP's parent, subsidiary or
affiliate companies and which are identified in writing by BMSUSP as
confidential. BMSUSP Confidential information shall not include (i)
information known by Vendor prior to disclosure from BMSUSP, (ii)
information which is or becomes publicly known through no wrongful act of
Vendor, (iii) information that is independently developed by Vendor,
without use of information that otherwise constitutes BMSUSP Confidential
Information, or (iv) information disclosed pursuant to law, rule,
regulation or pursuant to a court order, provided that BMSUSP is given 10
days prior notice of such disclosure. Vendor expressly agrees that any
information it discovers or develops under this Agreement for the
benefit of BMSUSP shall not be used by Vendor or disclosed by Vendor to
any third party, nor shall Vendor show this Agreement or disclose the
existence, nature or subject matter of this Agreement to any third party
without the prior written consent of BMSUSP. Vendors obligations not to
disclose BMSUSP Confidential Information to third parties and not to
otherwise use BMSUSP Confidential Information shall survive the
termination of this Agreement for a period of five years. Vendor shall
not duplicate any material containing BMSUSP Confidential Information,
except in the direct performance of its services under this Agreement.
Vendor shall return all copies of materials containing BMSUSP
Confidential Information upon Vendor's completion of services under this
Agreement or upon any earlier termination of this Agreement for any
reason whatsoever.
BMSUSP shall treat as confidential and secret any and all Vendor
Confidential Information. "Vendor Confidential Information" shall
include, but not be limited to, information relating to Vendor's past,
present and future systems development activities that may be disclosed
to BMSUSP and/or BMSUSP's parent, subsidiary or affiliate companies and
which are identified in writing by Vendor as confidential, except that in
no event shall Vendor Confidential Information include information
relation to Vendor deliverables under this agreement. Vendor Confidential
Information shall not include (i) information known by BMSUSP prior to
disclosure from Vendor, (ii) information which is or becomes publicly
known through no wrongful act of BMSUSP, (iii) information that is
independently developed by BMSUSP, without use of information that
otherwise constitutes Vendor Confidential Information, or (iv)
information disclosed pursuant to law, rule, regulation or pursuant to a
court order, provided that Vendor is given 10 days prior notice of such
disclosure. BMSUSP expressly agrees that any Confidential Information it
discovers under this Agreement shall not be disclosed by BMSUSP to any
third party without the prior written consent of Vendor. BMSUSP's
obligations not to disclose Vendor Confidential Information shall survive
the termination of this Agreement for a period of five years.
D. INDEMNIFICATION
<PAGE>
Each party shall indemnify and hold the other party harmless from and
against all liability, damages, penalties, losses, costs or expenses,
including attorneys' fees, arising from or in any way related to its
willful or negligent actions or omissions in performing the
responsibilities as described in this Agreement, or for any willful or
negligent breach of this Agreement.
E. PROFESSIONAL STANDARDS.
Vendor represents that it has facilities, personnel, experience and
expertise sufficient in quality and it will perform all such assignments
and projects given it by BMSUSP hereunder and agrees that it will perform
all such assignments and projects in a manner commensurate with
professional standards generally applicable to its industry.
F. OWNERSHIP OF MATERIALS
Any and all reports, information, data or other works created by Vendor
for BMSUSP in connection with this Agreement (with the exception of
customization of the Vendor's basic software and systems for BMSUSP as
well as the Vendor's basic software and systems themselves) shall be the
sole and exclusive property of BMSUSP. BMSUSP may use such work wherever
and whenever it chooses. Vendor shall not at any time in any manner
during or after this Agreement, under any circumstances, be entitled to
or claim any right, title or interest herein or any commission, fee or
other direct or indirect benefit from BMSUSP or BMSUSP's parent,
subsidiary or affiliate companies, in respect of such reports, data,
information or other works created by Vendor hereunder.
BMSUSP hereby grants Vendor a worldwide perpetual royalty free license to
the data and information created by Vendor in connection with this
agreement for purposes of making marketing presentations to other
potential customers and for the development and sale of additional
products based upon this data and information.
G. RELEASES
Any materials furnished hereunder which have not been created for BMSUSP
and are subject to the rights of third parties shall be specifically
identified to BMSUSP in writing. Vendor shall obtain (and deliver upon
request to BMSUSP) releases for all names, photographs, illustrations,
testimonials, and any and all other materials used in works which Vendor
prepares or uses. All such releases shall run to BMSUSP, its agents and
employees where appropriate and customary. Vendor's failure to obtain
such releases or the obtaining of such releases by Vendor shall in no way
relieve Vendor of its obligations in Paragraph F above except where the
releases have been obtained directly by BMSUSP. Except for works that
have been secured by permission, Vendor warrants and covenants that all
works provided by Vendor shall be original and shall not infringe any
copyright or violate any rights of any persons or entities whatsoever.
H. DURATION OF AGREEMENT
<PAGE>
1. Term
This Agreement is effective as of the Effective Date and shall continue
in full force and effect until the earlier of (i) completion of the
project assigned hereunder, (ii) terminated by at least thirty (30) days
written notice by either party to the other, sent by registered mail to
the address for each party first set forth above, or to such other
address which a party may designate for its receipt of notices hereunder.
2. Payment on Termination
Upon termination of this Agreement BMSUSP is to pay for all authorized
work in process, and BMSUSP shall assume Vendor's liability under and
indemnify Vendor with respect to all outstanding contracts made on
BMSUSP's behalf. Upon written notice of termination Vendor shall take
all steps necessary to wind up the work under this Agreement to mitigate
BMSUSP's liability therefore.
3. Transfer Upon Termination
Vendor shall transfer, assign and make available to BMSUSP or BMSUSP's
representative all property and materials in Vendor's possession or
control belonging to and paid for by BMSUSP, and all information
regarding BMSUSP's project(s) covered by this Agreement, as set forth in
Paragraph C herein. Vendor also agrees to give all reasonable cooperation
toward transferring with approval of third parties in interest all
contracts and arrangements, if any, properly entered into by Vendor in
the performance of this Agreement, and all rights and claims thereto and
therein, upon being duly released from the obligation thereof.
I. INDEPENDENT CONTRACTORS
The parties to this Agreement are independent contractors and nothing
contained in this Agreement shall be construed to place the parties in
the relationship of employer and employee, partners, principal and agent,
or joint ventures. Neither party shall have the power to bind or obligate
the other party nor shall either party hold itself out as having such
authority.
J. THIRD PARTY OBLIGATIONS
In connection with this Agreement, Vendor shall make no commitments or
disbursements, incur no obligations or place any advertising, public
relations or promotional material for BMSUSP's parent, subsidiary or
affiliate companies, nor disseminate any material of any kind using the
name of BMSUSP and/or BMSUSP's parent, subsidiary or affiliate companies
or using their trademarks, without the prior written approval of BMSUSP.
<PAGE>
K. GOVERNING LAW
This Agreement is entered into in the State of New Jersey and shall be
constructed and governed under and in accordance with the laws of that
State.
L. MISCELLANEOUS
1) The terms of this Agreement shall be binding upon BMSUSP and the
Vendor and their respective successors and permitted assigns.
Notwithstanding the foregoing, this Agreement is not assignable in whole
or in part by Vendor without the prior written consent of BMSUSP.
Factoring of accounts receivable is not permitted.
2) The failure of either party to take action as a result of a breach of
this Agreement by the other party shall constitute neither a waiver of
the particular breach involved or a waiver of either party's right to
enforce any or all provisions of this Agreement through any remedy
granted by law or this Agreement.
3) BMSUSP is an Equal Opportunity Employer and does not discriminate
against any person because of race, color, creed, age, sex, or national
origin. Vendor represents that it has the same policy of Equal
Opportunity Employment.
4) The policy of BMSUSP is to protect the health, safety and quality of
life of its employees and the public, and to exercise responsible
stewardship of natural resources that may be impacted by its activities.
To realize this, BMSUSP is committed to maintaining programs and
procedures for the environmentally responsible management of facilities,
materials, production processes, products and packaging, transportation
and distribution, waste and ft minimization, energy, general business
operations and contracted goods and services. Vendor agrees with this
policy and further acknowledges that its performance under this Agreement
shall be in strict compliance with all applicable governmental laws and
regulations and in accordance with and in furtherance of this policy.
5) This Agreement contains the entire understanding of the parties with
respect to the subject matter contained herein, supersedes any prior
written or oral communications and may be modified in writing subject to
mutual agreement of the parties hereto.
6) The headings of each paragraph are for reference only and shall not
be construed as part of this Agreement.
<PAGE>
7) Except for the obligation to pay money property due and owing, either
party shall be excused from any delay or failure in performance hereunder
caused by reason of any occurrence or contingency beyond its reasonable
control, including but not limited to, failure of performance by the other
party, earthquake, labor disputes, riots, governmental requirements,
inability to secure materials on a timely basis, failure of computer
equipment, failures or delays of sources from which information or data
is obtained and transportation difficulties.
IN WITNESS WHEREOF, the parties hereto, each by a duly authorized officer,
have entered in to this Agreement this 16th day of October, 1995.
Bristol-Myers Squibb DSMI Corp.
U. S. Pharmaceuticals 46 Prince Street
a division of Bristol-Myers Rochester, New York 14607
Squibb Company
By: /s/ ANDREW BEIDLER By: /s/ DONALD A. CARLBERG
--------------------------- -----------------------
Title: Mgr., Customer Projects Title: President & CEO
------------------------ --------------------
<PAGE>
Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked by [****], have been
separately filed with the Commission.
ATTACHMENT A
TELEPHONE SATISFACTION SURVEY
[****]
<PAGE>
SERVICES AGREEMENT
This Agreement is effective this __1st___ day of _____July___________, 1996,
(the "Effective Date") between -Disease State Management, Inc., 46 Prince
Street, Rochester, New York 14607 ("Vendor") and American Homepatient. Vendor
agrees to provide services to American Homepatient under the terms set forth
below.
A. SERVICES
Vendor will provide the product(s) or service(s) set forth, and to the
specifications set forth in the proposal incorporated herein as Attachment
A.
The product and all elements as set forth on Attachment A are subject to
prior approval by American Homepatient such approval not to be unreasonably
withheld.
B. COMPENSATION
American Homepatient will pay Vendor according to the terms or payment
schedule set forth in Attachment A hereto.
In the event that American Homepatient shall request any changes in the
concept, specifications or scope of the product(s) or service(s) described
on Attachment A hereto, Vendor will notify American Homepatient of the cost
of such revisions and will not proceed without prior written approval.
If the compensation provision on Attachment A hereto is other than a flat
fee amount per element or for the entire project, Vendor will provide such
documentation in support of all billings as American Homepatient may
reasonably require.
C. CONFIDENTIALITY
Vendor shall treat as confidential and secret any and all American
Homepatient Confidential Information. "American Homepatient Confidential
Information" shall include, but not be limited to, information relating to
American Homepatient past, present and future marketing and research and
development activities that may be disclosed to Vendor by American
Homepatient and/or American Homepatient's parent, subsidiary or affiliate
companies and which are identified in writing by American Homepatient as
confidential. American Homepatient Confidential information shall not
include (i) information known by Vendor prior to disclosure from American
Homepatient. (ii) information which is or becomes publicly known through no
wrongful act of Vendor, (iii) information that is independently developed
by Vendor, without use of information that otherwise constitutes American
Homepatient Confidential Information, or (iv) information disclosed
pursuant to law, rule, regulation or pursuant to a court order, provided
that American Homepatient is given 10 days prior notice of such disclosure.
Vendor expressly agrees that any information it discovers or develops under
this Agreement for the benefit of American Homepatient shall not be used
by Vendor or disclosed by Vendor to any third party, nor shall Vendor show
this Agreement or disclose the existence, nature or subject matter of this
Agreement to any third party without the prior written consent of American
Homepatient. Vendors obligations not to disclose American Homepatient
Confidential Information to third parties and not to otherwise use American
Homepatient Confidential Information shall survive the termination of this
Agreement for a period of five years. Vendor shall not duplicate any
material containing American Homepatient Confidential Information, except
in the direct performance of its services under this Agreement. Vendor
shall return all copies of materials containing American Homepatient
Confidential Information upon Vendor's completion of services under this
Agreement or upon any earlier termination of this Agreement for any reason
whatsoever.
<PAGE>
American Homepatient shall treat as confidential and secret any and all
Vendor Confidential Information. Vendor Confidential Information" shall
include, but not be limited to, information relating to Vendor's past,
present and future systems development activities that may be disclosed to
Homepatient and/or American Homepatient's parent, subsidiary or affiliate
companies and which are identified in writing by Vendor as confidential,
except that in no event shall Vendor Confidential Information include
information related to Vendor deliverables under this agreement. Vendor
Confidential information shall not include (i) information known by
American Homepatient prior to disclosure from Vendor, (ii) information
which is or becomes publicly known through no wrongful act of American
Homepatient, (iii) information that is independently developed by American
Homepatient without use of information that otherwise constitutes Vendor
Confidential Information, or (iv) information disclosed pursuant to law,
rule, regulation or pursuant to a court order, provided that Vendor is
given 10 days prior notice of such disclosure. American Homepatient
expressly agrees that any Confidential Information it discovers under this
Agreement shall not be disclosed by American Homepatient to any third party
without the prior written consent of Vendor. American Homepatient
obligations not to disclose Vendor Confidential Information shall survive
the termination of this Agreement for a period of five years.
D. INDEMNIFICATION
Each party shall indemnify and hold the other party harmless from and
against all liability, damages, penalties, losses, costs or expenses,
including attorneys' fees, arising from or in any way related to its
willful or negligent actions or omissions in performing the
responsibilities as described in this Agreement, or for any willful or
negligent breach of this Agreement.
E. PROFESSIONAL STANDARDS
Vendor represents that it has facilities, personnel, experience and
expertise sufficient in quality and quality to perform all such assignments
and projects given it by American Homepatient hereunder and agrees that it
will perform all such assignments and projects in a manner commensurate
with professional standards generally applicable to its industry.
F. OWNERSHIP OF MATERIALS
Any and all reports, information, data or other works created by Vendor for
American Homepatient in connection with this Agreement (with the exception
of customization of the Vendor's basic software and systems for American
Homepatient as well as the Vendor's basic software and systems themselves)
shall be the sole and exclusive property of American Homepatient. American
Homepatient may use such work wherever and whenever it chooses. This
Agreement shall be deemed a transfer of copyright and any copyrightable
subject matter created by Vendor in such works. Vendor shall execute any
and all documents necessary to demonstrate or perfect such transfer.
Vendor shall not at any time in any manner during or after this Agreement,
under any circumstances, be entitled to or claim any right, title or
interest herein or any commission, fee or other direct or indirect benefit
from American Homepatient or American Homepatient's parent, subsidiary or
affiliate companies, in respect of such reports, data, information or other
works created by Vendor hereunder. Vendor agrees to execute or cause its
agents and/or employees to execute any documents necessary or desirable to
secure or perfect American Homepatient's legal rights and worldwide
ownership in such works, including, but not limited to documents relating
to patent, trademark and copyright applications. American Homepatient
hereby grants Vendor a worldwide perpetual royalty free license to the data
and information created by Vendor in connection with this agreement for
purposes of making marketing presentations to other potential customers and
for the development and sale of additional products based upon this data
and information.
<PAGE>
G. RELEASES
Any materials furnished hereunder which have not been created for American
Homepatient and are subject to the rights of third parties shall be
specifically identified to American Homepatient in writing. Vendor shall
obtain (and deliver upon request to American Homepatient) releases for all
names, photographs, illustrations, testimonials, and any and all other
materials used in works which Vendor prepares or uses. All such releases
shall run to American Homepatient, its agents and employees where
appropriate and customary. Vendor's failure to obtain such releases or the
obtaining of such releases by Vendor shall in no way relieve Vendor of its
obligations in Paragraph F above except where the releases have been
obtained directly by American Homepatient. Except for works that have been
secured by permission, Vendor warrants and covenants that all works
provided by Vendor shall be original and shall not infringe any copyright
or violate any rights of any persons or entities whatsoever.
H. DURATION OF AGREEMENT
1. Term
This Agreement is effective as of the Effective Date and shall continue in
full force and effect until the earlier of (i) completion of the project
assigned hereunder, (ii) terminated by at least thirty (30) days written
notice by either party to the other, sent by registered mail to the address
for each party first set forth above, or to such other address which a
party may designate for its receipt of notices hereunder.
2. Payment on Termination
Upon termination of this Agreement American Homepatient is to pay for all
authorized work in process, and American Homepatient shall assume Vendor's
liability under and indemnify Vendor with respect to all outstanding
contracts made on American Homepatient's behalf. Upon written notice of
termination Vendor shall take all steps necessary to wind up the work under
this Agreement and to mitigate American Homepatient's liability therefore.
3. Transfer Upon Termination
Vendor shall transfer, assign and make available to American Homepatient or
American Homepatient's representative all property and materials in
Vendor's possession or control belonging to and paid for by American
Homepatient and all information regarding American Homepatient project(s)
covered by this Agreement, as set forth in Paragraph C herein. Vendor also
agrees to give all reasonable cooperation toward transferring with approval
of third parties in interest all contracts and arrangements, if any,
properly entered into by Vendor in the performance of this Agreement, and
all rights and claims thereto and therein, upon being duly released from
the obligation thereof.
I. INDEPENDENT CONTRACTORS
The parties to this Agreement are independent contractors and nothing
contained in this Agreement shall be construed to place the parties in the
relationship of employer and employee, partners, principal and agent, or
joint ventures. Neither party shall have the power to bind or obligate the
other party nor shall either party hold itself out as having such
authority.
J. THIRD PARTY OBLIGATIONS
In connection with this Agreement, Vendor shall make no commitments or
disbursements, incur no obligations nor place any advertising, public
relations or promotional material for American
<PAGE>
Homepatient's parent, subsidiary or affiliate companies, nor disseminate
any material of any kind using the name of American Homepatient and/or
American Homepatient's parent, subsidiary or affiliate companies or using
their trademarks, without the prior written approval of American
Homepatient.
K. GOVERNING LAW
This Agreement is entered into in the State of New Jersey and shall be
constructed and governed under and in accordance with the laws of that
State.
L. MISCELLANEOUS
1) The terms of this Agreement shall be binding upon American Homepatient
and Vendor and their respective successors and permitted assigns.
Notwithstanding the foregoing, this Agreement is not assignable in whole or
in part by Vendor without the prior written consent of American
Homepatient. Factoring of accounts receivable is not permitted.
2) The failure of either party to take action as a result of a breach of
this Agreement by the other party shall constitute neither a waiver of the
particular breach involved nor a waiver of either party's right to enforce
any or all provisions of this Agreement through any remedy granted by law
or this Agreement.
3) American Homepatient and DSMI are Equal Opportunity Employers and do
not discriminate against any person because of race, color, creed, age,
sex, or national origin. Vendor represents that it has the same policy of
Equal Opportunity Employment.
4) The policy of American Homepatient and DSMI is to protect the health,
safety and quality of life of its employees and the public, and to exercise
responsible stewardship of natural resources that may be impacted by its
activities. To realize this, American Homepatient and DSMI are committed
to maintaining programs and procedures for the environmentally responsible
management of facilities, materials, production processes, products and
packaging, transportation and distribution, waste and ft minimization,
energy, general business operations and contracted goods and services.
Vendor agrees with this policy and further acknowledges that its
performance under this Agreement shall be in strict compliance with all
applicable governmental laws and regulations and in accordance with and in
furtherance of this policy.
5) This Agreement contains the entire understanding of the parties with
respect to the subject matter contained herein, supersedes any prior
written or oral communications and may be modified in writing subject to
mutual agreement of the parties hereto.
6) The headings of each paragraph are for reference only and shall not be
construed as part of this Agreement.
<PAGE>
7) Except for the obligation to pay money property due and owing, either
party shall be excused from any delay or failure in performance hereunder
caused by reason of any occurrence or contingency beyond its reasonable
control, including. but not limited to, failure of performance by the other
party, earthquake, labor disputes, riots, governmental requirements,
inability to secure materials on a timely basis, failure of computer
equipment, failures or delays of sources from which information or data is
obtained and transportation difficulties.
IN WITNESS WHEREOF, the parties hereto, each by a duly authorized officer, have
entered in to this Agreement this 24 day of June, 1996
AMERICAN HOMEPATIENT DISEASE STATE MANAGEMENT-SM-, INC.
By: /s/ Sen Serafino By: /s/ Donald A. Carlberg
-------------------------------- -----------------------------------
Title: Vice President Title: President & CEO
----------------------------- --------------------------------
<PAGE>
Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked by [****], have been
separately filed with the Commission.
ATTACHMENT A
ASTHMA
DISEASE MANAGEMENT
PROPOSAL
------------------------------------------
------------------------------------------
FOR
American Homepatient
PRESENTED BY
Disease State Management,-SM- Inc.
46 Prince Street
Rochester, New York 14607
716-244-1360
Disease State Management and DSMI are registered service marks
of Disease State Management, Inc.
[****]
<PAGE>
SERVICES AGREEMENT
This Agreement is effective this 21 day of June, 1996, (the "Effective Date")
between Disease State Management, Inc., 46 Prince Street, Rochester, New York
14607 ("Vendor") and EQUIFAX HEALTHCARE ADMINISTRATIVE SERVICES. Vendor agrees
to provide services to EQUIFAX HEALTHCARE ADMINISTRATIVE SERVICES under the
terms set forth below.
A. SERVICES
Vendor will provide the product(s) or service(s) set forth, and to the
specifications set forth in the proposal incorporated herein as Attachment
A.
The product and all elements as set forth on Attachment A are subject to
prior approval by EQUIFAX HEALTHCARE ADMINISTRATIVE SERVICES, such approval
not to be unreasonably withheld.
B. COMPENSATION
EQUIFAX HEALTHCARE ADMINISTRATIVE SERVICES will pay Vendor according to the
terms or payment schedule set forth in Attachment A hereto.
In the event that EQUIFAX HEALTHCARE ADMINISTRATIVE SERVICES shall request
any changes in the concept, specifications or scope of the product(s) or
service(s) described on Attachment A hereto, Vendor will notify EQUIFAX
HEALTHCARE ADMINISTRATIVE SERVICES of the cost of such revisions and will
not proceed without prior written approval.
If the compensation provision on Attachment A hereto is other than a flat
fee amount per element or for the entire project, Vendor will provide such
documentation in support of all billings as EQUIFAX HEALTHCARE
ADMINISTRATIVE SERVICES may reasonably require.
C. CONFIDENTIALITY
1. EQUIFAX HEALTHCARE ADMINISTRATIVE SERVICES and Vendor acknowledge that
certain confidential and proprietary information may be disclosed by one of
them to the other in the course of this Agreement. For purposes of this
Agreement, the term "Confidential Information" includes the following: (a)
All information regarding the patient, EQUIFAX'S Customer, any patient
medical data and/or status, or provider information; and (b) any other
information identified as confidential in writing by the disclosing party
prior to disclosure. Notwithstanding the confidentiality requirements of
this Agreement, the foregoing shall not prevent EQUIFAX HEALTHCARE
ADMINISTRATIVE SERVICES from retaining information, including any and all
information and data pertaining to any patient which comes to EQUIFAX
HEALTHCARE ADMINISTRATIVE SERVICES or to which EQUIFAX HEALTHCARE
ADMINISTRATIVE SERVICES is given access during this Agreement.
2. Should EQUIFAX HEALTHCARE ADMINISTRATIVE SERVICES receive confidential
information of Vendor for use in performing their Services, EQUIFAX
HEALTHCARE ADMINISTRATIVE SERVICES agrees to take all reasonable steps to
safeguard the confidentiality of said information and to prevent
unauthorized disclosure thereof by EQUIFAX HEALTHCARE ADMINISTRATIVE
SERVICE'S employees, agents and representatives. EQUIFAX HEALTHCARE
ADMINISTRATIVE SERVICES shall maintain strict security procedures to
protect the confidentiality of any information received, stored, or
delivered on
Disease State Management -SM- and DSMI -SM- are servicemarks of
Disease State Management, Inc.
<PAGE>
patients in the EQUIFAX HEALTHCARE ADMINISTRATIVE SERVICES or any
affiliated or associated company's database.
3. The data released hereunder to Vendor regarding patients, patient
medical data, EQUIFAX HEALTHCARE ADMINISTRATIVE SERVICES Customers, and
provider information, is considered sensitive and confidential information.
Vendor warrants that is shall use any information provided by EQUIFAX
HEALTHCARE ADMINISTRATIVE SERVICES strictly for the performance of this
Agreement. Vendor acknowledges and agrees to take all steps necessary to
safeguard the confidentiality of all information and reports, whether oral
or written, maintain such information as strictly confidential and to
prevent unauthorized disclosure thereof by Vendor's employees, agents,
representatives and other third parties. Vendor warrants that all such
information and reports will not be disclosed to any person, organization
or entity other than EQUIFAX HEALTHCARE ADMINISTRATIVE SERVICES.
4. Each party shall hold the other party, its affiliated companies, the
officers, agents, employees, and independent contractors of the other
party, harmless and shall indemnify and defend such party for any claim of
expense or damage, whatsoever, resulting from the publishing or release by
such party, of information contrary to the above conditions.
5. The obligations of the Paragraph shall not apply to any Confidential
Information which the recipient can demonstrate is or becomes available to
the public through no breach of this Agreement.
6. Neither party to this Agreement shall, except as may be required by law
or federal regulation, or except with express written permission of the
other party, disclose the terms and conditions of this Agreement to any
third party or publicly advertise its contents.
7. The parties agree that Vendor's breach of any of its material
obligation under the applicable Confidentiality provisions of this
Agreement, may cause EQUIFAX HEALTHCARE ADMINISTRATIVE SERVICES irreparable
injury for which it would have not adequate remedy at law, and that EQUIFAX
HEALTHCARE ADMINISTRATIVE SERVICES shall be entitled to specific
performance or preliminary or other injunctive relief in addition to any
and all remedies it may otherwise be entitled to at law or in equity.
8. This Paragraph shall survive the termination of this Agreement.
Vendor shall not duplicate any material containing EQUIFAX HEALTHCARE
ADMINISTRATIVE SERVICES Confidential Information, except in the direct
performance of its services under this Agreement. Vendor shall return all
copies of materials containing EQUIFAX HEALTHCARE ADMINISTRATIVE SERVICES
Confidential Information upon Vendor's completion of services under this
Agreement or upon any earlier termination of this Agreement for any reason
whatsoever.
D. INDEMNIFICATION
D1. Each party shall indemnify and hold the other party harmless from and
against all liability, damages, penalties, losses, costs or expenses,
including reasonable attorneys' fees, arising from or in any way related to
its willful or negligent actions or omissions in performing the
responsibilities as described in this Agreement.
<PAGE>
D2. "Limitation of Liability"
Neither EQUIFAX HEALTHCARE ADMINISTRATIVE SERVICES nor vendor shall in any
way be liable for any special, indirect, exemplary, incidental or
consequential damages, whether based on contract, tort, or any other legal
theory, even if EQUIFAX HEALTHCARE ADMINISTRATIVE SERVICES or vendor has
been previously advised of the possibility of such damages. This paragraph
shall survive the termination of this agreement.
E. PROFESSIONAL STANDARDS
Vendor represents that it has facilities, personnel, experience and
expertise sufficient in quality and quality to perform all such assignments
and projects given it by EQUIFAX HEALTHCARE ADMINISTRATIVE SERVICES
hereunder and agrees that it will perform all such assignments and projects
in a manner commensurate with professional standards generally applicable
to its industry.
F. OWNERSHIP OF MATERIALS
The parties acknowledge that any modifications to the printed materials
produced by its asthma program for EQUIFAX HEALTHCARE ADMINISTRATIVE
SERVICES are being created at the insistence of EQUIFAX HEALTHCARE
ADMINISTRATIVE SERVICES and shall be deemed "work made for hire" under the
United States copyright law.
EQUIFAX HEALTHCARE ADMINISTRATIVE SERVICES shall have the right to use the
whole work, any part of parts thereof, or none of the work, as it sees fit.
EQUIFAX HEALTHCARE ADMINISTRATIVE SERVICES may alter the work, add to it,
or combine it with any other works, at it sole discretion. Notwithstanding
the foregoing, all original material submitted by Vendor as part of the
work or as part of the process creating the work, including but not limited
to listings, printouts, documentation, notes, reports, shall be the
property of EQUIFAX HEALTHCARE ADMINISTRATIVE SERVICES whether or not
EQUIFAX HEALTHCARE ADMINISTRATIVE SERVICES uses such material. No rights
are reserved by Vendor.
All surveys, reports, data, documentation and all other information
prepared by Vendor in connection with the performance of its services
hereunder will become and remain EQUIFAX'S sole property. Title to all
material and documentation, including data furnished by EQUIFAX HEALTHCARE
ADMINISTRATIVE SERVICES to Vendor or delivered by EQUIFAX HEALTHCARE
ADMINISTRATIVE SERVICES into the Vendor's possession shall remain with
EQUIFAX. Vendor shall immediately return all such material or
documentation within seven (7) days of any request by EQUIFAX HEALTHCARE
ADMINISTRATIVE SERVICES or upon the termination or conclusion of this
Agreement, whichever shall occur first.
EQUIFAX HEALTHCARE ADMINISTRATIVE SERVICES hereby grants Vendor a worldwide
perpetual royalty free license to the data and information created by
Vendor in connection with this agreement for purposes of making marketing
presentations to other potential customers and for the development and
sales of additional products based upon this data. Vendor's use of this
data is limited to instances where data will not be identified by patient
or by client of EQUIFAX HEALTHCARE ADMINISTRATIVE SERVICES.
Vendor agrees it will not disclose to any third party, without the prior
written consent of EQUIFAX, any proprietary or confidential information
acquired from EQUIFAX HEALTHCARE ADMINISTRATIVE SERVICES under this
Agreement, including trade secrets, business plans and confidential or
other information which may be proprietary to EQUIFAX HEALTHCARE
ADMINISTRATIVE SERVICES.
<PAGE>
Vendor warrants and represents that is has or will have the right, through
written agreements with its employees, to secure for EQUIFAX HEALTHCARE
ADMINISTRATIVE SERVICES the rights called for in this Section. Further, in
the event Vendor uses any subcontractor, even though subcontracting is not
permitted by this Agreement, or other third party to perform any of the
services contracted for under this Agreement, Vendor agrees to enter into
such written agreements with such third party, and to take such other steps
as are or may be required to secure for EQUIFAX HEALTHCARE ADMINISTRATIVE
SERVICES the rights called for in this Section.
G. DURATION OF AGREEMENT
1. Term
This Agreement is effective as of the Effective Date and shall continue in
full force and effect until the earlier of (i) completion of the project
assigned hereunder, (ii) terminated by at least thirty (30) days written
notice by either party to the other, sent by registered mail to the address
for each party first set forth above, or to such other address which a
party may designate for its receipt of notices hereunder. This Agreement
may be terminated by EQUIFAX HEALTHCARE ADMINISTRATIVE SERVICES immediately
in the event EQUIFAX HEALTHCARE ADMINISTRATIVE SERVICES is unable to obtain
waivers from its customers regarding Vendor's services.
2. Payment on Termination
Upon termination of this Agreement EQUIFAX HEALTHCARE ADMINISTRATIVE
SERVICES is to pay for all authorized work in process.
3. Transfer Upon Termination
Vendor shall transfer, assign and make available to EQUIFAX HEALTHCARE
ADMINISTRATIVE SERVICES or EQUIFAX HEALTHCARE ADMINISTRATIVE SERVICE'S
representative all property and materials in Vendor's possession or control
and any copies thereof belonging to and paid for by EQUIFAX HEALTHCARE
ADMINISTRATIVE SERVICES, and all information regarding EQUIFAX HEALTHCARE
ADMINISTRATIVE SERVICE'S project(s) covered by this Agreement, as set forth
in Paragraph C herein.
4. Neither EQUIFAX HEALTHCARE ADMINISTRATIVE SERVICES nor Vendor shall be
liable to the other for damages of any kind, including but not limited to
lost profits or Incidental, punitive or consequential damages, relative to
termination of this Agreement in accordance with Section 6.2, even if
advised of the possibility of such damages.
H. INDEPENDENT CONTRACTORS
Vendor shall at all times be an independent contractor and shall so
represent itself to all third parties. Nothing in this Agreement shall be
deemed to constitute either party the agent or legal representative of the
other nor to constitute the parties as partners, agents or joint ventures
of one another.
<PAGE>
I. THIRD PARTY OBLIGATIONS
In connection with this Agreement, Vendor shall make no commitments or
disbursements, incur no obligations nor place any advertising, public
relations or promotional material for itself EQUIFAX HEALTHCARE
ADMINISTRATIVE SERVICE'S its parent, subsidiaries or affiliate companies,
nor disseminate any material of any kind using the name of EQUIFAX
HEALTHCARE ADMINISTRATIVE SERVICES and/or EQUIFAX HEALTHCARE ADMINISTRATIVE
SERVICE'S such parent, subsidiary or affiliate companies or using their
trademarks, without the prior written approval of EQUIFAX HEALTHCARE
ADMINISTRATIVE SERVICES.
J. GOVERNING LAW
This Agreement is entered into in the State of Texas and shall be
constructed and governed under and in accordance with the laws of that
State.
K. MISCELLANEOUS
1) The terms of this Agreement shall be binding upon EQUIFAX HEALTHCARE
ADMINISTRATIVE SERVICES and Vendor and their respective successors and
permitted assigns. Notwithstanding the foregoing, this Agreement is not
assignable in whole or in part by Vendor without the prior written consent
of EQUIFAX HEALTHCARE ADMINISTRATIVE SERVICES. Factoring of accounts
receivable is not permitted.
2) The failure of either party to take action as a result of a breach of
this Agreement by the other party shall constitute neither a waiver of the
particular breach involved nor a waiver of either party's right to enforce
any or all provisions of this Agreement through any remedy granted by law
or this Agreement.
3) EQUIFAX HEALTHCARE ADMINISTRATIVE SERVICES is an Equal Opportunity
Employer and does not discriminate against any person because of race,
color, creed, age, sex, or national origin. Vendor represents that it has
the same policy of Equal Opportunity Employment.
4) This Agreement contains the entire understanding of the parties with
respect to the subject matter contained herein, supersedes any prior
written or oral communications and may be modified in writing subject to
mutual agreement of the parties hereto.
5) The headings of each paragraph are for reference only and shall not be
construed as part of this Agreement.
6) Except for the obligation to pay money property due and owing, either
party shall be excused from any delay or failure in performance hereunder
caused by reason of any occurrence or contingency beyond its reasonable
control, including. but not limited to, failure of performance by the other
party, earthquake, labor disputes, riots, governmental requirements,
inability to secure materials on a timely basis, failure of computer
equipment, failures or delays of sources from which information or data is
obtained and transportation difficulties.
<PAGE>
IN WITNESS WHEREOF, the parties hereto, each by a duly authorized officer, have
entered in to this Agreement this 21 day of June, 1996
EQUIFAX HEALTHCARE Disease State Management, Inc.
ADMINISTRATIVE SERVICES, INC. 46 Prince Street
5001 Spring Valley Road Rochester, New York 14607
Suite 1000E
Dallas, TX 75244
By: /s/ M.E. Kenney By: /s/ Donald A. Carlberg
--------------------------- ---------------------------
Title: Vice President & C.O.O. Title: President & C.E.O.
----------------------- ---------------------------
<PAGE>
Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked by [****], have been
separately filed with the Commission.
- --------------------------------------------------------------------------------
ATTACHMENT A
ASTHMA
DISEASE MANAGEMENT
PROPOSAL
____________________________________________
FOR
EQUIFAX HEALTHCARE ADMINISTRATION
SERVICES
PRESENTED BY
Disease State Management,-SM- Inc.
46 Prince Street
Rochester, New York 14607
716-244-1360
Disease State Management and DSMI are registered service
marks of Disease State Management, Inc.
- --------------------------------------------------------------------------------
[*****]
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Patient Infosystems,
Inc. on Form S-1 of our report dated January 26, 1996, appearing in the
Prospectus, which is part of this Registration Statement, and to the
reference to us under the headings "Selected Financial Data" and "Experts" in
such Prospectus.
DELOITTE & TOUCHE LLP
July 1, 1996
